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TMI Blog1964 (4) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant assessment year 1953-54 for which the accounting year was the year ending October 18, 1952, the assessee had made a profit of ₹ 14,189 in his individual business. In the partnership business, which he had carried on in partnership with Chinna Venkayya, his share of loss came to ₹ 13,831. The assessee claimed to deduct this loss from the profits and gains in the individual business. The Income Tax Officer disallowed the same observing that the loss sought to be adjusted was the share of the assessee's loss in the business of an unregistered partnership and it was not capable of being adjusted against his profits and gains in his individual business. The decision of the Income Tax Officer was upheld by the Appellate Assistant Commissioner. In the second appeal before the Tribunal, the Tribunal took the view that that assessee was entitled to adjust the said loss in computing the profits and gains of his business under section I0 of the Income Tax Act and that the second proviso to section 24(1) had no application to the case. It, therefore, allowed the assessee's appeal and directed that the assessee was entitled to adjust the loss in the computation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. The said argument was rejected by the High Court and the Privy Council agreed with the view of the High Court. Referring to the provision of section 24(2) of the Indian Income Tax Act, as it then stood, they pointed out that the Income Tax Act did not treat the partner of a firm as a separate assessee in so absolute a sense as to prevent a partner's share of loss being set off against his individual profits or gains and it was observed that in their opinion whether a firm was registered or unregistered partnership does not obstruct or defeat the right of a partner to an adjustment on account of his share of loss in the firm, whether the set-off be against the other profits under the same head of income within the meaning of section 6 of the Act or under a different head (in which case only need recourse be had to section 24(1)). In view of the said decision of the Privy Council, there can be no doubt whatsoever that under the Act of 1922, before its amendment by the amending Act of 1939, an assessee in his individual assessment was entitled to adjust the loss suffered by him in an unregistered partnership business against his profits in the business carried on by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains from his individual business. In the case of an registered firm, however, in view of the provision of section 24, according to Mr. Joshi, loss can be set off only against the profits and gains of the firm and not against the income, profits and gains of any the partners of the firm. According to Mr. Joshi, the proviso to section 16(1) (b) and the second proviso to section 24(1), which are amendments effected in the Income Tax Act subsequent to the Privy Council decision in Arunachalam Chettiar v. Commissioner of Income Tax , have changed the position of a partner in an unregistered firm and, consequently, the said decision cannot be applied to cases under the amended Act. 6. Section 24, so far as material for our purpose, is as follows : 24. (1) where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in section 6, he shall be entitled to have the amount of the loss set off against his income, profits or gains under any other head in that year :.... Provided further that where the assessee is an unregistered firm, which has not been assessee under the provisions of clause (b) of sub-section (5) of section 23, any such lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits in the said partnership business as his income from the business. In P.M. Muthuraman Chettiar v. Commissioner of Income Tax, a Bench of the Madras High Court held : The share income of a partner of a firm falls under the head 'profits and gains of business' referred to in section 10 of the Act and is not 'income from other sources' falling under section 12, and a loss incurred by an assessee as a partner in a firm must, therefore, be deducted in computing his total income under the head 'business' under section 10(2). 10. In taking that view they followed the decision of this court in Shantikumar Natottam Morarji v. Commissioner of Income Tax . It was argued in the said Madras case that in view of the proviso to section 16(1) (b) and in view of the provisions of section 24, so far as the share of loss of the partner in the unregistered firm is concerned, they could not be adjusted in the computation of his profits and gains from business under section 10. The argument was negatived and the learned judges took the view that there was nothing in section 16(1) or in section 24, which prevented the assessee from adjusting the said losses in h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation, the second proviso thereto can also have no application. 12. The treatment of the losses under section 24 will only be for the purpose of setting off losses under different heads. Where the partner of an unregistered firm seeks a set-off or a carry forward and set-off of his losses under one head against profits under another head, no doubt, he will have to be governed be section 24 and also by the second proviso to that section. In view of the second proviso, his share of the losses in the unregistered partnership will not be capable of being set off against his income from any other head, but so long as the adjustment that he seeks is in his income under the same head, viz., business , there is nothing in the provisions of section 24 which would preclude him from seeking that adjustment under section 10 of the Indian Income Tax Act. 13. Coming to the second proviso to section 24(1) itself, in the first place, it applies to the case where the assessee is an unregistered firm, and not where the assessee is not an unregistered firm, but an individual partner. In the second place, the unavailability of the losses of the firm against the income, profits and gains of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not possible to accept the contention of Mr. Joshi that the second proviso to section 24(1) can be regarded as an independent provision affecting the computation of the income of the assessee under section 10 of the Income Tax Act. Moreover, even if it were to be assumed that the proviso is an independent provision, in view of the observations of the Supreme Court in Commissioner of Income Tax v. Muthuraman Chettiar , to which we have already made a reference, the said proviso will have application only where the assessee is an unregistered firm. In the present case, the assessee is not an unregistered firm. As a matter of a fact, the unregistered firm has not been assessee at all. The assessee is an individual and the question is with regard to the computation of the income of that individual under section 10 of the Indian Income Tax Act. 17. In our opinion, therefore, the contentions urged by Mr. Joshi cannot be sustained. 18. Mr. Joshi has referred to us the case in Commissioner of Income Tax v. Jadavji Narasida Co . In that case the assessee was a registered firm consisting of four partners, which dealt in speculation in a joint venture with another individual unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not those of its partners. The loss of ₹ 1,05,641 could be set of against the income, profits and gains (if any) of the unregistered firm of five persons and not of the partners. In the same manner the loss, if not absorbed, could be carried forward to be set off against further income, profits and gains of the same unregistered firm of five persons. The High Court was thus in error in holding that those losses could be set off against the income of the assessee-firm. It make no difference that the department has not assessee the unregistered firm taken action under section 23(5) (b). What the High Court has ordered just cannot be done as it is against the provisions of section 24. 20. Their Lordships then went on to observe : Whether the partners in their individual assessments would be able to take advantage of section 16(1) (b) and the decision of the Privy Council in Arunachalam Chettiar v. Commissioner of Income Tax (a point conceded before us) is not a matter on which we need pronounce our opinion. That question does not arise for our consideration. 21. In view of these observations, which we have referred to above, it seems to us that the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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