COMMISSIONER OF INCOME TAX RAJASTHAN Vs. PANA DEVI

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal (Delhi Bench 'c') has, at the instance of the Commissioner of Income-tax, Rajasthan, Jaipur, referred this case to us u/s. 66 (1) of the Income-tax Act, 1922 (hereinafter called "the Act") for answering the following question: "whether on the facts and in the circumstances of the case, the assessee was entitled to set off his share of loss from the firm M/s Gan a THEatre, Bikaner, against his other income?"

(2.) THE Assessee is an individual. He is also a partner in the firm of Ganga THEatre, Bikaner. THE assessment relates to the years 1960-61 and 1962 for which the relevant previous years ended on 31-10-1959 and 31-10-1960 respectively Messrs Ganga THEatre, Bikaner, filed its returns of loss for both the years in question, but as the returns were filed beyond the statutory period as laid down under sec. 22 (2a) of the Act, the Income-tax Officer did not consider them and the result was that no assessment was made on that firm. THE applications made by the firm seeking registration were also shelved. THE assessee in his returns for the aforesaid years claimed to set off the share of his losses in the two relevant years in the said unregistered firm. THE Income-tax Officer held that the income of the firm shall be treated as "nil", subject to rectification under sec. 154 of the Act, and disallowed the assessee's claim for the set off arising from the loss. THE assessee appealed and the Appellate Assistant Commissioner accepted his contention in respect of both the assessment years and directed the Income tax Officer "to compute the loss of the firm of M/s. Ganga THEatre, Bikaner and set off the appellant's share of loss from the said firm against the other income of the appellant. " THE department was dissatisfied and it preferred an appeal before the appellate Tribunal. THE Tribunal upheld the directions given by the Appellate Assistant Commissioner, but at the instance of the Commissioner of Income-tax, referred the question mentioned above, for our answer.

(3.) PRIOR to the introduction of the aforesaid proviso by the Amending Act of 1939, sec. 24 (1) of the Act was interpreted by their Lordships of the Privy Council in Arunachalam Chettiar vs. Commissioner of Income-tax, Madras (14 ). Their Lordships approved the decision of the Madras High Court in Commissioner of Income-tax Madras vs. Arunachalam Chettiar (15) wherein Schwabe, Chief Justice, held that "a partner in an unregistered firm which has made a loss in the year of account is entitled to set off his share of the loss against the profits and gains made by him is his individual trade and otherwise. " Their Lordships of the Privy Council observed - "in their Lordships opinion whether a firm is registered or unregistered, partnership does not obstruct or defeat the right of a partner to an adjustment of account of his share of loss in the firm, whether the set off be against other profits under the same head of income within the meaning of sec. 6 of the Act or under a different haed in which case only need recourse be had to sec. 24 (1 ). Thus, the Privy Council emphasised that the object of sec. 24 (1) was to allow a set off of profits against losses which arose under different heads of income and only in those cases sec. 24 (1) could be pressed into service. In a case where profits and losses arose under the same head, they had to be adjusted against each other for computing the income of the assessee.