1. The question that arises on this reference is whether the assessee is entitled to set off a certain loss against the profits made by it in the year 1942-43 under Section 24(2) of the Income-tax Act.
2. The assessee is a firm and it consists of four partners and it appears that these four partners constituted an undivided Hindu family. In the assessment year 1941-42 a decision was given by the Income-tax officer under Section 25A that this Hindu undivided family was disrupted on the first day of Kartik Sudi of Samvat year 1997, which corresponds to 22nd November, 1940. This decision was based upon a partition deed which was executed on that date. The contention of these four coparceners was that the disruption took place really on the 11th November, 1939, and not on the 22nd November, 1940. That contention was rejected and, as I said before, the Income-tax Officer came to the conclusion that the disruption took place on the first day of Kartik Sudi Samvat year 1997. Now in the assessment for the year 1941-42 of this Hindu undivided family there was found a loss of Rs. 40,162 and therefore the family had not to pay any tax in the year 1941-42. Mr. Kolah says that the decision of the Income-tax Officer as to the disruption of the family was not challenged by him because he had no tax to pay and therefore any appeal from that decision would have been academic. But whether the appeal would have been academic or not, the Income-tax Officer gave a decision as to the status of the Hindu undivided family under section 25A, and if that decision was not challenged in appeal, that decision stands and must be treated to be binding upon the parties.
3. Now, in the year in question, viz., 1942-43, a profit has been made by the assessee firm which consists of the same coparceners as constituted the Hindu undivided family and which coparceners carried on a business as a firm. This firm has been registered by the Income-tax authorities. This firm has made a profit for the year 1942-43 and its contention is that it is entitled to set off the loss of Rs. 40,162 incurred by the Hindu undivided family in the assessment year 1941-42. Mr. Kolah's submission is that the assessee which sustained the loss in 1941-42 is the same assessee that made the profit in 1942-43 and therefore Section 24(2) is applicable. When we turn to Section 24(2) it provides that where any assessee sustains a loss of profits or gains in any year and the loss cannot be wholly set off, the portion not so set of shall be carried forward to the following year and set off against the profits and gains of the assessee from the same business, profession or vocation for that year. Therefore it is clear on a plain reading of this sub section that the assessee who sustains a loss and the assessee to whom the set-off is allowed must be the same, and the narrow question for consideration is whether in this case it can be said that the registered firm which claim the set-off and the Hindu undivided family that sustained the loss are the same assessees.
4. Now, the Income-tax Act recognizes as an assessee and as an independent unit, not only an individual, but a Hindu undivided family and a registered firm, and looking to the scheme of the Income-tax Act it is impossible to contend that a registered firm is the same entity as a Hindu undivided family. The mere fact that the same coparceners who constituted the Hindu undivided family should choose to carry on a partnership business does not lead one to the inference that under the Income-tax Act they constitute the same entity and are the same assesses. Mr. Kolah has relied on Section 25A of the Income-tax Act. That section contains the scheme of assessment when a Hindu undivided family is disrupted and that disruption is recognized by the Income-tax authorities. In such a case the tax is payable by each individual member of the erstwhile undivided family. He has also referred to the scheme of assessment of registered firms. There again, under Section 23(5), although a registered firm is assessed as an assessee, when it comes to the question of payment, the payment is to be made by each individual partner in whose individual assessment the profit or loss is included. But neither of these two sections supports the contention of Mr. Kolah that the entity known as the Hindu undivided family is the same as the coparceners who constituted the firm, or the entity known as the registered firm is the same as the individual partners constituting the firm. In the case of the latter the assessment is made on the firm, the firm is the asses see, but the liability for payment is imposed upon the members of that firm, and they make the payment as assessees in their individual capacity. But the Act makes a clear distinction between these two separate entities, the registered firm and the partners of that firm. Similarly, in the case of the Hindu undivided family, although after disruption the coparceners are entitled to pay the tax to the extent of the property coming to each one of them, here again the Act makes a clear distinction between the undivided family as an entity and the coparceners who are made liable on the order being passed by the Income-tax authorities. Therefore neither of these two sections helps Mr. Kolah in the contention which he puts forward that the registered firm which is before us and which has been assessed to tax for the assessment year 1942-43 is the same entity and the same assessee as the Hindu undivided family which was assessed for the year 1941-42. The mere fact that the registered firm consists of the same partners as the coparceners who constituted the Hindu undivided family does not lead to the conclusion that under the Income-tax Act an identity has been established between the two assessees. In fact these two assessees are entirely different, and therefore it is not competent to the present assessee before us to claim a set off in respect of a loss incurred by an altogether different assessee who was assessed in 1941-42. The Tribunal has taken the same view and in our opinion that view has been rightly taken.
5. The result is that we must answer the questions as follows :- Question 1 in the negative. Questions 2 and 3 do not arise. Assessee to pay the costs.
6. The assessee has taken out a notice of motion which is not pressed by Mr. Kolah. Motion dismissed with costs.
7. Reference answered accordingly.