TMI Blog1984 (1) TMI 173X X X X Extracts X X X X X X X X Extracts X X X X ..... ent made for the assessment year 1980-81 also, the firm had incurred a loss of Rs. 75,000 and such loss was allocated to its various partners. The assessee claimed in the appeal before the AAC that the losses brought forward from the earlier years should also be allocated and set off against the partners' income. The AAC found that according to the Kerala High Court decision referred to and relied on by the assessee in this connection, the loss incurred by a firm in an earlier year, when it is assessed as an unregistered firm, is eligible to be carried forward and set off under section 24(2) of the Indian Income-tax Act, 1922 ('the 1922 Act'), against the profits of the firm in the following year even though the firm was assessed as an unre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change brought about between the 1922 Act and the 1961 Act has been indicated. The assessee's learned representative also referred to page 1889 of V.S. Sundaram's commentary on Income-tax Law, eleventh edn., where reference is made to Board's Circular No. 14-D (XXV-27), dated 2-8-1967. 3. On a careful consideration of the case and the submissions of the parties, we consider that there is force in the assessee's contention. The department's stand, as explained by the learned departmental representative, is that the loss incurred on a firm assessed as an unregistered firm cannot be carried forward and set off when it is assessed as a registered firm in a later year. This contention has to be negatived both having regard to the language of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to show that the loss referred to is a loss of the assessment year concerned only and in construing this provision, we have to take into consideration the provisions of section 77(1) also and both must be read in harmony so as to lead to a reasonable construction. Section 77(1) says that where the assessee is an unregistered firm which has not been assessed as a registered firm under the provisions of clause (b) of section 183 of the Act, any loss of the firm shall be set off or carried forward and set off only against the income of the firm. There is no limitation in this provision, as canvassed by the learned departmental representative, that the carry forward and set off can be made in subsequent years, in respect of the firm only when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me, i.e., a loss carried forward from the earlier years also. Therefore, the language in this section, as well as the decisions referred to above, clearly provide that if there is a positive income of the firm, such loss can be set off against the same. This section further provides that where such set off is not possible, then it has to be apportioned between the partners of the firm and they will be entitled to have the amount of loss carried forward and set off. It follows, therefore, that the brought forward loss of the past years in this case, when the assessee was assessed as an unregistered firm, is entitled to be apportioned amongst the partners for set off against their individual income. 5. Another section which requires conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that an 'unregistered firm' means a firm which is not a registered firm [section 2(48) of the Act] and, therefore, it includes a firm which is not assessed at all under the Act. But the prohibition contained in section 77(2) cannot operate in the present case because, according to us, this provision contemplates the situation where a firm itself has not been assessed or even if it is assessed, it is an unregistered firm and the partner concerned is a partner of that firm. It will apply only to the year in which the firm is not assessed or assessed as an unregistered firm, and the assessee concerned is a partner in that firm. Where, however, the firm is assessed as a registered firm and the assessee concerned is a partner in that register ..... X X X X Extracts X X X X X X X X Extracts X X X X
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