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Issues involved: Interpretation of u/s 75 of the Income Tax Act, 1961 regarding carry forward and set off of unabsorbed losses by a registered firm.
Summary: The High Court of Madhya Pradesh considered a reference made by the Income-tax Appellate Tribunal regarding the entitlement of an assessee-firm to carry forward and set off unabsorbed losses from earlier years against its income for the assessment year 1970-71. The firm, M/s. Kalani Udyog, had claimed to set off losses from 1968-69 and 1969-70, which was denied by the assessing authorities and appellate bodies. The relevant statutory provision, u/s 75 of the Act, stipulates the treatment of losses for registered firms. It mandates that losses not set off against other income shall be apportioned among the partners for set off under specified sections. The court emphasized the plain language of the section, highlighting that it does not allow a registered firm to carry forward losses under certain circumstances. The court rejected the contention that a liberal construction of the provisions should be adopted, citing the imperative nature of u/s 75. It noted that literal interpretation is crucial in tax statutes and referred to decisions from various High Courts supporting its view. The court also clarified that the case was limited to the application of u/s 75 and did not delve into the treatment of depreciation losses under a different section. Ultimately, the court answered the question in the affirmative, favoring the department and denying the assessee's claim for carrying forward unabsorbed losses. No costs were awarded in the judgment.
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