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TMI Blog1973 (3) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... n the purchases of oil cake and sale of deoiled cake made by the firm. The assessee himself continued to carry on business in the purchase and sale of groundnut cake and oil on a small scale. The assessee also continued his business as abkari contractor. The share income of the assessee's wife and his minor children from this firm was included in the assessee's assessment for the year under reference, viz., 1959-60, under section 16(3) of the Act. The assessee had incurred business losses in the earlier years which were being carried forward from year to year up to the assessment year 1958-59. The assessee claimed a set-off of these losses against the share income of his wife and his minor children which were included in his assessment under section 16(3). While the Income-tax Officer negatived the assessee's claim, the Appellate Assistant Commissioner, on appeal, allowed it on the ground that although the assessee himself, was not carrying on the business of manufacture and sale of groundnut oil during the year under appeal, he must be deemed to be carrying on the said business inasmuch as that business was being carried on by the firm in which his wife was a partner and his minor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry on the business in oil in general and, consequently, the loss originally sustained by the assessee was in a business which continued to be carried on by him during the year in question. The Tribunal, however, accepted the second contention raised on behalf of the department, namely, that the set-off could not be claimed against the profits or gains of a business with which the assessee had no concern. Dealing with this point, the Tribunal observed that in order to claim the benefit of set-off under section 24(2) of the Income-tax Act, 1922, two conditions had to be satisfied : (i) that the business, profession or vocation in which the loss was originally sustained continued to be carried on by him in that year ; and (ii) that the business, profession or vocation against the profits and gains of which the set-off was claimed was carried on by him. So far as the first condition was concerned, the Tribunal held in favour of the assessee, of which mention has already been made above. With regard to the second condition, the Tribunal observed that the assessee sought to satisfy this condition on the basis of a legal fiction. The argument of the assessee in this respect had two limbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying on the business the income from which was included in his assessment under section 16(3) of the Act. Section 16(3), according to the Tribunal, created a fiction by which income arising to someone else was deemed to be the income of the assessee. That it was a deeming provision was supported by the Tribunal, relying upon the decision in the case of Dayalbhai Madhavji Vadera v. Commissioner of Income-tax. The Tribunal accordingly held that the income which was includible in the assessee's total income under section 16(3) was not deemed to be the assessee's income nor could the assessee be said to be carrying on the business out of which such income arose. The assessee's claim to set off his losses against the income arising to his wife and children and added to his income by virtue of section 16(3) of the Act was accordingly held to be inadmissible. The order passed by the Appellate Assistant Commissioner was, therefore, reversed. The question of law that arises out of the order of the Tribunal is : " Whether, on the facts and circumstances of the case, the assessee would be entitled to the carry forward and set-off of the losses against the share income of the assessee's wife ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the computation of the total income of the assessee under section 16(3) of the Act for the assessment year 1959-60. The assessee claimed to set off the loss carried forward from the assessment year 1958-59 against the profits of his own business as also the share income of his wife and minor children. The Income-tax Officer rejected the claim for set-off in so far as it related to the share income of his wife and minor children. Similar claims for set-off were made in the assessment years 1960-61 and 1961-62, but were rejected. On the appeals preferred by the assessee, the Appellate Assistant Commissioner allowed the set-off claimed on the ground that the assessce himself is deemed to be carrying on the business from which the share income was derived by his wife and minor children. The department appealed to the Income-tax Appellate Tribunal, Hyderabad Bench. The Tribunal held that although the assessee was not carrying on the business of manufacture and sale of oil during the years under appeal, he was continuing to carry on the business of oil in general ; that the firm did carry on the same business as was hitherto carried on by the assessee but there was no connection b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and minor children was derived. The argument of Sri K. Srinivasan, learned counsel for the assessee, was that the share income of the assessee's wife and the income of the assessee's wife and minor children included in the assessee's income under section 16(3) of the Act was brought to charge under the head "business income" under section 10 which section provides that the tax shall be payable by the assessee under the head "profits and gains of business, profession or vocation" in respect of the profits or gains of any business, profession or vocation carried on by him. Therefore, when the charge to tax of the income of the assessee's wife and minor children is on the basis that the business from which the income is derived is carried on by the assessee, the said fiction cannot be limited for the purpose of charging to tax, but has to be given its full play for all purposes including the benefit under section 24(2) of the Act. Sri Rajasekhara Murthy, learned counsel for the department, however, contended that the share income of the assessee's wife and minor children included in the assessee's income under section 16(3) was not brought to charge under section 10 under the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch of the three years." In the memorandum of appeal before the Tribunal, no ground was taken by the department that the above finding of the Appellate Assistant Commissioner is erroneous. Sri Rajasekhara Murthy submitted that we should call for a fresh finding from the Tribunal on the question whether the share income of the assessee's wife and minor children included in the assessee's assessment under section 16(3) should be regarded as income from business or income from "other sources". We are unable to accede to the request of the learned counsel for the revenue since no such ground was taken before the Tribunal and the finding of the Appellate Assistant Commissioner was accepted and the Tribunal proceeded on the basis that the said income was "business income". It is necessary to note that the Tribunal has agreed with the view of the Appellate Assistant Commissioner and has held that "the income which is includible under section 16(3) partakes of the same nature as the income which is actually derived by the assessee's wife, minor children, etc." The precise question for decision is whether the business from which the share income of the assessee's wife and minor children w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome. It was held that it is possible to take the view that the loss incurred by a spouse should be treated as if it were a loss sustained by the assessee. The ratio of the decision in Nadar's case as well as Kapadia's case is that the income or the loss included under section 16(3) in the total income of the assessee has to be treated as income or loss sustained by the assessee. The object of section 16(3) of the Act was to foil an individual's attempt to avoid or reduce incidence of income-tax by transferring his assets to his wife or minor child or admitting his wife as a partner or admitting his minor child to the benefits of partnership in a firm in which such individual is a partner. In such a case, the income of the wife or minor children is regarded as the income of the assessee. The transfer is ignored and the natural family consisting of the assessee, his wife and minor children are regarded as one unit for purpose of assessment. The character of the income also does not change by reason of the fact that such income is included in the total income of the assessee under section 16(3) of the Act. Section 3, which is the charging section, charges income-tax on the total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... makes a distinction between the income of other persons which is deemed to be the income of the assessee and income which is merely included in the total income of the assessee. This distinction has been elucidated in Dayalbhai Madhavji Vadera v. Commissioner of Income-tax. We, respectfully, produce the relevant observations of their Lordships : 'The scheme of clause (a) in sub-section (3) thus is not to set off loss arising under any one of the sub-clauses against income arising from the other or the rest of the sub-clauses. Such a thing perhaps might have been possible if, instead of providing for the inclusion of income of a wife or a minor child in the total income of an assessee, such income had, by a legal fiction, been made the income or the share of the assessee himself. That, however, has not been done in this sub-section though such a deeming fiction is to be found in section 16(1)(c). While enacting, therefore, sub-section (3), the legislature had before it such deeming fiction in section 16(1)(c). Yet the legislature did not follow that method, but followed a different method as set out in sub-section (3).' It would, therefore, appear that the income which is includib ..... X X X X Extracts X X X X X X X X Extracts X X X X
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