1978 (7) TMI 65 - HC - Income Tax

Summary

Issues:
- Interpretation of sections 24(2)(ii) and 24(2)(iii) for setting off carried forward loss against business income
- Determining if two firms carrying out similar businesses can be considered the same business for set-off purposes

Analysis:
The judgment concerns the interpretation of sections 24(2)(ii) and 24(2)(iii) of the Indian Income Tax Act, 1922, regarding the set-off of carried forward losses against business income. The case involved two firms, Chitra Mandir and Hind Vijay, both engaged in film exhibition business. The assessee was a partner in both firms. The issue was whether the assessee could set off the carried forward loss from Hind Vijay against the business income of the material year from Chitra Mandir.

Initially, the Income Tax Officer (ITO) rejected the set-off claim, stating that the business in which the loss was incurred was not carried on in the material accounting year. However, the Appellate Assistant Commissioner (AAC) reversed this decision, emphasizing that the source of income, i.e., the film business, remained the same even though the firms had different constitutions. The AAC directed the ITO to permit the set-off.

On further appeal, the Tribunal sided with the revenue, asserting that the two firms were separate taxable units and did not carry on the same business. The Tribunal highlighted the differences in constitution and operations of the two firms, concluding that they were distinct entities.

The judgment referred to the Supreme Court case of CIT v. A. Dharma Reddy, where a similar set-off claim was allowed. The Supreme Court held that the nature of the business activity, rather than the constitution of the partnership, determined if the businesses were the same. Applying this precedent to the present case, the High Court found that since both firms were engaged in film exhibition business with common management and coordination, the set-off was justified.

Additionally, the judgment discussed the Supreme Court decision in B. R. Ltd. v. V. P. Gupta, CIT, which emphasized the need for an interconnection and unity between businesses for them to be considered the same. In the case at hand, the commonality in business activities and operations between Chitra Mandir and Hind Vijay supported the allowance of the set-off.

Ultimately, the High Court ruled in favor of the assessee, allowing the set-off of the carried forward loss from Hind Vijay against the business income of the material year and share income from Chitra Mandir. The judgment highlighted the applicability of the Supreme Court precedents and directed the revenue to pay the costs of the assessee.