1980 (3) TMI 60 - HC - Income Tax

Summary

Issues Involved:
1. Legality of set-off of speculation loss from 1964-65 against speculation profit in 1972-73.
2. Time limit for rectification under Section 155 of the Income-tax Act.
3. Apportionment of speculation loss among partners under Section 158 of the Income-tax Act.

Detailed Analysis:

1. Legality of Set-off of Speculation Loss:
The primary issue was whether the Tribunal was legally correct in allowing the assessee the benefit of setting off a speculation loss from the assessment year 1964-65 against the speculation profit for the assessment year 1972-73. The assessee, an individual, had a share in a firm's speculation business, which incurred a loss in 1964-65. Although the firm's total loss was determined in 1969, the assessee's share of the speculation loss was not apportioned until 1974. The assessee claimed a set-off of this loss against the speculation profit in 1972-73, which the Income-tax Officer (ITO) initially denied, citing that the rectification period under Section 155 had expired.

2. Time Limit for Rectification under Section 155:
The ITO argued that the rectification of the assessee's assessment for 1964-65 could only be made within four years of the firm's final assessment, which was completed in 1969. Since the rectification was not made within this period, the assessee's share of the speculation loss remained at "nil." The Tribunal, however, held that the ITO had the duty to apportion the loss among the partners and that the rectification period should be counted from the date of the apportionment order in 1974, not from the firm's final assessment date in 1969.

3. Apportionment of Speculation Loss Among Partners:
Sections 70 to 79 of the Income-tax Act deal with set-off or carry-forward and set-off of losses, with Section 73 specifically addressing speculation business losses. Unlike other losses, speculation losses can only be set off against profits from another speculation business. Section 75(1) states that in the case of a registered firm, any loss must be apportioned among the partners, who alone can carry forward and set off their share of the loss. The Tribunal emphasized that the ITO should have apportioned the speculation loss among the partners immediately after the firm's assessment. The final order in the firm's case, including the apportionment, was completed only in 1974, making the assessee's claim for set-off within the allowable period.

Conclusion:
The court agreed with the Tribunal's view, stating that the assessment process, including the apportionment of the firm's total income among partners, must be read as a whole. The final order, for the purpose of rectification under Section 155, is the one that includes the apportionment of income or loss among the partners. The four-year limitation period for rectification should be counted from the date of this final order. Consequently, the assessee's claim for set-off was legally maintainable, and the Tribunal's decision to allow the set-off was upheld.

Judgment:
The question was answered in the affirmative, against the department and in favor of the assessee. The assessee was entitled to costs assessed at Rs. 200 and counsel's fee in the same amount.