1995 (12) TMI 59 - HC - Income Tax

Summary

Issues involved:
The judgment addresses the questions of law for the assessment years 1976-77 and 1977-78, involving the entitlement of the assessee to set off losses from a previous firm against profits from current partnership concerns, and the interpretation of section 72(1) of the Income-tax Act.

Entitlement to Set-off of Losses:
The assessee, a lady with income from various partnership firms, sought to set off losses from a previous firm, United Oil Mills, against profits in the assessment years 1976-77 and 1977-78. The Income-tax Officer rejected the claim citing the non-existence of United Oil Mills in those years. The Appellate Assistant Commissioner and the Tribunal upheld the rejection, emphasizing the cessation of business by United Oil Mills during the relevant years. The Tribunal found that the assessee was not carrying on the business of United Oil Mills in those years, thus disallowing the set-off under section 72(1) of the Act.

Interpretation of Section 72(1) of the Act:
Section 72(1) outlines conditions for carrying forward and setting off business losses, including the requirement that the business for which the loss was computed must continue to be carried on by the assessee in the relevant previous year. The Tribunal's factual finding that United Oil Mills ceased business in the assessment years was crucial. The Supreme Court precedent cited by the assessee was distinguished as the business in that case continued, unlike the situation with United Oil Mills. The proviso to section 72(1) mandates that loss can be carried forward only if the business continues, irrespective of dissolution of the firm. The cessation of business, not dissolution, impacts the right to carry forward losses for set-off.

Conclusion:
The court held that the assessee was not entitled to set off losses from United Oil Mills against profits from other firms due to the cessation of business by United Oil Mills during the relevant assessment years. The proviso to section 72(1) requires the continuity of the business for carrying forward losses, and the non-existence of the business precludes the set-off claim. The judgment was delivered in favor of the revenue authorities, denying the assessee's claim for set-off.