SITARAM MOTIRAM JAIN Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee in this case is Shri Sitaram Motiram Jain. He carried on business in the name and style of "Motiram Sitaram Jain" as the sole proprietor thereof for a number of years. During the asst. year 1954 55, the accounting year being Samvat year 2009, the assessee suffered a loss in this business. He became entitled to carry forward the sum of Rs. 20,308 on account of such loss under the provisions of S. 24(2) of the IT Act. On 7th Nov., 1953, the assessee entered into a deed of partnership whereunder he admitted his brother Kirparam Motiram as his partner in the said business from Kartik Sud 1st, Samvat year 2010, i.e., 7th Nov., 1953. The shares of the assessee and Kirparam Motiram in the profit and loss of the partnership were respectively ten annas and six annas in a rupee. The deed of partnership shows that the capital required for the partnership business was to be provided by the assessee. It was further provided that the partnership was to take over the running business of the assessee and was to take over the assets and liabilities of the business at book value as shown in the balance sheet. It was provided further that each partner was to devote his whole time and attention to the business of the partnership. This partnership was registered under the provisions of S. 26A of the IT Act. For the asst. year 1955 56, the accounting year being Samvat year 2010, the income of the partnership was determined at Rs. 14,546 and a sum of Rs. 9091 came to the share of the assessee. The assessee claimed to set off as against this sum of Rs. 9,091 the loss incurred by him during Samvat year 2009. The ITO allowed the assessee to set off the amount of such loss. The assessee had income from other sources for Samvat year 2009 which was assessed at Rs. 13,446. For the asst. year 1956 57, the accounting year being Samvat year 2011, the income of the firm was assessed at Rs. 31,391. The firm was registered for this year also under the provisions of S. 26A of the IT Act. The share of the assessee came to Rs. 19,619 in connection with the income of the firm assessed as aforesaid. The assessee claimed to set off the loss which had been carried forward from the earlier years as against this income of Rs. 19,619. The ITO did not allow the assessee to set off this loss. The assessee preferred an appeal from this order to the AAC who dismissed the appeal. On 8th Nov., 1958, the CIT passed an order under S. 33B(I) of the IT Act in connection with the assessment for the asst. year 1955 56. The Commissioner considered that the order passed by the ITO in connection with the asst. year 1955 56 was erroneous in so far as it was prejudicial to the interests of the Revenue. He directed the ITO to include the aforesaid sum of Rs. 9,091 which had come to the share of the assessee for the asst. year 1955 56 in respect of the income of the partnership in the total income of the assessee. The assessee went in appeal to the Tribunal against the order of Commissioner in respect of asst.yr. 1955 56. He filed another appeal before the Tribunal in respect of the order of the AAC for the asst. year 1956 57. The contention of the assessee in both these appeals was that since the business formerly carried on by the assessee as the sole proprietor was the same as the business subsequently carried on by the firm in which he and his brother were partners, the set off of loss was allowable to him under S. 24(2) of the Act. The Tribunal in both these matters rejected the contention of the assessee. The matter has now come up before us on a reference made under s. 66(1) of the Indian IT Act, 1922. By the reference the question that is referred to us is the following :

(2.) SEC . 24(2) in so far as it is relevant provides as under :

(3.) TWO questions have been raised before us in connection with this provision. One is whether it could be said in the present case that the business which the assessee carried on in Samvat year 2009 was continued during Samvat years 2010 and 1022. The other question that requires consideration is whether it could be said that the business that was carried on during Samvat years 2010 and 2011 by the partnership could be regarded as a business carried on by the assessee during those respective years ?