1970 (11) TMI 37 - HC - Income Tax

Whether Tribunal was right in law in holding that section 24(1) of the Income-tax Act 1922 did not apply to the assessee s case and that the assessee-family was entitled to set off its share of loss in the unregistered firm against its other business income under section 10 question is answered in the affirmative that is in favour of the assessee and against the department

Summary

Issues:
Interpretation of section 24(1) of the Income-tax Act, 1922 regarding set-off of loss in an unregistered firm against other business income under section 10.

Analysis:
The case involved a Hindu undivided family with a share in a firm, with a dispute whether the firm was registered or unregistered. The family declared a loss from the partnership business in their return. The Income-tax Officer initially ignored the loss as the assessment of the firm was pending, assessing the family's total income without considering the loss. Subsequently, the family sought rectification to allow the loss against other business income, which the Income-tax Officer denied, citing section 24 of the Income-tax Act, 1922.

Upon appeal, the Appellate Assistant Commissioner accepted the family's claim for set-off, determining the loss and stating that the Income-tax Officer could rectify the assessment under section 35(5) after examining the firm's books. The department appealed to the Appellate Tribunal, arguing that section 24 specifically governs set-off of loss, contending that the loss from an unregistered firm could only be set off against the firm's income, not the family's. The Tribunal, relying on a Supreme Court decision, upheld the Appellate Assistant Commissioner's decision.

The High Court noted that the Supreme Court's decision in Commissioner of Income-tax v. Muthuraman Chettiar was applicable to the present case, as the facts were similar. The Court rejected the department's reliance on other cases, emphasizing that in the present case, it was the Hindu undivided family claiming the loss, not the firm or its members. The Court cited the Supreme Court's ruling that losses in one business can be set off against profits in another under section 10, not section 24(1). Therefore, the Court answered the question in favor of the assessee, concluding that the family was entitled to set off its share of loss in the unregistered firm against its other business income under section 10.

In conclusion, the High Court's judgment clarified the application of section 24(1) in allowing the set-off of loss in an unregistered firm against other business income for a Hindu undivided family, following the precedent set by the Supreme Court. The Court's decision was based on the interpretation of relevant provisions and previous rulings, ultimately ruling in favor of the assessee.