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Issues Involved:
1. Whether the M.H. Entity can be properly held to be an "unregistered firm" which has not been assessed under the provisions of clause (b) of sub-section (5) of section 23 for the assessment year 1958-59. 2. Whether it was open to the Tribunal to direct the Income Tax Officer to determine the assessee's share of loss in the Arvi contract and allow it accordingly. Detailed Analysis: Issue 1: Status of M.H. Entity as an Unregistered Firm The first issue was whether the M.H. Entity could be considered an "unregistered firm" that had not been assessed under section 23(5)(b) for the assessment year 1958-59. Both the counsel for the revenue and the assessee agreed that this question did not arise from the order of the Tribunal. Therefore, it was not necessary to answer this question. Issue 2: Tribunal's Direction to Determine Assessee's Share of Loss The second issue was whether the Tribunal was correct in directing the Income Tax Officer to determine the assessee's share of loss in the Arvi contract and allow it accordingly. This issue required a detailed examination of the facts and the application of relevant legal principles. 1. Facts and Background: - The assessee, a partnership firm named Hirani Construction Company, entered into a partnership with Manoharsingh Limited for construction projects. - The partnership, referred to as M.H. Entity, undertook two construction projects: a High School and hostel at Arvi and a Normal School at Chanda. - The partnership was dissolved on October 5, 1957, with losses from the Arvi project and anticipated profits from the Chanda project being settled between the parties. 2. Assessment Proceedings: - For the assessment year 1958-59, the M.H. Entity did not voluntarily file a return. The Income Tax Officer issued notices under sections 22(2) and 22(4), and eventually, a return was filed showing no profit or loss. - Hirani Firm, in its assessment, claimed a set-off of Rs. 27,000 as its share of loss from the Arvi project against profits from the Chanda project. This claim was disallowed by the Income Tax Officer and the Appellate Assistant Commissioner but was partially accepted by the Tribunal. 3. Tribunal's Decision: - The Tribunal, relying on the decision in Jadavji Narsidas & Co. v. Commissioner of Income Tax, allowed the set-off of the loss but directed the Income Tax Officer to determine the actual quantum of the loss. - The Tribunal held that the assessee was entitled to a set-off of its share of loss in the partnership with Manoharsingh Limited against its other income, even though the unregistered firm had not been assessed. 4. Supreme Court's Decision in Jadavji Narsidas & Co.: - The Supreme Court reversed the decision of the Bombay High Court in Jadavji Narsidas & Co., holding that the losses of an unregistered firm could only be set off against the income of that unregistered firm, irrespective of whether the department had assessed the unregistered firm or taken action under section 23(5)(b). - The Supreme Court also noted that the assessee firm had no locus standi as a partner in the joint venture, as a firm cannot enter into a partnership with another individual or entity. 5. Application to the Present Case: - The Tribunal's reliance on the Bombay High Court's decision in Jadavji Narsidas & Co. was misplaced as it had been reversed by the Supreme Court. - Consequently, the Tribunal's direction to the Income Tax Officer to determine the assessee's share of loss and allow it accordingly was incorrect. Conclusion: The first question was not answered as it did not arise from the Tribunal's order. The second question was answered in the negative, in favor of the Commissioner, based on the Supreme Court's decision in Commissioner of Income Tax v. Jadavji Narsidas & Co. The assessee was ordered to pay half the costs to the Commissioner.
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