TMI Blog1966 (8) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... ts giving rise to these two questions must be recorded at the outset. The assessee is Ganga Metal Refining Company (Private) Limited of 43, Strand Road, Calcutta. The status of the assessee is recorded as "company". It is a company incorporated under the Indian Companies Act. The year of assessment is 1959-60. The assessee claimed a deduction of Rs. 11,875 as its share of loss in a joint venture. The assessee-company's case is that it entered into a joint venture with two other companies, namely, (1) Binani Brothers Private Limited, Calcutta, and (2) Binani Commercial Company Private Limited, Bombay, for the purchase and sale of certain quantity of white metal slag and dust. 656 cwt. of those articles were purchased on 31st May, 1954. Those articles were sold in parts on several dates which the Tribunal records as falling within the accounting years 1955-56, 1956-57, 1957-58 and 1958-59. The last and final sale of these articles took place on the 18th April, 1958. The assessee-company's case is that the accounts for the joint venture were maintained in the books of Binani Brothers Private Limited. On the basis of those accounts, the final result of the joint venture was a loss and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les have been apportioned amongst the partners in the ratio of their shares in the said business, it nonetheless shows that the business, at no stretch of imagination, can be considered as that of a joint venture. The business was run from 31st May, 1954, to 18th April, 1958, and mere entries in the books of accounts in a particular way cannot make such a business as that of a joint venture." Finally the Appellate Commissioner came to the following conclusion : "Such a business was essentially operated on by a firm of which appellant (assessee-company) was one of the partners. The said firm not being registered under section 26A, the loss arising out to appellant from such a firm is essential loss sustained by an assessee from an unregistered firm and as such the same cannot be set off against other income of the appellant." Therefore, the Appellate Assistant Commissioner decided that the Income-tax Officer was right in disallowing the claim of the assessee for deduction of the said sum of Rs. 11,875 as its share of loss in the joint venture and agreed with the conclusion of the Income-tax Officer. The assessee appealed to the Tribunal. The Tribunal records and finds certai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losses appearing under different heads for its one total income that is being assessed under the Income-tax Act. In other words, he says that this assessee-company certainly carries on business as such company and also carried on a joint venture of the nature indicated above and if it had incurred losses in such joint venture, it should be allowed to set off such losses against its assessment or against its profits otherwise attributed to it in its normal business as a company. This argument has, an apparent force by its very simplicity. Behind its apparent simplicity lies, however, the more dominant question, namely, whether it is the same assessee. No doubt, if the assessee is the same, then there can be computation under the different heads of income or revenue and then the final striking of the balance of profits and losses for the computation of the total income which is to be assessed but then the facts found and the agreed statement of facts are against this contention. It was not this assessee-company which qua the assessee and qua the company was earning this income or making or incurring this loss. The facts found are that this was entirely a different assessee for it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore us is that this joint venture was carried on by an unregistered firm of 3 companies within the meaning of the Income-tax Act. This unregistered firm is a separate legal concept from the company as an assessee under the Income-tax Act. The company was assessed in the status of a company. Therefore, in that assessment it cannot be permitted to set off a loss which is not of the company in its status as an assessee-company but in a totally different status of an unregistered firm of which it was a partner. We are of the opinion that, while the different heads of income of business of the same assessee can be adjusted by a set-off, there can be no such set-off when the assessees are different as in the present reference before us. No doubt, this unregistered firm carrying on the joint venture, is not found to have been assessed in this case as an assessee. But that is not material because that unregistered firm carrying on such joint venture was within the concept of assessee under the Income-tax Act and as such assessee in its capacity and quality of an unregistered firm, it is distinctly different and separate from the company in which status and capacity it has been assessed an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of precedents one frequently comes across many mythologies growing round certain decisions. One-such decision is that of the House of Lords in Hugh Stevenson and Sons Ltd. v. Akt. Fur Cartonnagen-Industrie, which is described in many text books and commentaries as laying down the law that a company can be a partner with another company and two companies incorporated can form a partnership. Scanning the speeches of the learned law Lords of the decision I find no warrant for such a mythical proposition claimed in favour of the decision. That point was never in issue before the House of Lords in that case nor was it discussed nor was it decided. Therefore, following Lord Halsbury's dictum in Quinn v. Leathem that a case is only an authority for the proposition it decides and not for the proposition that was either assumed or seemed to follow from such decision, we do not think that this authority is of any help on this proposition. On the other hand, the decision in In re European Society Arbitration Acts : Ex parte Liquidators of the British Nation Life Assurance Association is a more relevant and telling authority on the proposition that we are considering. The observations of Lor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the Indian Companies Act enter into a partnership, then each company becomes agent for the other and agrees to share the profits. This will create many problems for the two incorporated companies. The two companies will have to be, therefore, agents for each other in a manner which may not be permissible at all by their own charters, articles and memorandum. It would be difficult to apply the very specific rights and obligations as between partners in the case of companies as partners such as in Chapter III (sections 9 to 17), Chapter IV (sections 18 to 30), and Chapter VI (sections 39 to 55) of the Partnership Act. Then there is need also for the registration of firms and the companies as such partners in a partnership will have to, therefore, obey two masters, the Registrar of Firms and Registrar of Companies. The access of each partner to the other partner's books of accounts will mean that one incorporated company would be entitled to get into the fields of the accounts of the other incorporated company which is its partner. This will make nonsense of the Companies Act. Strangers then will have access to the books, accounts and papers of the companies, whereas under the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tities for the purpose of those statutes. One of those statutes is the Indian Income-tax Act, which treats the firm as unit for purposes of taxation." The entity known as partnership under the Income-tax Act is not the same entity of partnership strictly within the limits of the Indian Partnership Act. We may notice here a few more of the authorities cited at the bar. In the case of Arunachalam Chettiar v. Commissioner of Income-tax, the Privy Council had occasion to discuss this very point of the income-tax entity of a partnership under the Income-tax Act as will be clear from the observations of Sir George Rankin delivering the judgment of the Privy Council at pages 178 and 179 of the report (Income-Tax Reports). There the Privy Council expressed the view at page 179 of Income-Tax Reports. "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 on 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 section 6 of the Act or under a different head [in which case only need recourse be had to sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 10, not on the separate income of every distinct business, but on the aggregate of the profits of all the businesses carried on by the assessee. It follows from this that where the assessee carries on several businesses, he is entitled under section 10, and not under section 24(1), to set off losses in one business against profits in another. If as we hold that section 24(1) has no application to the facts of the present cases, the second proviso thereto can also have no application. Moreover, the second proviso to section 24(1) applies only where the assessee is an unregistered firm. That is not the case here. The assessees before us are, in one case, a Hindu undivided family and, in the other, an individual. It is obvious, therefore, that the second proviso to section 24(1) can have no application in these cases." It follows from this observation and on a parity of reasoning that, if on the facts of this reference the joint venture between the assessee and two other limited companies was not the income-tax entity of an unregistered firm or partnership under the Income-tax Act, then in that case these three limited companies could only be regarded as an association of person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsingdas, the point is clearly indicated and decided by Desai J., that section 24 has no application where the set-off is not of loss under one head of income against profits under another head but it is a case of adjustment and set-off between profits and losses under the same head and that the adjustment of profits and losses under the head of business is to be done not under section 24 but under section 10 of the Income-tax Act. In this view of the matter, we hold that the assessee is not entitled to set off against its other income the loss of Rs. 11,875 suffered by it in its joint venture with two other limited companies. We accordingly answer the first question in the negative. Having regard to this answer, question No. 2 does not arise for determination and we do not propose to express any opinion thereon. We need only record that the assessee's counsel's statement before the Tribunal that in the assessment of Binani Brothers Private Ltd. and Binani Commercial Company Private Limited, the losses from this joint venture have been allowed as a set-off and which was mentioned by the Tribunal, was a wrong statement by the learned counsel and the original records of assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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