DAYALBHAI MADHAVJI VADERA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS reference involves a short question as to the construction of section 16(3)(a) of the Income -tax Act, 1922. The question arises out of the assessment of the assessee, Dayalbhai Madhavji Vadera, a non -resident individual, for the assessment year 1958 -59, the corresponding previous year being the year ending March 31, 1958. The assessee income arose from property, interest, dividends and a share in registered firm carrying on business in the name of the Terrance Nilgiri Tea Estate Co., Naduvatam, Ootacamund. The income of his wife, Prabhakunvarbai, and his minor son, Rasikchand Dayalbuhai, who were also non -resident, form interest and share in the aforesaid firm used to be included in the assessee's total income under the provisions of section 16(3). The assessee had other partners along with him in the said firm and all those partners like the assessee were also non -residents. The assessee and his wife and each a 10/100 share, while his minor son, the said Rasikchandra, had 20/100 share and two other major sons had together between them 30/100 share. The said firm was being assessed by the Income -tax Officer, Ootacamund. The firm's income consisted of income form property, business and other source. For the assessment year 1958 -59, there was a net loss computed at Rs. 11,322 and the Income -tax Officer, who made the firm's assessment for that year, held that as the firm was registered, the loss would be apportioned amongst the partners and would be considered in their individual assessments. So far as the assessee was concerned, the share of loss which was allocated to him came to Rs. 1,132. The same amount was also allocated to his wife the said Prabhakunvarbai. As regards the minor son, Rasikchandra, a sum of Rs. 2,266 was the amount apportioned to him form out of the aforesaid net loss of Rs. 11,322. Apart from the aforesaid share that the assessee's wife and minor son had in the aforesaid firm, they had also certain deposits in the Bank of India Limited, Bombay. From the deposit standing in the wife's name, a sum of Rs. 9,583 was earned as interest. A similar deposit in the name of the said Rasikchandra earned interest of Rs. 9,890. In the assessment of the assessee, these two sums were included in his total income under the provisions of section 16(3). For the assessment year 1958 -59, the income of the assessee wife, the said Prabhakunvarbai, was calculated as follows :

(2.) THE Income -tax Officer, while assassing Dayalbhai included in his total income the incomes from interest derived by the said Prabhakunvarbai and the said minor, Rasikchandra, but refused to take into account the respective amounted losses allocated to them. In doing so, the Income -tax Officer observed that the share of loss of the wife and the minor son could not be taken to the assessee assessment for such a loss could not be considered to be income. Aggrieved by this order, the assessee preferred an appeal before the Appellate Assistant Commissioner. It was contended in that appeal that the Income -tax Officer was in error in holding that the share income of the wife and the minor son arising out of their respective share in the said firm in which the assessee was a partner, though assessed at a loss was not to be taken into account, while computing the total income of the assessee The appellate Assistant Commissioner rejected that contention observing that section 16(3) was enacted to prevent evasion of tax, that it did not come into operation unless there was income of a wife or a minor child and that if there was no positive income of the wife or the minor child, clause (a) of the section 16(3) would not apply. He held that the word 'income' used in section 16(3)(a) would only mean positive income and not a negative income, that is to say, loss. In this view, he confirmed the order passed by the Income -tax officer. In a further appeal before the Tribunal, the assessee urged again that the share of the loss apportioned to the wife and the minor son ought to have been taken into account in computing the total income of the assessee. But the Tribunal repelled that contention and held that the term 'income' used in section 16(3) did not mean or include loss and, therefore, the Income -tax Officer view of the disregarding the share of loss of the wife and the minor son in computing the total income of the assessee was correct. On an application made by the assessee for a reference under section 66(1) of the Act, the Tribunal framed the following two question for our answer :

(3.) THE contentions of Mr.B. R. Shah for the assessee were : (1) that the term 'income' as used in section 16(3)(a) would also include negative income i.e., loss and (2) that while ascertaining what is to be included in the total income of the assessee under section 16(3)(a), the Income -tax Officer has to be take the totality of all the incomes under the four sub -clauses of clause (a) of section 16(3) and arrive at the net result and it is such net result that has to be included in the total income of the assessee. His contention therefore was that if there was income under one head but loss under another, under any of the four sub -clause of clause (a) of section 16(3), such loss has to be set off against the income or the profit or gains accuruing or arising under another head, and it would be the resulting balance which has to be added to the total income of the assessee. He argued that, while computing the total income of the assessee, when Income -tax Officer seeks to include therein the income of the assessee's wife or the minor child arising from membership of the wife in the firm which the assessee is a partner and from the admission of the minor son to the benefit of partnership in that firm and the income form assets transferred to the wife and the minor son, the Income -tax officer must in computing such income of the wife and the son, taken into consideration the loss, if any that has come to their share in the business of that firm or from the transferred assets, and then add only the balance, if any. The question is whether this contention can be upheld on a true and proper constructions of section 16(3).