COMMISSIONER OF INCOME TAX Vs. JAGANNATH NARSINGDAS

JUDGEMENT

(1.) THE question, which arises for consideration on this reference under S. 66(1) of the Indian IT Act, at the instance of the CIT, is :

(2.) THE few facts necessary to be stated are as follows :

(3.) NOW , the Privy Counsel in Arunachalam Chettiar vs. CIT (1936) 4 ITR 173 (PC) held that whether a firm is registered or unregistered, a partner's share of the loss in the firm can be set off against the profits and gains made by him in his individual trade and otherwise. An argument was advanced in that case that an unregistered firm was, for income -tax purposes, an entity distinct and different from the individual partners of the firm and, consequently, the business carried on by the firm cannot be treated as the business of the assessee. The said argument was rejected by the High Court and the Privy Council agreed with the view of the High Court. Referring to the provision of S. 24(2) of the Indian IT Act, as it then stood, they pointed out that the IT Act did not treat the partner of a firm as a separate assessee in so absolute a sense as to prevent a partner's share of loss being set off against his individual profits or gains and it was observed that "in their opinion whether a firm was registered or unregistered partnership does not obstruct or defeat the right of a partner to an adjustment on account of his share of loss in the firm, whether the set -off be against the other profits under the same head of income within the meaning of S. 6 of the Act or under a different head (in which case only need recourse be had to S. 24(1))." In view of the said decision of the Privy Council, there can be no doubt whatsoever that under the Act of 1922, before its amendment by the amending Act of 1939, an assessee in his individual assessment was entitled to adjust the loss suffered by him in an unregistered partnership business against his profits in the business carried on by him individually under S. 10 of the Act. Mr. Joshi's argument, however, is that the position no longer remains the same in view of the amendment of the IT Act and, under the amended Act, the assessee, who is a partner of an unregistered firm, is not entitled to have such adjustments. The amendment of the law, to which he has referred in this connection, are the provisions of S. 16(1) (b), the provisions of the second proviso to S. 24(1) and Sub -S. (2) (c) and (d) of S. 24. Sec. 16(1) (b) is in the following terms :