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TMI Blog1961 (10) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... lso, if necessary, for the purpose of set off permissible under section 24(1) of the Act against his income falling under other heads. 2. The facts in the first case (Viz. No. 7 of 1960) are : The assessee is a Hindu undivided family and for the assessment year 1357 F. it claimed a set-off ₹ 17,853 on account of loss in a joint venture at Sailu where it derives income from business in groundnut oil and also in speculation. The Income Tax Officer held that the loss in the joint venture at Sailu was not proved and hence disallowed the same. On appeal, the Appellate Assistant Commissioner observed that the joint venture was an unregistered partnership and hence the share of loss from that business could not be allowed in the assessment of the partner. Against this order the assessee appealed to the Tribunal which allowed the claim of the assessee, holding that the books of account disclosed the loss and that in Income Tax cases joint ventures need not be taken to be the business of a different firm. They, therefore, allowed the loss of ₹ 17,853. 3. In the second case (No. 1 of 1960), the assessee derived income from several sources, such as personal business in mica, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es incurred in business will be set-off against profits and gains from any other source under the same head and the levy of the tax is on the balance of profits after deducting such losses. The relevant provision of the Act that are applicable for the references under consideration are sections 16(1)(b), 23(5) and 24(1). These may be read as under : 16. (1) In computing the total income of an assessee -...... (b) when the assessee is a partner of a firm, then, whether the firm had made a profits or a loss, his share (whether a net profit or a net loss) shall be taken to be any salary, interest, commission or other remuneration payable to him by the firm in respect of the previous year increased or decreased respectively by his share in the balance of the profit or loss of the firm after the deduction of any interest, salary, commission or other remuneration payable to any partner in respect of the previous year : Provided that if his share so computed is a loss, such loss may be set off carried forward and set off in accordance with the provisions of section 24. 23. (5) Notwithstanding anything contained in the foregoing sub-sections, when the assessee is a f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; shall not be deemed to be a speculative transaction. 6. From the above provisions it may be observed that there is no difference in the computation of taxable income between a registered firm and an unregistered firm. While the income of a firm is computed as a unit, irrespective of whether the firm is registered or unregistered, sub-section (5) of section 23 draws a distinction between these two only after the total income of the firm has been computed or assessed under one of the earlier sub-sections. Once the income of the firm is computed, the registration has a material bearing on the question of determination of the tax payable and the demand for the tax. Prior to the amendments made under the Finance Act of 1956, where the firm was unregistered the demand or levy was made on the firm itself, but where it was registered the firm itself did not pay the tax and the tax was not d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the learned advocate for the department, Sri Kondaiah, is that a partner cannot claim to have share of the loss set off in an unregistered firm which has not been assessed. But he is unable to refer us to any provision under the Act for this proposition nor can he meet the contention that where such a firm has made profits the taxing authority has the right to add the share of the profits of such individual, who is a partner of the unregistered firm, to his or its income even though the unregistered firm has not been assessed to tax, and on the same parity of reasoning, his share of the loss also in such firm should be set off against his other income. In Seth Jamnadas Daga v. Commissioner of Income Tax, their Lordship of the Supreme Court negatived the argument that a partners share of the profits in an unregistered firm should be ignored entirely in ascertaining his total income and held, agreeing with High Court of Bombay, that although the assessees share of the profits of such unregistered firm was exempt from tax, it had to be included in his total income for the purpose of ascertaining the rate applicable to his other income. At page 634 Hidayatullah J. observed : Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we must give effect to the same. But the question is : Is there any such requirement of the Income Tax law ? We have already referred to sections 23 and 24 and my add that there is no provision of law which requires an unregistered firm to have its losses assessed. Of course, if the unregistered firm does not have its losses determined, does not file a return and get its losses determined, it would not have the benefit of carrying forward those losses. But that is a different matter. In the absence of any express provision in the Income Tax law and on general principles we do not see why a partner in an unregistered firm should not be permitted to claim a set-off in respect of his share of loss in an unregistered firm against the profits of his other business simply because the department does not choose to determine the losses of the unregistered firm. 8. With these observations we respectfully agree. In our view, the Income Tax Officer cannot, by his own act or omission, put the assessee at a disadvantage, unless a discretion is given to his under the law to do so, with a view to depriving the assessee of any advantage which he may derive in claiming the set- off. No such ..... X X X X Extracts X X X X X X X X Extracts X X X X
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