HIRALAL JERAMDAS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under sub -section (1) of secti1on 66 of the Income -tax Act at the instance of the assessee. We are here concerned with the assessment year 1956 -57, the relevant previous year being S. Y. 2011 ended 12th November, 1955. Formerly, the assessee was a partner in a registered firm carrying on business under the name and style of 'Jeramdas Naumal'. The partners of this firm were the assessee, Hiralal, and Jawaharlal, his brother. They had equal shares in the said partnership business; and the business carried on by the assessee was money -lending, cotton and piece -goods, and speculation. In S. Ys. 2007 and 2008, the relevant assessment years being 1952 -53 and 1953 -54, the partnership suffered losses. The assessee's share of loss determined and apportioned to him in those years amounted to Rs. 99,815 and Rs. 98,152, respectively. As and from 1st August, 1952, the assessee retired from the partnership business and the partnership business as a running concern was taken over by his brother, Jawaharlal, as his sole proprietary business under the same trade name and style 'Jeramdas Naumal'. During the next two assessments years, i.e., 1954 -55 and 1955 -56, the assessee carried on no business at all of any kind whatsoever, and accordingly there was no computation of his income under section 10 of the Act for the two assessment years 1954 -55 and 1955 -56. In the previous year relevant to the assessment year 1956 -57, i.e., in the year ended on 31st March, 1956, the assessee entered into a joint venture with his brother, Jawaharlal, in cotton and jute piece -goods on certain terms and conditions mentioned in a letter dated 1st November, 1954, which is annexure 'A' to the statement of the case. In this joint venture, the assessee had 5 annas share in the profits and his brother had 11 annas share. The assessee's share of profits in the joint venture amounted to Rs. 1,69,342. In the books of account of 'Jeramdas Naumal' accounts in respect of the joint venture have been separately maintained and they also have been annexed to the statement of the case as annexures 'B -1' and 'B -2'.

(2.) NOW , in the return filed by the assessee, he did not claim to set off the aforesaid losses of Rs. 99,815 and Rs. 98,852 which had been apportioned to his half share in the partnership business of 'Jeramdas Naumal'. However, during the course of the assessment proceedings, he claimed that the said two amounts of previous losses be set off against the profits of Rs. 1,69,342 earned by him in the joint venture. The claim was founded on clause (ii) sub -section (2) of section 24 of the Income -tax Act. The Income tax Officer rejected the claim. The view taken by him was that the business carried on by the assessee in the assessment year was not the same business which the assessee was carrying on as a partner of the firm of 'Jeramdas Naumal'. The business in which the assessee had suffered loss had been discontinued by the assessee in the assessment year 1954 -55. That business had not been continued in the assessment year by the assessee, and therefore the assessee was not entitled to set off the said loss. On appeal, the Appellate Assistant Commissioner took the view that the necessary condition regarding the continuity of business in which the loss was sustained not having been fulfilled, the assessee was not entitled to the set -off claimed by him. In this view of the matter, the Appellate Assistant Commissioner dismissed the appeal. The assessee took a further appeal to the Tribunal. That appeal has also been dismissed. Rejecting the appeal, the Tribunal observe : 'With the assessee going out of the partnership of M/s. Jeramdas Naumal at the end of 1953 -54 assessment the business as far as the assessee was concerned was discontinued by him completely and it was taken over as a running concern by his brother. Even during the previous year the assessee did not become a partner of M/s. Jeramdas Naumal. He only joined his brother with reference to certain transactions and it is only his share of profit from these transactions that has been subjected to tax in his hands. There is nothing to sustain the assessee's claim that these joint venture transactions in which profit was earned were a continuation of the business carried on by the assessee in 1952 -53 and 1953 -54 as a partner of M/s. Jeramdas Naumal.'

(3.) MR . Kolah, learned counsel for the assessee, contends that the income -tax authorities as well as the Tribunal were in error in holding that in order to entitle the assessee to claim a set -off, in respect of the loss suffered by him in business, the business must be continued throughout without a break. The assessee was doing business in money -lending, cotton and piece -goods and speculation in the assessment years 1952 -53 and 1953 -54. In this business, he had suffered a loss. It may be that in 1954 -55 and 1955 -56 he did not carry on that business; but in the assessment year 1956 -57, he carried on business in cotton and piece -goods. He thus has continued to carry on the business in the assessment year in which he had sustained loss and, he is, therefore, entitled to a set -off. The argument is founded on one of the shades of the meaning of the word 'continued'. Referring us to certain dictionaries, Mr. Kolah, argued that one of the meanings of the word 'continue' is to resume. The business could be resumed even after a break. The expression 'continued' in clause (ii) of sub -section (2) of section 24 is thus capable of bearing a construction canvassed by him. Such a construction is favourable to the assessee, and, therefore, should be accepted in accordance with the well -settled principles of construction of a taxing statute.