1970 (9) TMI 18 - HC - Income Tax

Whether an individual partner has the right to set off his share of the unregistered firm s loss against his share of income of registered firms of the same year under the same head - held that individual partner has no right to set off his share of an unregistered firm s loss against his share of income from a registered firm of the same year under the same head

Summary

Issues:
Whether an individual partner has the right to set off his share of the unregistered firm's loss against his share of income of registered firms of the same year under the same head?

Analysis:
The judgment addressed the issue of whether partners in unregistered firms can set off their share of loss against their income from registered firms. The petitioners argued that the share of loss from an unregistered firm should be set off against the share income from registered firms to compute the total income. They relied on legal precedents to support their contention. However, the court highlighted that partners of unregistered firms cannot gain a double advantage by setting off their share of loss against their own income while the unregistered firm can carry forward its losses. The court emphasized that even the share of profits from an unregistered firm is only considered for rate purposes and not for computing total income. The court noted that partners cannot claim such set off under the Income-tax Act, 1961. Therefore, the contention of the petitioners was deemed untenable and rejected.

The judgment also discussed the difference in treatment between registered and unregistered firms under the Income-tax Act. It explained that while the total income of both types of firms is assessed similarly, the procedure for levying tax differs. Tax is directly levied on unregistered firms, whereas each partner's share of profits from a registered firm is included in their total income and taxed individually. The court highlighted the specific provisions in the Act related to set-off and carry-forward of losses incurred by firms to emphasize the distinct treatment of registered and unregistered firms in terms of taxation.

In conclusion, the court dismissed the writ petitions, stating that partners in unregistered firms do not have the right to set off their share of loss against their income from registered firms. The judgment underscored that partners cannot claim such set off even under the provisions of the Income-tax Act, 1961. Therefore, the court held the petitioners' contentions as untenable and rejected them, resulting in the dismissal of the writ petitions.