TMI Blog1962 (10) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the High Court of Bombay dated October 23, 1958, by which the High Court answered two questions referred to it under section 66(2) of the Income-tax Act in favour of the respondent, Jadavji Narsidas Co. The High Court certified this case as fit for appeal to the Supreme Court and hence this appeal. The facts are simple. The year of account is S. Y. 2001 corresponding to October 10, 1944, to November 4, 1945, and the assessment year is 1946-47. The respondent is a firm consisting of four partners and was registered under section 26A of the Income-tax Act of the relevant year. The assessee firm carries on business which is mainly speculation. In the year of account it claimed inter alia a loss of Rs. 1,05,641 which, it was said, arose in speculation in a venture of the assessee firm with one Damji Laxmidas. This venture was carried on in the name of Damji Laxmidas on behalf of an alleged firm in which Damji was said to have a share of 6 annas and the assessee firm the balance. A deed of partnership dated November 14, 1944, was also produced before the Income-tax Officer. The sum of Rs. 1,05,641 represented half the losses of the joint venture, the other half being claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare of the loss. It was held that the loss arising to a person in a joint venture cannot be allowed in his personal assessment as the loss is suffered by an unregistered partnership. It can only be carried forward in the account of the unregistered firm." The assessee firm applied to the Tribunal asking that a case be stated at the High Court but failed. The assessee firm then moved the High Court under section 66(2) of the Income-tax Act and under the High Court's direction the Tribunal stated a case on the following questions : "(1) Whether there was any legal admissible evidence to justify the Tribunal's finding that the transactions in question was not the transaction of the assessee ? (2) If not, whether the assessee can claim the set-off of such loss although it is the loss of an unregistered partnership ?" The first question arises out of the observations of the Judicial Member and the second question from those of the Accountant Member. The High Court answered both the questions against the department. It held that there was no legal admissible evidence to justify the finding that the transactions in question were not those of the assessee firm and further that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which have also been mentioned in the statement of the case. The High Court did so and we allowed those reasons to be brought before us. We would, however, have preferred if the order of the Tribunal in the appeal filed by the assessee firm had even briefly expressed their approval of those reasons and not left them to be mentioned in the statement of the case. The question, then, is whether there was evidence to justify the Tribunal's finding that the transaction with Damji Laxmidas were not the transactions of the assessee firm. In such an inquiry the court looks not to the sufficiency of the evidence but whether any evidence exists at all. Even if there be slight evidence which was believed by the Tribunal and on which the conclusion can be rested, such question must be answered in the affirmative. But the finding must not proceed upon conjecture, suspicion or surmise. If there is not a scintilla of evidence, the finding cannot be sustained because the proved facts would not then support the inference. In this connection, the Income-tax officer gave three reasons. The most important of which being the ankdas were in the name of Damji. According to the deed of partnership, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance the projects. This is not to say that "buying of losses" is not common or that men of straw are not taken on as partners to give their losses to equalise profits elsewhere. The fact remains, as pointed out by the High Court, that losses can only be bought if they have incurred and in the present case there is a long course of business which at certain stages was profitable though ultimately it showed a loss. It is impossible to say in this case that the assessee firm took over losses without actually having done business in company with Damji. There is no foundation, whatever, for the inference that the losses were purchased by the assessee firm from Damji whether we take the reasons given by the Income-tax Officer individually or collectively. We are of the opinion that the High Court did not exceed its powers in examining the evidence in support of the inference of the Income-tax Officer that no business was done in company with Damji but the assessee firm took over some of his losses. The answer of the High Court to the first question is therefore upheld. This brings us to the second question and it is whether the assessee firm can set off the loss Rs. 1,05,641 against i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm is not to be determined but the total income is to be carried to the assessment of the partners in accordance with their shares and the profits or losses, as the case, my be, must be assessed as part of their other income . But when the assessee an is an unregistered firm, the assessment is of the firm itself unless the Income-tax Officer finds that by assessing the unregistered firm as a registered firm more tax is likely to result. The assessment otherwise is of the unregistered firm and not of the partners in their private assessment. This is the gist of the rule contained in the fifth sub-section 23. There are however, other provisions which must also be noticed. The first provision to notice is section 16(1)(b) which says that when the assessee is a partner of a firm, then whether the firm has made a profit or loss, his share (whether a net profit or a net loss) is to be computed in the stated manner and if his share so computed is a loss such loss may be set off or carried forward and set off in accordance with the provisions of section 24. Section 24 then provides for the set off the loss as well as the carrying forward of the loss. The second proviso deals with the q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the partners. In the same manner the loss, if not absorbed, could be carried forward to be set off against further income, profits and gains of the same unregistered firm of five persons. The High Court was thus in error in holding that those losses could be set off against the income of the assessee firm. It makes no difference that the department has not assessed the unregistered firm or taken action under section 23(5) (b). What the High Court has ordered just cannot be done as it is against the provisions of section 24. Whether the partners in their individual assessments would be able to take advantage of section 16(i)(b) and the decision of the Privy Council in Arunachalam Chettiar v. Commissioner of Income-tax )[1936]4 I.T.R. 173; 63 I.A. 233 (a point almost conceded before us) is not a matter on which we need pronounce our opinion. That question does not arise for our consideration. The answer of the High Court to the second question is set aside and the question is answered in the negative. In view of the equal success, parties will bear their own costs here and in the High Court. SARKAR J. The respondent, a firm registered under the Income tax Act, 1922, claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidual is permissible, an assumption which must be held to be unwarranted in view of the decision in Dulichand's (supra) case. It must be held that no partnership, in which the respondent firms as such is a partner, exists. If the partnership does not exist, the respondent firm cannot have suffered any loss as a partner in it and there is, therefore, no loss for which it can claim a set off. The sections of the Act dealing with set-off would not justify a set-off in such circumstances. Thus under section 10 an assessee is entitled to set off the loss incurred by him in one business against the profits made by him in the another business : see Anglo-French Textile Co. Ltd. v. Commissioner of Income-tax. [1953] 23 I.T.R. 82; [1953] S.C.R. 448 It is hardly necessary to point out that in the case of a single business its profits can only be ascertained after its losses have been taken into account. If this also is to be called a set-off, I suppose it may also be justified under section 10. It is clear that the set-off contemplated by this section is of a loss suffered by the assessee himself. That is not the position in the present case. The assessee, the respondent firm, has no inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said that in the present case the real assessees were the partners of the respondent. I am entirely unable to accept that contention. Section 23(5) of the Act contemplates a registered firm as an assessee though it did not have to pay any tax itself as the law stood prior to April 1, 1956. The whole proceedings in the present case have been conducted on the basis that the respondent firm was the assessee. The question raised in this case were framed on that basis and we are not called upon by them to say whether the partners of the respondent firm had any right of set-off. The assessees in the present case were not the partners of the respondent firm. If they were, we would have found the respective incomes of the individual partners from other sources being considered but this was not what had happened. It seems to me to be impossible to contend in the present case that the assessees were the partners of the respondent firm. I would allow the appeal with costs here and below. By Court: In view of the opinion of the majority, the answer of the High Court to the first question is upheld and the answer to the second question is set aside. The parties will bear their own costs her ..... X X X X Extracts X X X X X X X X Extracts X X X X
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