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TMI Blog1998 (9) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... n be carried forward and set off from his income derived from other sources, for the assessment years 1975-76, 1976-77, 1977-78 and 1978-79 ? 2. If so, whether the revisionary order of the learned Commissioner of Income-tax, AP-II, dated December 31, 1984, was correctly passed and whether the Tribunal's order can be sustained ?" The facts relevant for the purpose of disposing of this reference case are as follows : The assessee was a partner of Sawan Films, which was an unregistered firm and had three partners. By the assessment order dated February 10, 1983, the Income-tax Officer determined the loss sustained by the said unregistered firm at Rs. 3,75,528, which he ordered to be carried forward to the assessment year 1974-75. Sawan Film ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er's own income from other sources. Therefore, he revised the order of the Income-tax Officer under section 263 of the Income-tax Act. Against the order of the Commissioner of Income-tax, the assessee filed an appeal before the Tribunal. The Tribunal allowed the appeal and set aside the revisionary orders of the Commissioner of Income-tax. At the instance of the Revenue, the Tribunal referred the two questions set out in the earlier paragraph. The Tribunal held that the Income-tax Officer, while. allowing the carry forward of losses and setting them off against the income of the assessee under other heads in the assessment year 1974-75, has not committed any error and the orders of the Income-tax Officer are not prejudicial to the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e loss of the unregistered firm can be carried forward and set off against the income of the partner of a registered firm. In support of his contention, he relied on the following decisions: Excel Productions v. CIT [1967] 64 ITR 65 (Ker) ; CIT (Addl.) v. B. S. Dall Mills [1981] 131 ITR 111 (Kar) and CIT v. Sunil Theatre [1989] 177 ITR 558 (P & H). The question, therefore, is whether the loss of an unregistered firm can be carried forward and set off against the income of a partner of a registered firm. The undisputed facts are that Sawan Films originally consisted of three partners. One of the partners retired. The partnership existed for 1973-74. For the year 1974-75, there was a change in the constitution of the firm, as one of the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d set off under section 24(2) against the profits of the firm in the following year, even though the firm was registered and is assessed as a registered firm in the following year. Similar is the view expressed by the Karnataka High Court in B. S. Dall Mills' case [1981] 131 ITR 111. It was a case where one of the partners of an unregistered firm retired and, thereafter, the firm was registered. The Karnataka High Court also agreed with the judgment of the Kerala High Court in Excel Productions' case [1967] 64 ITR 65. In that case, the observations of the Karnataka High Court are as follows : "The Kerala High Court held that under sub-section (2) of section 24 of the Indian Income-tax Act, 1922, such carry forward and set off of the loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irm, the word 'firm' used at the end of section 77(1) of the Act includes both a registered as well as an unregistered firm. The registration of the firm does not take away the benefit which would have accrued to it under section 77(1) of the Act if it had remained unregistered." Therefore, it follows from the above, that in view of the specific language mentioned under section 77(1) read with section 75 of the Income-tax Act, 1961, the loss of an unregistered firm can be carried forward and set off against the income of the partner of a registered firm subject to section 72 of the Income-tax Act. The judgment of the Rajasthan High Court in Todi Paharmal's case [1987] 163 ITR 540 relied upon by learned counsel for the Revenue deals with t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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