TMI Blog1989 (10) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... p a statement of case agreed to by the parties and refer the question of law set out at the end of this statement to the Hon'ble Supreme Court through the President, Income-tax Appellate Tribunal. 2. The reference arises, under the Income-tax Act, 1961, out of the assessment of Shri P. Doraiswamy Chetty of Vellore for the assessment year 1968-69, the relevant previous year for which was the financial year 1967-68. 3. The assessee is an individual, who was a partner in Messrs. Dhanalakshmi Pictures, Vellore, with a half share in the profits and losses. His wife was the other partner of the firm also with a half share in the profits and losses. The assessee had filed a return declaring a loss of Rs. 30,945 for the above assessment year which was arrived at as under (1) Assessee's share of loss from Messrs. Dhanalakshmi Pictures as per firm's memo of adjustment 15,473 (2) Share of loss of the assessee's wife from Messrs. Dhanalakshmi Pictures as per firm's memo of adjustment 15,472 30,945 4. The Income-tax Officer served a notice under section 143(2) on the assessee fixing the case for hearing on January 17, 1972. As there was no response from the assessee, the assessment wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the officers of the Department, the High Court held that the share of loss of the wife in the registered firm in which the assessee was also a partner could be set off against the income of the assessee while computing his total income. In the course of the judgment their Lordships of the Mysore High Court referred to the decision of the Gujarat High Court in Dayalbhai Madhavji Vadera v. CIT [1966] 60 ITR 551, and the criticism of that decision in the Commentary on the Law and Practice of Income-tax by Kanga and Palkhivala (Volume 1, 6th edition, at page 526). The Tribunal followed the decision of the Mysore High Court and allowed the assessee's appeal by its order dated February 26, 1975. 8. From the narration above, it will be seen that the decision of the Tribunal gives rise to a question of law on which there has been a conflict of judicial decisions. It is true that the Hon'ble Mysore High Court has not expressed a direct dissent from the view taken by the Gujarat High Court and has rested its ultimate conclusion on the principle that where two interpretations are possible, that which is favourable to the assessee must be adopted particularly when the Central Board of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fe in the same firm. The assessee claimed-that not only his share of the loss but also that of loss of his wife in the firm should be carried forward to the subsequent years for being set off against his future business income. The Income-tax Officer held that it was only where the assessee's wife made an income that such income would become includible in the total income of the assessee under section 64(1)(i) and that where there was only a loss in the case of the wife, such loss could not be set off against, or added to, the income or loss, as the case may be, of the assessee. The assessment was concluded accordingly. In the first appeal preferred before the Appellate Assistant Commissioner of Income-tax, the appellate authority, following the decision of the Gujarat High Court in Dayalbhai Madhavji Vadera v. CIT [1966] 60 ITR 551, upheld the view of the Income-tax Officer and dismissed the appeal. In the further appeal before the Income-tax Appellate Tribunal, the assessee succeeded, the Tribunal having placed reliance upon a decision of the Karnataka High Court in Dr. T. P. Kapadia v. CIT [1973] 87 ITR 511. The Revenue sought a reference to the High Court on a question of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this state of affairs, so far as husband and wife are concerned, the aggregation of their incomes for assessment. However, the report recognised that such a course would involve the, aggregation in a quite different class of cases, i.e., where the wife's income, arose from sources unconnected With the husband. The report, therefore, said : "We recommend, therefore that the incomes of wife should be deemed to be, for income-tax purposes, the income of her husband, but that where the income of the wife is derived from her personal exertions and is unconnected with any business of her husband, her income from her personal exertions up to a certain limit, say Rs. 500, should not be so included". However, section 16(3), introduced by the Amending Act IV of 1937, adopted a slightly different legislative expedient. In CIT v., Manilal Dhanji [1962] 44 ITR 876, this court, referring to the object of section 16(3) of the 1922 Act, said (at page 881 ) : ". . . Then we come to sub-section (3). This sub-section aims at foiling an individual's attempt to avoid or reduce the incidence of tax by transferring his assets to his wife or minor child or admitting his wife as partner or admitting hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first two interpretative criteria. It appears to us that the answer to the question referred is covered by the pronouncement in Gotla's case [1985] 156 ITR 323 (SC) and must need be in the affirmative and against the Revenue. In Gotla's case [1985] 156 ITR 323, this court said (at p. 340) ". . . Therefore, where section 16(3) of the Act operates, the profit or loss from a business of the wife or minor child included in the total income of the assessee should be treated as the profit or loss from a 'business carried on by him' for the purpose of carrying forward and set off of such loss under section 24(2) of the Act. On a consideration of the scheme of the Act and the provisions therein as noted before, the share income of the wife and minor children included in the assessee's total income under section 16(3) of the Act should be regarded as business income derived from business carried on by the assessee and, in that view of the matter, the assessee is entitled to set off his loss carried forward from the previous years." The provisions dealt with in Gotla's case [1985] 156 ITR 323 (SC) were, of course, the corresponding provisions of the 1922 Act. But the provisions of s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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