KISHAN CHAND Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) THIS is a petition under Article 226/227 of the Constitution, seeking setting aside of the order dated March 15, 1980, passed by the Assessing Officer and the order dated January 19, 1982, passed by the Commissioner of Income-tax, under Section 264 of the Income-tax Act, 1961 (for short "the Act" ).

(2.) THE petitioner was an individual assessee under the Income-tax Act. He claimed carry forward of the loss under Section 72 of the Act, in two firms, namely, Sham Lal Guran Diwaya and Co. , Jammu, and Jagdish Ram Sud and Co. , in which he was a partner. The petitioner was also a partner in a third partnership firm, Kishan Chand and Company, All the three firms in which the petitioner happened to be a partner carried on the business of the exploitation of specified forests and extraction of resin. However, the business of plying of trucks was also carried on in the third firm, Kishan Chand and Company. There were ten partners in the firm, Sham Lal Guran Diwaya and Company, under the partnership deed dated May 6, 1974. There were eight partners in the second firm, Jagdish Ram and Co. , under the partnership deed dated October 28, 1975. The petitioner incurred a loss of Rs. 4,680 in the firm, Sham Lal Guran Diwaya and Co. , Jammu, in the assessment year 1976-77, a loss of Rs. 45,113 in Jagdish Ram Sud and Company and a loss of Rs. 12,600 in Kishan Chand and Company. The first two firms, namely, Sham Lal Guran Diwaya and Co. , and Jagdish Ram Sud and Company, were closed with effect from March 31, 1976, and were not in existence after the assessment year 1976-77. The petitioner claimed set off of the losses in the two firms, which had closed down their business against the income which the petitioner derived as a partner from the third firm, namely, Kishan Chand and Company, on the ground that the third firm continued the business of the exploitation of forests taken on lease for extraction of resin. Since the business in all the three firms related to the exploitation of forests and extraction of resin, the petitioner's plea was that the business was in fact continuing in the assessment year 1977-78 through the third firm, Kishan Chand and Company.

(3.) THERE is no dispute about the fact that the petitioner happened to be a partner in the three firms during the assessment year 1976-77. He, however, continued to be a partner in the firm, Kishan Chand and Company, in the next assessment year and wanted set off of the unabsorbed losses of the other two firms against the profit derived by him as a partner from the third firm. The real test under Section 72 of the Act was whether there was any interconnection, interlacing, interdependence in the business of the three firms and the profit must accrue to the assessee from the same business in the next year. All the three firms in which the petitioner was a partner carried on the same business, namely, exploitation of forests and extraction of resin. The third firm, Kishan Chand and Company, however, derived income from plying trucks also. But there is no denial of the petitioner's assertion that tapping of resin and exploitation of forests continued to be the business of the third firm in the next year besides the additional business of plying trucks. If the third firm derived income from plying of trucks also, that would not take away the nature of the primary business.