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TMI Blog1972 (12) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to show that the firm came into existence on 1st September, 1957, or that he was the proprietor of the business before that date. It was observed in the order that the firm and the assessee were separate for the purposes of assessment of the loss of the firm, which besides being not quantified, could not be set off against the profits of the assessee. The assessee appealed to the Income-tax Tribunal. On the basis of the decision of the Bombay High Court in Commissioner of Income-tax v. Jagannath Narsingdas, the Tribunal accepted the appeal and held that the assessee was entitled to adjust the loss claimed while computing his profits and gains from business under section 10 of the Indian Income-tax Act, 1922. It was also held that the second proviso to section 24(1) of the Act did not apply. The Tribunal directed that the loss allowable in the assessee's hands should be verified by the Income-tax Officer and should be allowed to the extent of the actual loss incurred after verification. A reference was sought by the Commissioner of Income-tax, Delhi, and a direction was issued by this court in Income-tax Case No. 14-D of 1966 calling for a statement of the case on the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Raza Sugar Co. v. Commissioner of Income-tax , and the Mysore High Court in B. Chickotappa v. Income-tax Officer, Central Circle II, Bangalore. I propose to deal with the latter set of authorities first. In Commissioner of Income-tax v. Gangadhar Nathmal , reliance was placed on the judgment of the Supreme Court in Commissioner of Income-tax v. Jadavji Narsidas & Co. , which is a case which has been referred to in every one of the aforementioned cases. It was assumed that there was no difference between the claim of an assessee to adjust losses suffered by him as a partner in an unregistered firm and the facts in Jadavji Narsidas's case. In actual fact, in the latter case, the claim was made by a registered partnership. The Supreme Court expressly left open the question whether the adjustment could be claimed by the partners individually. There is also no reference in the Patna High Court's judgment to the question whether an adjustment like the one claimed in the present case could have been allowed under section 10 of the Act. In Raza Sugar Co. v. Commissioner of Income-tax, the Allahabad High Court dealt with a case where an unregistered firm was assessed and a loss comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the department before us. Before dealing with the cases relied upon by the assessee, it is necessary to refer to the two decisions of the Supreme Court which have some bearing on the question we are called upon to answer. In Commissioner of Income-tax v. P. M. Muthuraman Chettiar, the Supreme Court dealt with the question, whether a partner of a firm carrying on business outside India was entitled to set off his share of losses in that firm against the profits and gains of the business in India. It was held that section 24(1) did not apply at all to such a case. It was observed : " 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Bombay and the Gujarat High Courts which support the contentions of the assessee before us. In the Bombay High Court decision in Commissioner of Income-tax v. Jagannath Narsingdas , it was held that the second proviso to section 24(1) did not apply because the assessee was not an unregistered firm but an individual partner. It was also observed that the second proviso to section 24(1) could not be read as an independent provision, but had to be read as a proviso. It was observed : " It is prima facie a proviso and it will have to be regarded as a proviso, as it purports to be, unless there is very good and strong reason to hold that its scope is not merely that of a proviso but of an independent provision. " Reference was also made to the observations of the Supreme Court in Muthuraman Chettiar's case aforementioned, and it was held that the second proviso to section 24(1) only applied when the assessee was an unregistered firm. The decision in Anglo-French Textile Co. Ltd. v. Commissioner of Income-tax was also referred to in support of the view that section 24(1) only applied when loss under one head of income was sought to be adjusted against the profits from another hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual partner as separate for the purpose of computing their incomes. An individual partner's income is his income from his individual business plus the income he gets from being a partner in either a registered partnership or in an unregistered partner- ship. Under section 14(2)(a) an exemption is granted to an assessee in respect of his share of the profits and gains of an unregistered firm in which he happens to be a partner. That provision reads as follows : " The tax shall not be payable by an assessee- (a) if a partner of an unregistered firm, in respect of any portion of his share in the profits and gains of the firm computed in the manner laid down in clause (b) of sub-section (1) of section 16 on which the tax has already been paid by the firm. " Thus, if an unregistered partnership firm makes a profit, the partner is entitled to get an exemption under this provision only if the profits have been taxed in the hands of the unregistered firm. If they have not been taxed, then the partner has to pay tax himself. The position regarding an unregistered partners hip seems to be quite plain. Either the profits of the unregistered firm can be taxed in the hands of the firm or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff under section 24(2) in a subsequent year, it would not at all affect the assessment of the individual partner. As far as the partners themselves are concerned, their individual assessments would be wholly unaffected, because the Income-tax Officer could refuse to assess the income of the unregistered partnership because of the option contained in section 23(5)(b) in which case the previous loss could not be adjusted by the partnership firm. To illustrate this, it is only necessary to refer to the loss in the present case. If this loss is claimed as an adjustment under section 24(2) by the partnership in some subsequent year, the Income-tax Officer has merely to say that he declines to assess the amount in the hands of the partnership because of the provisions of section 23(5)(b), in which case the profits in question would have to be assessed in the hands of the partners without making any adjustment for the carry-forward of loss. It would, therefore, follow that there is no real anomaly in this case. Assuming that there is a double advantage flowing from the Act, that does not seem to be a sufficient reason to disregard the provisions of the Income-tax Act as far as individual ..... X X X X Extracts X X X X X X X X Extracts X X X X
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