1964 (3) TMI 72 - HC - Income Tax

whether the loss of Rs. 13, 277suffered in the business during the period April 1 1948 to March 30 1949, can be set off against income under other heads in the assessment for the assessment year 1949-50 - The sum exempted under section 25(4) is not referred to in section16(1)(a) and is not liable to be included in the total income of the assessee.It is exempt altogether from the operation of the Act - the amendment of the definition of total income does not eliminate the distinction between the two categories of exempted sums those which are exempt from charge as well as from inclusion in the total income and those which are exempt from charge but areliable to be included in the total income - If the assessee has earned a profit during the broken period it is not liable to be considered for any purpose in respect of the assessment year to which the broken period relates - Held that assessee is not entitled to have the loss suffered during the period April 1 1948 to March 30 1949 set off against the income under other heads under section 24(1) in the assessment for thea ssessment year 1949-50 - Question answered in the negative

Summary

Issues:
1. Interpretation of section 25(4) of the Income-tax Act regarding the allowance of a loss suffered by the assessee against income under other heads for the assessment year 1949-50.

Analysis:
The case involved a Hindu undivided family that experienced a loss of Rs. 13,277 during the period April 1, 1948, to March 30, 1949, due to a partial partition of family assets transferring the business to a partnership firm. The Income-tax Officer initially allowed the relief claimed by the assessee under section 25(4) for the assessment year 1948-49. However, a dispute arose regarding the set-off of this loss against income under other heads for the assessment year 1949-50. The Income-tax Officer rejected the claim, leading to an appeal by the assessee. The Appellate Assistant Commissioner ruled in favor of the assessee, but the Appellate Tribunal overturned this decision, reinstating the Income-tax Officer's stance.

The central question revolved around whether the loss incurred by the assessee during the specified period could be set off against income under other heads for the subsequent assessment year. The court determined that the set-off was not permissible under the Indian Income-tax Act, 1922. The Act exempted certain income classes from taxation entirely, and the loss in question fell under this exemption, precluding its consideration for set-off purposes.

The court emphasized the distinction between exempted sums that must be included in total income for tax purposes and those entirely exempt from tax and inclusion in total income. The amendment to the definition of "total income" did not alter this fundamental distinction. The court cited precedents to support its interpretation that loss of taxable profits is a prerequisite for invoking set-off provisions, which was not applicable in this scenario due to the exempt status of the income in question.

Furthermore, the court rejected the assessee's argument for double benefit from setting off the same loss twice, asserting that such an interpretation was not intended by the legislature. Reference to relevant case law highlighted the difference in circumstances where income was liable for inclusion in total income versus the current case where it was entirely exempt.

Ultimately, the court concluded that the assessee was not entitled to set off the loss against income under other heads for the assessment year 1949-50. The judgment was delivered in the negative, denying the requested relief to the assessee. The Commissioner of Income-tax was awarded costs for the reference, and the court directed the transmission of the judgment to the Income-tax Appellate Tribunal for action.