1986 (3) TMI 112 - AT - Income Tax

Summary

Issues:
- Carry forward of losses from dissolved firm for assessment years 1969-70 to 1974-75.
- Eligibility criteria for carry forward of losses under section 72 of the Income-tax Act, 1961.
- Continuation of the same business by the assessee for the purpose of carrying forward losses.
- Interpretation of the term "same business" in the context of carrying forward losses.

Analysis:
The judgment revolves around the issue of whether the assessee, an HUF, has the right to carry forward losses allocated to it from a dissolved firm for assessment years 1969-70 to 1974-75. The firm, Mahavir Badridas, in which the assessee was a partner, incurred losses in various years. The dissolution deed clearly stated that the assets and liabilities were taken over by another partner, and the assessee was not continuing the same business. The Income Tax Officer (ITO) and the Commissioner [Appeals] both rejected the claim for carry forward based on the requirement of the business to be continued without a break, citing the decision in Hiralal Jeramdas v. CIT [1965] 58 ITR 1. The Commissioner [Appeals] emphasized the need for the same business to be continued for eligibility.

The assessee, on appeal, argued that the losses arose from the business of ready shares and that the business was being continued. The representative for the assessee relied on the decision in B. R. Ltd. v. V. P. Gupta, CIT [1978] 113 ITR 647, where the Supreme Court allowed carry forward of losses despite a change in the nature of business due to common management and control. However, the department representative contended that the business was not the same as the dissolved firm had taken over all assets and liabilities. The Tribunal analyzed the assessment orders of the firm and the activities of the assessee from Diwali 1974 to 1978. It concluded that the business of ready shares was not continued by the assessee, as profits were mainly from commissions, and the share business was negligible.

The Tribunal upheld the decision of the Commissioner [Appeals] and dismissed the appeal, stating that the assessee did not continue the same business as the dissolved firm, as required for the carry forward of losses. The judgment distinguished the case from CIT v. A. Dharma Reddy [1969] 73 ITR 751 [SC], where the Supreme Court allowed carry forward as the business activity was not discontinued. The Tribunal emphasized the need for continuity in the same business for the eligibility of carrying forward losses, which was lacking in the present case.