1991 (1) TMI 209 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the return filed beyond the prescribed time limit under section 139(4) of the Income-tax Act.
2. Applicability of section 80 regarding the carry forward and set off of losses.
3. Interpretation of section 182(2) in the context of a partner's share of loss in a registered firm.
4. Requirement for a partner to file a return of loss to claim set off and carry forward of losses.

Detailed Analysis:

1. Validity of the Return Filed Beyond the Prescribed Time Limit:
The appellant filed the return for the assessment year 1982-83 on 3-5-1985, which was beyond the time limit prescribed under section 139(4) of the Income-tax Act. The Income-tax Officer (ITO) did not take cognizance of this return and did not compute the profit or loss for that year. The ITO concluded that since the return was filed outside the prescribed time limit, it was invalid, and thus, the loss could not be carried forward or set off against the current year's income.

2. Applicability of Section 80 Regarding Carry Forward and Set Off of Losses:
Section 80 stipulates that no loss which has not been determined in pursuance of a valid return filed can be carried forward and set off under sections 72(1) or 72(2). The ITO held that the appellant's return for the assessment year 1982-83 was invalid, and therefore, the loss could not be carried forward. The Commissioner of Income-tax (Appeals) (CIT(A)), however, interpreted that section 80 does not override the provisions of section 182(2), which deals with the assessment of a partner's share of loss in a registered firm.

3. Interpretation of Section 182(2):
Section 182(2) states that if a partner's share in a registered firm is a loss, it shall be set off against his other income or carried forward and set off in accordance with sections 70 to 75. The CIT(A) held that for a partner in a registered firm, filing a loss return is not a prerequisite for enjoying the benefit of set off and carry forward of losses. The loss of the registered firm, determined in pursuance of a return filed by the firm within the time allowed, was sufficient for the partner to claim the loss.

4. Requirement for a Partner to File a Return of Loss:
The learned Departmental Representative argued that the partner must file a return of income or loss to claim the benefit of carry forward and set off of losses. The learned counsel for the assessee contended that the loss determined in the firm's assessment should be sufficient for the partner to claim the loss, even if the partner did not file a return of loss. The Tribunal examined the provisions of section 139 and concluded that furnishing a return of income or loss within the statutory time limit is a condition precedent for determination and carry forward of losses. The Tribunal held that the partner must file a return of income or loss within the statutory time limit to claim the benefit of set off and carry forward of losses.

Conclusion:
The Tribunal vacated the order of the CIT(A) and restored the order of the ITO. It held that the appellant did not file the return of loss for the assessment year 1982-83 within the prescribed time limit, and therefore, the ITO was justified in treating the return as invalid and not allowing the set off of the loss in the subsequent year. The Tribunal emphasized that compliance with statutory requirements is necessary to claim the beneficial provisions of set off and carry forward of losses. The revenue's appeal was allowed.