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TMI Blog1993 (12) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... d to carry on business as a film distributor in the name of "Sadhana Enterprises". Messrs. Navketan International Films Pvt. Ltd. was the producer of a film named "Ishk Ishk Ishk". By an agreement dated July 3, 1974, Messrs. Navketan International Pvt. Ltd. appointed Messrs. S. P. Pictures as distributor of the said picture in the territories comprising the Bombay circuit as known in the film trade. By clause 5 of the said agreement, it was provided that the distribution period stipulated upon was a period of 11 years from the date of the first release of the said picture in any part of the said territory. The said Messrs. S. P. Pictures agreed to pay a sum of Rs. 16,51,000 to the producer as and by way of minimum guarantee as provided in clause 7 of the said agreement. On July 8, 1974, a written agreement was arrived at between Messrs. S. P. Pictures and Messrs. Sadhana Enterprises, a sole proprietary concern of the assessee, whereunder the parties to the agreement agreed to share profit or loss in respect of distributorship rights acquired under the agreement dated July 3, 1974, referred to hereinabove in the ratio of 40 per cent. for the assessee and 60 per cent. for Messrs. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals). The Commissioner of Income-tax reached the conclusion that the agreement dated July 8, 1974, was a genuine agreement. The Commissioner of Income-tax (Appeals) also reached the conclusion that the agreement dated July 8, 1974, was an agreement of partnership and the assessee was not entitled to claim set off or adjustment in respect of the loss alleged to have been suffered by the assessee against her personal income in view of the provision contained in section 77(2) of the Income-tax Act, 1961. During the course of the first appeal, the assessee relied on a circular being Circular No. 30 of 1941 issued by the Central Board of Direct Taxes and corrigendum thereto dated February 27, 1943, in support of her claim for set off or adjustment of the loss pertaining to the said unregistered firm against her personal income. The said circular reads as under : "C. B. R. Circular No. 30 of 1941, C. No. 31(1) I. T./41 dated the 20th day of 1941. Subject : joint venture-Assessment of-It has been reported to the Board that the practice is not uniform in the matter of assessments of the profits arising from temporary partnerships of the nature of joint ventures. Legally such joint ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nuine agreement. The Tribunal further held that the agreement on its proper construction was an agreement of partnership. The Tribunal thereafter addressed itself to the question as to whether the loss arising from the said unregistered partnership firm could be allowed to be set off in the hands of the individual partners. The Tribunal relied on the abovereferred circular dated April 20, 1941, in support of its conclusion that the assessee was entitled to claim the set off in respect of her share of loss from the said unregistered firm against her personal income. The Tribunal held that the said circular was appli cable to the case of the assessee. By the operative part of its order, the Tribunal held that the assessee will be entitled to set off her share of loss pertaining to the said unregistered firm against her personal income. The appeal filed by the Revenue was thus dismissed by the Tribunal. At one stage, there was a controversy between the parties as to whether the above referred agreement dated July 8, 1974, was genuine or not. The Tribunal held that the said agreement was genuine. At one stage, there was also a controversy between the parties as to whether the documen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst his own income." It is well-settled that any loss incurred by an unregistered firm may be set off by such firm against its income in the same year or may be carried forward if unabsorbed for being set off against the profits of such firm in subsequent year subject to the provisions of sections 70 to 74. It is equally well-settled that no individual partner has the right to set off his or her share of the firm's loss against his or her personal income of the same year or carry forward such loss. Section 77 expressly enacts that in the case of an unregistered firm whether already assessed or not, no partner has the right to set off his share of the firm's loss against his own income under any head or to carry forward such loss. Learned counsel for the Revenue has invited the attention of the court to the judgment of the High Court of Rajasthan in the case of Todi Paharmal v. CIT [1987] 163 ITR 540. It was held by the court in this case that the loss suffered by an unregistered firm can be set off only against its own income and in no other manner. The words used in section 77(2) of the Act to the effect "whether the firm has already been assessed or not" are of considerabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment of the Supreme Court, we have no hesitation in holding that even under the Indian Income-tax Act, 1922, the losses of the unregistered firm could be set off only against the income of the unregistered firm and not that of its partners. Learned counsel for the assessee has submitted that section 77(2) of the Act is not applicable in a situation where an unregistered firm has not been assessed in respect of a loss suffered by it. It is not possible to accept this submission in view of the explicit language of section 77(2) of the Income-tax Act, 1961, and in view of the judgment of the Supreme Court in CIT v. Jadavji Narsidas and Co. [1963] 48 ITR 41 (SC). It is not possible to apply the ratio of the Bombay and Andhra judgments cited above in view of the Supreme Court judgment in CIT v. Jadavji Narsidas and Co. [1963] 48 ITR 41 having overruled the Bombay view. Learned counsel for the assessee has submitted that it could not have been the intention of the Legislature to deprive the partner of an unregistered firm of his right to set off the loss pertaining to an unregistered firm when an unregistered firm has not been assessed. The court is required to ascertain the intentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of double assessment at all. No one has taxed the same income twice in this case. Learned counsel for the assessee also invited the attention of the court to the judgment of the High Court of Gujarat in the case of Laxmichand Hirjibhai v. CIT [1981] 128 ITR 747 and the Circular issued by the Central Board of Direct Taxes on August 24, 1966, referred to therein explaining the impact of the judgment of the Supreme Court in CIT v. Murlidhar Jhawar and Purna Ginning and Pressing Factory [1966] 60 ITR 95. By the said circular dated August 24, 1966, the Central Board had invited the attention to the decision of the Supreme Court in Murlidhar Jhawar's case [1966] 60 ITR 95 and observed that once the Income-tax Officer assessed directly the assessee's share of income from a firm, it was not open to him to assess the same income again in the hands of the firm. In its judgment, the High Court of Gujarat held that in view of the principle against double taxation in the hands of the same person and in the absence of any special provision enabling double taxation of income, once in the hands of the unregistered firm and again in the hands of its partners, the assessee could not be taxed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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