TMI Blog1938 (2) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... , Government securities and (old) company shares in respect of the year ending April 13, 1933. The amount of the assessment was ₹ 1,38,229. During the same accounting year the losses in the 17 business amounted to ₹ 2,18,682. The assessees claimed to set off this loss against the above mentioned gains during the same year. The Income-tax Officer allowed the assessees to set off the loss in the 17th business which was not transferred to any of the four new companies, but refused to allow the set-off of the losses of the 16 other businesses transferred to the four new companies, on the ground that there had been a succession under Sec. 26 (2) of the Act and that any right of set-off had passed from B. K. Paul Co., under the succession. The assessees B. K. Paul Co. relied on Sec. 24(1) of the Act, and the Income-tax authorities on Sec. 26 (2) which are set out below : Sec. 24(1) : Where any assessee sustained a loss of profits or gains in any year under any of the heads mentioned in Sec. 6, he shall be entitled to have the amount of the loss set-off against his income, profits or gains under any other head in that year. Sec. 26(2) : Where at the time of making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion and I do not propose to anticipate it. The assessees will get the costs of the reference. Hearing fee seven gold mohairs. KHUNDKAR, J. - I agree. I have had the advantage of seeing the judgment just pronounced by My Lord the Chief Justice and also that which my learns brother, Mr. Justice Mukherjea proposed to deliver. As the facts are fully set out in those judgments I do not repeat them. I desire only to add a few observations on one aspect of the case. Sec. 24 in clear terms gives to an assessee the right to set-off a loss of profits or gains in any year against income profits and gains in that year. The undivided family in this case is the assessee whose return the income-tax authorities have under consideration, and who in fact was on the 28th September, 1934, held to be the person by whom income-tax was payable, in respect of the accounting year 1932-33; but in the assessment year 1933-34, it is to be noted that the position of the undivided family was exactly the same in the two year 1932-33 and 1933-34 in regard to the sources of its income, profits or gains, as well as in regard to the heads of is losses. In other words, throughout the whole of these two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n such person succeeding in Sec. 26(2) was not entirely inapplicable as there was nothing upon which an assessment could be based. Chief Justice Beaumont evidently envisaged such a situation and observed that the facts of that case did not give list to it, for he says : There is no evidence that there were no profits made and that therefore no assessment on the purchasing company was necessary, and in the absence of evident to that effect, it seems to me that the Income-tax Officer was quite right in saying that the section applied . Chief Justice Beaumont has in fact expressly distinguished the question which he was considering from a question of the kind which has arisen here, for he goes on to say : It is not necessary to deal with the question whether Section 26 sub-section (2) would apply if there were no profits in respect of the business transferred and therefore no assessment was necessary on the successor, assuming that he had no other source of income. It is, I think, desirable to say a word about the opinion of the Commissioner, which is that the section allows set-off only to the person who would have been the assessee had there been profits or gains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-4-1934, the businesses owned by this Hindu joint family, with one exception, were transferred to 4 private limited companies. The Income-tax Officer passed his assessment order on 28-9-34. He assessed the family upon the profits obtained by it from the first two sources of income mentioned above, and refused to give a set-off in respect of the loss on businesses suffered by it. He took his stand upon Sec. 26(2), Income-tax Act, and was of opinion that as at the time of making the assessment, the businesses owned by the family were transferred to the person, the assessment in rapist of the businesses must be made on the succeeding companies, and as the family could not be regarded as assessee in respect of the same, it could not claim any set-off as was provided for in Sec. 24 of the Act. This view upheld by the assistant Commissioner on appeal. The assessee then made an application to the Commissioner for a reference to the High Court under Sec. 66(2), Income-tax Act. This was refused on 11-4-35. Subsequently there was an application to this Court under Sec. 66(3), Income-tax Act, and in pursuance of the order of this Court, the present reference has been made. The question refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the transferee who had nothing to do with the business sin the year of accounting would be deemed in the eye of law to have received the whole of the profits the previous year. I must say, that at first, I was tempted to take the view that Sec. 26(2) contemplates a case where the succession takes place during the previous year as defined in Sec. 2(11), and it is to avoid a splitting up of the income or profits earned during that period, that the legislature makes the assumption that the transferred or successor received the whole profits of the previous year. The last two lines of the sub-section may lend an apparent countenance to this view, but the clear words at the beginning make it impossible for me to accept this interpretation as correct. The only material time for purposes of the sub-section is the time of mains the assessment, and if there is discovery at that time of a succession or transfer, for which no date has been specified by the legislature, the provisions laid down in the sub-section, if it is otherwise applicable, would be attracted and the fiction would be that the transfer carried don the business during the whole of the previous year and received all the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any of the heads mentioned in Section 6. It seems that the word assessee has not been used here in the strict sense of a person by whom income-tax is payable, but means and signifies the person against whom assessment proceedings have been started and who has been asked to give a return of his total income during the previous year under Sec. 22(2), Income-tax Act. If such person sustains a loss of profits or gains under any of the heads of income, he shall entitled to have the amount of loss set off against his income, profits and gains under any other head. In other words, his total income will be shown in the return by deducting the losses from the profits earned and he can be assessed on the balance, if any, that remains after making the dedication. It cannot be imagined., I think that the legislature by Section 26 (2) intended to deprive the person who suffered loss in his business of his right to get a set off under Section 24. Under Section 26 (2), if the Income-tax Officer is apprised of a succession to a business at the time of making the assessment the assessment shall be made on the person succeeding. This means that so far as that business is concerned, the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o question of set-off was raised, and the decision does not in any way militate against the view I have taken. In Bhogilal Hargovandas Patel v. Commissioner of income-tax, Bombay, which was decided by the Bombay High Court, the facts are undoubtedly distinguishable as the succession there took place within the year of accounting, but even then the observations of Beaumont, C.J., are rather in agreement with the opinion I have expressed above. The observation is as follows : It is argued on behalf of the assessee that Sec. 26(2) does not apply unless there are profits. There is no evidence that there were no profits and that therefor no assessment on the purchasing company was necessary; and in the absence of any evidence to that effect it seems to me that the Income-tax Officer was quite right in saying that the section applied. BLACKWELL, J., undoubtedly took a different view, but I do not consider the reasoning to be sound. Now, if we look at the matter from the standpoint of the transferee of the businesses it is clear that they cannot set-off under Sec. 24, Income-tax Act, which allows set off to the assessee who are, as I have said already, not the assesses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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