1960 (12) TMI 9 - SC - Income Tax

Whether the share income of the assessees from the unregistered firm (which is separately taxed) namely 26, 110 can be set off against their share loss from registered firms namely 13, 167 ? Held that - Though the decision of the High Court on the main issue and on one aspect of the question posed for its opinion was correct it was in error in deciding that the losses of the registered firms could not be carried forward because they had been absorbed by the profits of the unregistered firm. Subject to that modification the appeal will be dismissed

Summary

Issues:
1. Whether share income from an unregistered firm can be set off against share loss from registered firms.
2. Whether losses from registered firms can be carried forward to the succeeding year.

Analysis:
1. The case involved three appellants who were partners in registered and unregistered firms. The High Court of Bombay answered in the affirmative to the question of whether share income from an unregistered firm can be set off against share loss from registered firms. The Income-tax Officer initially set off the profits of the unregistered firm against the losses of the registered firms, which the appellants contested. The Tribunal relied on the second proviso to section 24(1) and held that losses from a registered firm cannot be set off against profits from an unregistered firm. However, the High Court disagreed with the Tribunal and allowed the set-off, certifying the case for appeal to the Supreme Court.

2. The High Court also addressed the issue of carrying forward losses from registered firms to the following year. It held that the losses could not be carried forward as they were deemed to have been absorbed by the profits of the unregistered firm. The Supreme Court agreed with the High Court's decision on the set-off issue but disagreed on the matter of carrying forward losses. The Supreme Court clarified that the provisions of sections 14(2) and 16(1)(a) regarding set-off for determining total income do not negate the applicability of section 24 for carrying forward losses. The Court emphasized that the purpose of section 24 is distinct from determining the rate applicable to taxable income.

In conclusion, the Supreme Court modified the judgment of the High Court to clarify that losses from registered firms can be carried forward to subsequent years despite being set off against profits from an unregistered firm. The appeal was dismissed, and no costs were awarded.