1979 (12) TMI 37 - HC - Income Tax

Summary

Issues:
1. Entitlement to carry forward and set off losses sustained by a partner in a firm after ceasing to be a partner.
2. Interpretation of section 72(1)(ii) of the Income-tax Act, 1961 regarding the proviso under clause (i) of sub-section (1) of section 72.

Analysis:
The case involved a reference under section 256(1) of the Income-tax Act, 1961, regarding the entitlement of the assessee to carry forward and set off losses sustained as a partner in a firm even after ceasing to be a partner. The assessee had claimed to carry forward a loss from a firm for the assessment year 1965-66. However, the Income-tax Officer rejected the claim on the grounds that the assessee had ceased to be a partner of the firm after a certain year, and the business was not continued in the relevant year. The Appellate Assistant Commissioner and the Tribunal upheld this view, leading to the reference to the High Court.

The main contention raised was whether the condition prescribed by the proviso to clause (i) of section 72(1) of the Act should be applied to clause (ii) as well. The assessee argued that since there was no similar proviso in clause (ii), it should not be imported. However, the court held that the condition prescribed by the proviso to clause (i) is necessary for setting off carried forward losses under clause (ii). The court emphasized that the carried forward loss can only be set off against profits and gains of any business or profession carried on by the assessee if the condition of the proviso to clause (i) is satisfied.

Ultimately, the court ruled against the assessee on both questions. The first question regarding the entitlement to set off the loss sustained by the assessee as a partner in the firm was answered in the negative. The second question on the interpretation of section 72(1)(ii) was answered in the affirmative, stating that the condition prescribed by the proviso to clause (i) must be satisfied for setting off carried forward losses. The court ordered parties to bear their own costs in this reference.