1966 (9) TMI 23 - HC - Income Tax

Whether the assessee s claim to set off his share of the loss from the unregistered firm separately assessed to tax was rightly disallowed in view of the second proviso to section 24(1) of the IT Act, 1922 - held, yes

Summary

Issues:
Interpretation of the second proviso to section 24(1) of the Indian Income-tax Act, 1922 regarding the set-off of losses from an unregistered firm against income from other sources.

Detailed Analysis:

The case involved a question on whether the assessee's claim to set off his share of the loss from an unregistered firm against his income from other sources was rightly disallowed under the second proviso to section 24(1) of the Income-tax Act. The assessee, an individual, was a partner in an unregistered firm and claimed to set off his share of loss amounting to Rs. 50,587 against his income from salary, property, and dividends. However, the Income-tax Officer, the Appellate Assistant Commissioner, and the Tribunal refused this claim, citing that the loss from the unregistered firm could only be set off against the firm's income, profits, and gains, not against the partners' income.

The interpretation of the second proviso to section 24(1) was a crucial aspect of the case. The provision stated that where the assessee is an unregistered firm, any loss shall be set off only against the income of the firm, not against the partners' income. The court emphasized that the expression "where the assessee is an unregistered firm" in the proviso restricts the set-off of losses under the general rule of section 24(1) to only the income of the unregistered firm, excluding the partners' income.

The court rejected the argument presented by the assessee's counsel, emphasizing that the requirement of being an unregistered firm, as specified in the second proviso, must be fulfilled for the loss set-off. The court highlighted that allowing partners of unregistered firms to claim set-off against their individual income would defeat the purpose of the proviso and lead to confusion between different capacities and entities. The court also referred to previous judgments and legal interpretations to support its decision, including the observations of the Supreme Court and decisions from other High Courts.

Ultimately, the court answered the question in the affirmative, affirming that the assessee's claim for set-off against income from other sources was rightly disallowed under the second proviso to section 24(1) of the Income-tax Act. The judgment concluded with no order as to costs, and both judges concurred with the decision.