1962 (1) TMI 5 - SC - Income Tax

Whether the loss of ₹ 23,672 incurred by the assessee as a partner of the three firms outside India can be set off against the assessee s income from business in India having regard to the provisions of the Indian Income-tax Act in this behalf ? Whether on the facts and circumstances of the case the share of the assessee s loss out of the sum of ₹ 43,969 cannot be set off against the profits of the assessee s business in arriving at the total assessable income ? Held that - If as we hold that section 24(1) has no application to the facts of the present cases, he second proviso thereto can also have no application. Moreover, the second proviso to section 24(1) applies only where the assessee is an unregistered firm. That is not the case here. The assessees before us are, in one case, a Hindu undivided family and, in the other, an individual. It is obvious, therefore, that the second proviso to section 24(1) can have no application in these cases. High court correctly answered the the questions in favour of assessee. Appeals dismissed.

Issues:
1. Whether losses incurred by the assessee in partnership with foreign firms can be set off against income from business within the taxable territories under the Indian Income-tax Act.
2. Whether the share of loss incurred by the assessee in a partnership in Burma can be set off against profits from the assessee's business in India under the Income-tax Act.

Analysis:
1. The case involved two consolidated appeals concerning the Commissioner of Income-tax, Madras, as the appellant and two different respondents. In the first appeal, the assessee, a Hindu undivided family, claimed a set-off of losses incurred in partnership with foreign firms against income from business within the taxable territories. The Tribunal disallowed the claim, stating that the right to set off arises under section 24, not section 10, when the business is in partnership with others. The High Court, however, ruled in favor of the assessee, allowing the set-off. The Supreme Court upheld the High Court's decision, emphasizing that the unit of assessment for a firm's profits or losses is the firm itself, even though the partner's share is included in the individual's total income.

2. In the second appeal, the assessee carried on a business in India and became a partner in a business in Burma, incurring a significant loss. The Income-tax authorities denied the claim to set off the loss against profits from the Indian business. The Tribunal also rejected the claim, stating that the Rangoon firm was a separate entity from the assessee. The High Court, however, ruled in favor of the assessee, allowing the set-off. The Supreme Court supported the High Court's decision, emphasizing that the assessee is entitled to set off losses suffered in businesses outside the taxable territories against profits made from businesses within the taxable territories under section 10 of the Income-tax Act.

3. The Supreme Court clarified that the second proviso to section 24(1) of the Income-tax Act, which applies to unregistered firms, does not have any relevance to the cases under consideration. The court highlighted that the objective of section 24(1) is to allow the set-off of losses under one head against income under another head, without disintegrating the "business" head. Referring to a previous decision, the court reiterated that section 10 does not differentiate between businesses in different locations, allowing the aggregation of profits from all businesses. Consequently, the court dismissed the appeals, affirming the High Court's decisions and concluding that the assessees are entitled to set off losses from foreign partnerships against profits from businesses within the taxable territories.

← Previous Next →