1983 (3) TMI 71 - AT - Income Tax

Summary

Issues:
- Challenge to the action of the AAC allowing the assessee's application to adjust a loss against other income.
- Interpretation of provisions of section 64(2) of the Income-tax Act, 1961 regarding clubbing of income.
- Whether a share of loss can be clubbed with other income under section 64(2).
- Impact of the amendment made by the Finance Act, 1979 inserting Explanation 2 to section 64(2) with effect from 1-4-1980.
- Application of legal principles regarding the treatment of losses as negative income and their inclusion in the computation of taxable income.

The judgment pertains to an appeal where the revenue challenged the action of the AAC in allowing the assessee to adjust a loss against other income. The assessee, an individual, had incurred a loss from one firm while having profits from two other firms. The issue revolved around the interpretation of section 64(2) of the Income-tax Act, 1961, which deals with the clubbing of income. The revenue contended that only positive income should be clubbed, not a share of loss. The assessee argued that the loss should be considered as negative income and included in the computation of taxable income. The AAC allowed the adjustment of the loss to the extent of the share of profits from the other two firms.

The revenue, dissatisfied with the AAC's decision, appealed to the Tribunal. The revenue relied on the amendment made by the Finance Act, 1979, inserting Explanation 2 to section 64(2) from 1-4-1980, which stated that 'income' includes 'loss'. The revenue argued that since the assessment year was 1977-78, the assessee could not benefit from this Explanation. The assessee contended that the loss is akin to negative profit and should be considered for set off. The Tribunal referred to a Supreme Court judgment emphasizing that losses are negative profits and should be included in the computation of taxable income.

The Tribunal upheld the AAC's decision, noting that the law had already recognized the treatment of losses as negative income before the 1980 amendment. The Tribunal highlighted that the ITO had allowed a similar set off in a previous assessment year. As the assessee did not challenge the restriction on the loss allowance, the Tribunal confirmed the AAC's order. Ultimately, the appeal by the revenue was dismissed, affirming the allowance of adjusting the loss against other income.