1972 (7) TMI 25 - HC - Income Tax

This is a petition under article 226 of the Constitution and raises an interesting question relating to the interpretation of sections 32 and 75 of the Income-tax Act 1961. - When the loss of a registered firm is allocated to the partners whether the firm is entitled to carry forward and set off the loss for the purposes of the firm tax - partners alone can carry forward any loss which remains unabsorbed as per section 32(2) and 75(2) of Income-tax Act 1961 - firm as such cannot carry forward the losses determined in its assessments - Petition dismissed

Summary

Issues:
Interpretation of sections 32 and 75 of the Income-tax Act, 1961 regarding carry forward and set off of losses for a registered partnership firm.

Analysis:
The case involved a registered partnership firm challenging the assessment order of the Income-tax Officer for the year 1966-67. The firm claimed that losses from preceding years should have been carried forward and set off against the profits of the current year. The Income-tax Officer allowed adjustment for development rebate but rejected the claim for carrying forward losses, stating that such losses had already been allocated to the partners and the firm was not entitled to carry them forward. The Appellate Assistant Commissioner and the Commissioner of Income-tax upheld this decision, leading to the firm's petition under article 226 of the Constitution.

The key contention was whether a registered firm could carry forward losses for the purpose of determining "firm tax." The court analyzed the provisions of the Income-tax Act, specifically sections 32 and 75. It highlighted that while individual assessees could carry forward losses, registered firms had their losses allocated to partners, who were entitled to set them off in their individual assessments. The court emphasized that the firm itself was not entitled to carry forward losses under the Act.

The court referred to the specific provisions in section 32 and section 75, which stated that unabsorbed depreciation and losses could not be carried forward by a registered firm as they were allocated to partners. The firm's argument that losses should be carried forward for "firm tax" purposes was rejected, as it would lead to inconsistencies in assessments and was not supported by the Act. The court also dismissed the firm's reliance on a Tribunal decision that distinguished between substantive tax and subsidiary tax, emphasizing that such a classification was not valid under the Income-tax Act.

Additionally, the court addressed the firm's argument regarding a Supreme Court decision under the Indian Income-tax Act, 1922, but clarified that it was not applicable to the present case. Ultimately, the court held that the firm's claim was untenable, and the Commissioner was correct in rejecting it. The petition was dismissed, affirming that the firm was not entitled to carry forward losses for the purpose of "firm tax" assessment.

In conclusion, the judgment clarified the provisions of the Income-tax Act regarding the treatment of losses for registered firms and upheld that such firms were not permitted to carry forward losses allocated to partners. The decision emphasized the specific provisions of the Act and rejected the firm's argument for carrying forward losses for "firm tax" purposes, maintaining consistency in assessments and tax liabilities for registered firms.