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Issues Involved:
1. Entitlement to set-off losses under Section 24(1) of the Indian Income-tax Act. 2. Applicability of Section 26(2) of the Indian Income-tax Act in the case of succession of businesses. 3. Determination of the rightful claimant for the set-off of losses. Detailed Analysis: 1. Entitlement to Set-off Losses under Section 24(1) of the Indian Income-tax Act: The primary issue revolves around whether the assessees, an undivided Hindu family, are entitled to set off the losses incurred from their 17 businesses against their income from other sources during the same accounting year, as per Section 24(1) of the Indian Income-tax Act. The court held that "it is, as Sec. 24 (1) specifically states, the 'assessee who sustains a loss' in any year, who is entitled to have the amount of the loss set-off against his income, profits or gains under any other head in that year." The court noted that B. K. Paul & Co. owned the 16 losing businesses throughout the accounting year ending April 13, 1933, and thus sustained a loss during that same year, making them eligible for the set-off under Section 24(1). 2. Applicability of Section 26(2) of the Indian Income-tax Act in the Case of Succession of Businesses: The second issue pertains to whether Section 26(2) of the Act, which deals with the succession of businesses, affects the assessees' right to set off their losses. Section 26(2) states, "Where at the time of making an assessment under Sec. 23, it is found that the person carrying on any business, profession or vocation has been succeeded in such capacity by another person, the assessment shall be made on such person succeeding, as if he had been carrying on the business, profession or vocation throughout the previous year, and as if he had received the whole of the profits for that year." The court clarified that Section 26(2) applies only when there are profits to be assessed. Since the businesses in question were transferred to new companies which did not exist during the accounting year and had no income or losses for that year, Section 26(2) was deemed inapplicable. The court emphasized that "no order of assessment could in the circumstances of this case have been made upon the limited companies which had succeeded to the ownership of the drug concerns for the plain and simple reason that those companies never had any income from any source whatever, and were successors to the ownership of business which had been during the year in question productive only of loss." 3. Determination of the Rightful Claimant for the Set-off of Losses: The final issue concerns who is entitled to claim the set-off for the losses-the original assessee (B. K. Paul & Co.) or the successor companies. The court concluded that the right to set-off under Section 24(1) belongs to the original assessee who sustained the loss. The court stated, "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." The court also noted that the successor companies, which were formed after the accounting year and had no income or losses for that year, could not claim the set-off. The court highlighted that "the limited companies did not come within the meaning of the word 'person by whom income-tax is payable' because they never had any income from any source." Conclusion: The court ruled in favor of the assessees, B. K. Paul & Co., allowing them to set off the losses incurred from their businesses against their income from other sources for the accounting year ending April 13, 1933. The court determined that Section 26(2) did not apply in this case as there were no profits from the businesses during the accounting year, and the successor companies could not claim the set-off. The reference was answered accordingly, granting the assessees the right to the set-off under Section 24(1) of the Indian Income-tax Act.
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