TMI Blog1966 (8) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... "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 the assessee's one-third share of that loss amounted to Rs. 11,875. Originally, those articles were purchased on the 11th May, 1954, by Messrs. M. Gholam Ali Abdul Hussein and Co., in an auction at K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 certain facts which are relevant for the purpose of this reference. The Tribunal found that the loss of these goods continued for nearly three years and there was a systematic and organised activity with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 was a joint venture of 3 separate companies. The fact found also was that it was a partnership of 3 companies but it was an unregistered firm under the Income-tax Act. Therefore, profits or loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 and in which assessment it has claimed adjustment. This is really the crucial and significant point of difference between the reference before us and the reference in Income-tax Reference No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch decision is that of the House of Lords in Hugh Stevenson and Sons Ltd. v. Akt. Fur Carton nagen-Industrie [1918] AC 239 , 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. Leathern [1901] AC 495, 506that 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 [1878] 8 Ch. D. 679 is a more relevant and telling authority on the proposition that we are considering. The observations of Lord Justice James at page 704 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 Companies Act, they are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made by statutes into this conception, end firms have been regarded as distinct entities 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 a 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 [1936] 4 ITR 173; AIR 1936 PC 133 , 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 pages 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges 713-14 of that report (Income Tax Reports) in the following terms: "It is worthy of note that though the profits of each distinct business may have to be computed separately, the tax is chargeable under section 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d firm or taken action under section 23(5)( b ). The point is made clear there in the observations of Hidayatullah J., delivering the majority judgment at pages 47-49 of Income Tax Reports. In a recent decision of the Bombay High Court in Commissioner of Income-tax v. Jagannath Narsingdas [1965] 55 ITR 128, 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
