9911796707
|
Home
Issues Involved:
1. Continuity of business for the purpose of loss set-off under Section 24(2) of the Income-tax Act. 2. Whether a business carried on by a partnership can be regarded as a business carried on by a partner for the purpose of loss set-off. Detailed Analysis: 1. Continuity of Business for Loss Set-off: The assessee, initially a sole proprietor, suffered a business loss in the assessment year 1954-55 and carried forward this loss under Section 24(2) of the Income-tax Act. In the subsequent year, the business was converted into a partnership with his brother. The primary question was whether the business continued in the same form to allow the set-off of the carried-forward loss against the assessee's share of profit in the partnership. The court observed that the business carried on by the assessee alone in Samvat year 2009 was continued by the partnership in the same name, with the same assets and liabilities. The deed of partnership indicated an intention to maintain business continuity, even allowing the assessee to continue the business post-dissolution of the partnership. The court concluded that the same business continued during Samvat years 2010 and 2011. The court referred to the Supreme Court judgment in Commissioner of Income-tax v. A.W. Figgies and Co., which supported the argument that a business's continuity is maintained despite changes in the firm's constitution. The Supreme Court held that the business remained the same unit despite changes in partnership. Applying this principle, the court concluded that the business carried on by the assessee alone was continued by the partnership, maintaining the business's identity. 2. Business Carried on by a Partnership as Business Carried on by a Partner: The court addressed whether a business carried on by a partnership could be regarded as a business carried on by a partner for the purpose of loss set-off. Section 4 of the Indian Partnership Act defines a partnership as a relation between persons who share profits of a business carried on by all or any of them acting for all. Thus, when a firm carries on business, it is carried on by the partners, each acting as an agent for the others. The court emphasized that the language of Section 24(2) requires the business to be continued by the individual concerned. The requirements are satisfied when a partner continues the same business previously carried on individually. The court rejected the argument that the business must be carried on by the individual alone, without others. Proviso (e) to Section 24(2) further clarifies the legislative intent. It states that a firm cannot set off a loss attributable to a retired or deceased partner. However, if a person carrying on a business is succeeded by another (including a firm with the original person as a partner), the original person can set off the loss against his share of the firm's income. This supports the view that a partner in a firm can continue the business for loss set-off purposes. The court also discussed the distinction between registered and unregistered firms under the Income-tax Act. For registered firms, individual partners are assessed to tax, not the firm itself. Therefore, the right of set-off is available to the individual partner who incurred the loss, not to the firm or other partners. The court cited Chief Justice Chagla's observations in Shantikumar Narottam Morarji v. Commissioner of Income-tax, affirming that a firm is a compendious expression for the partners carrying on business. The court also referenced Hassan Kassam v. Commissioner of Income-tax, which held that a business's identity does not change when carried on by an individual and later by a partnership with his sons. Conclusion: The court concluded that the assessee was entitled to set off the loss incurred during Samvat year 2009 against his share of profit in the partnership during Samvat years 2010 and 2011. The business's continuity and the partnership's nature allowed the loss set-off under Section 24(2). The court answered the reference question in the affirmative and awarded costs to the assessee.
|
