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Hiralal Jeramdas Vs. Commissioner of Income-tax, Bombay City I - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 10 of 1962
Judge
Reported in[1965]58ITR1(Bom)
ActsIncome Tax Act, 1922 - Sections 24(2)
AppellantHiralal Jeramdas
RespondentCommissioner of Income-tax, Bombay City I
Appellant AdvocateR.J. Kolah, Adv.
Respondent AdvocateG.N. Joshi, Adv.
Excerpt:
.....loss discontinued in assessment year 1954-55 - no evidence that joint venture was continuation of business carried on by assessee in assessment years 1952-53 and 1953-54 - assessee not entitled to set off loss against profits earned by him in assessment year 1956-57. - - kolah, learned counsel for the assessee, contends that the income-tax authorities as well as the tribunal were in error in holding that in order to entitle the assessee to claim a set-off, in respect of the loss suffered by him in business, the business must be continued throughout without a break. such a construction is favourable to the assessee, and, therefore, should be accepted in accordance with the well-settled principles of construction of a taxing statute. in our opinion, the contention raised on behalf of..........so far as is relevant for the purposes of this case, read : '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 yea : provided that in computing the profits and gains chargeable under the head 'profits and gains of business, profession or vocation', any loss sustained in speculative transactions which are in the nature of a business shall not be taken into account except to the extent of the amount of profits and gains, if any, in any other business consisting of speculative transaction :.... (2) where any assessee sustains a loss of profits or gains in any year....in any business, profession.....
Judgment:

Tambe, J.

1. This is a reference under sub-section (1) of secti1on 66 of the Income-tax Act at the instance of the assessee. We are here concerned with the assessment year 1956-57, the relevant previous year being S. Y. 2011 ended 12th November, 1955. Formerly, the assessee was a partner in a registered firm carrying on business under the name and style of 'Jeramdas Naumal'. The partners of this firm were the assessee, Hiralal, and Jawaharlal, his brother. They had equal shares in the said partnership business; and the business carried on by the assessee was money-lending, cotton and piece-goods, and speculation. In S. Ys. 2007 and 2008, the relevant assessment years being 1952-53 and 1953-54, the partnership suffered losses. The assessee's share of loss determined and apportioned to him in those years amounted to Rs. 99,815 and Rs. 98,152, respectively. As and from 1st August, 1952, the assessee retired from the partnership business and the partnership business as a running concern was taken over by his brother, Jawaharlal, as his sole proprietary business under the same trade name and style 'Jeramdas Naumal'. During the next two assessments years, i.e., 1954-55 and 1955-56, the assessee carried on no business at all of any kind whatsoever, and accordingly there was no computation of his income under section 10 of the Act for the two assessment years 1954-55 and 1955-56. In the previous year relevant to the assessment year 1956-57, i.e., in the year ended on 31st March, 1956, the assessee entered into a joint venture with his brother, Jawaharlal, in cotton and jute piece-goods on certain terms and conditions mentioned in a letter dated 1st November, 1954, which is annexure 'A' to the statement of the case. In this joint venture, the assessee had 5 annas share in the profits and his brother had 11 annas share. The assessee's share of profits in the joint venture amounted to Rs. 1,69,342. In the books of account of 'Jeramdas Naumal' accounts in respect of the joint venture have been separately maintained and they also have been annexed to the statement of the case as annexures 'B-1' and 'B-2'.

2. Now, in the return filed by the assessee, he did not claim to set off the aforesaid losses of Rs. 99,815 and Rs. 98,852 which had been apportioned to his half share in the partnership business of 'Jeramdas Naumal'. However, during the course of the assessment proceedings, he claimed that the said two amounts of previous losses be set off against the profits of Rs. 1,69,342 earned by him in the joint venture. The claim was founded on clause (ii) sub-section (2) of section 24 of the Income-tax Act. The Income tax Officer rejected the claim. The view taken by him was that the business carried on by the assessee in the assessment year was not the same business which the assessee was carrying on as a partner of the firm of 'Jeramdas Naumal'. The business in which the assessee had suffered loss had been discontinued by the assessee in the assessment year 1954-55. That business had not been continued in the assessment year by the assessee, and therefore the assessee was not entitled to set off the said loss. On appeal, the Appellate Assistant Commissioner took the view that the necessary condition regarding the continuity of business in which the loss was sustained not having been fulfilled, the assessee was not entitled to the set-off claimed by him. In this view of the matter, the Appellate Assistant Commissioner dismissed the appeal. The assessee took a further appeal to the Tribunal. That appeal has also been dismissed. Rejecting the appeal, the Tribunal observe :

'With the assessee going out of the partnership of M/s. Jeramdas Naumal at the end of 1953-54 assessment the business as far as the assessee was concerned was discontinued by him completely and it was taken over as a running concern by his brother. Even during the previous year the assessee did not become a partner of M/s. Jeramdas Naumal. He only joined his brother with reference to certain transactions and it is only his share of profit from these transactions that has been subjected to tax in his hands. There is nothing to sustain the assessee's claim that these joint venture transactions in which profit was earned were a continuation of the business carried on by the assessee in 1952-53 and 1953-54 as a partner of M/s. Jeramdas Naumal.'

3. On an application by the assessee, the Tribunal has stated the case referring to us the following question of la :

'Notwithstanding the fact that the assessee retired from the firm of Jeramdas Naumal on August 1, 1952, and did not carry on that business during the previous year for assessment year 1956-57, whether the assessee's share of loss therefrom determined in assessment years 1952-53 and 1953-54 is available to be set off as a deduction under section 24(2) in the assessment of that yea ?'

4. Mr. Kolah, learned counsel for the assessee, contends that the income-tax authorities as well as the Tribunal were in error in holding that in order to entitle the assessee to claim a set-off, in respect of the loss suffered by him in business, the business must be continued throughout without a break. The assessee was doing business in money-lending, cotton and piece-goods and speculation in the assessment years 1952-53 and 1953-54. In this business, he had suffered a loss. It may be that in 1954-55 and 1955-56 he did not carry on that business; but in the assessment year 1956-57, he carried on business in cotton and piece-goods. He thus has continued to carry on the business in the assessment year in which he had sustained loss and, he is, therefore, entitled to a set-off. The argument is founded on one of the shades of the meaning of the word 'continued'. Referring us to certain dictionaries, Mr. Kolah, argued that one of the meanings of the word 'continue' is to resume. The business could be resumed even after a break. The expression 'continued' in clause (ii) of sub-section (2) of section 24 is thus capable of bearing a construction canvassed by him. Such a construction is favourable to the assessee, and, therefore, should be accepted in accordance with the well-settled principles of construction of a taxing statute.

5. Mr. Joshi, learned counsel for the revenue, on the other hand, contends that on a proper construction of the relevant provision, it would be clear that the assessee would be entitled to claim a set-off only in the event of his continuing the business, in which he suffered loss, without a break. In our opinion, the contention raised on behalf of the revenue is well founded.

6. Mr. Kolah has referred us to there dictionaries : Chamber's Twentieth Century Dictionary; Concise Oxford Dictionary and Oxford Illustrated Dictionary. The meaning of the word 'continue' as given in Chamber's i : 'to draw out or prolong; to extend, to maintain, to go on with, to resume, to adjourn; to be a prolongation of, to remain in the same place or state; to last or endure; to preserve.' The meaning of the word 'resume' as given therein i : 'to take back; to assume again; to take up again; to begin again.' In Concise Oxford Dictionary, the meaning of the word 'continue' as given i : 'to maintain, keep up (action etc.); retain (person in office etc.); take up; resume (narrative etc.); (law) adjourn, remain in existence; stay (in, at, place in a state).' The meaning of the word 'resume' i : 'To get or take again or back; recover, re-occupy; 2. Begin again, go on (with) after interruption; begin to speak or work again; recommence.' It is not necessary to reproduce the meanings of the words 'continue' and 'resume' as contained in the Oxford Illustrated Dictionary. Now, it is true that one of the shades of the meaning of the word 'continue' is to resume, and one of the shades of the meaning of the word 'resume' is 'to take up a thing after an interruption.' But having regard to the different shades of meaning of both these words, the main idea conveyed is continuation of a thing without a break. Even the word 'resume' conveys an idea of continuing or taking up a matter after an interruption but not after having given it up. The idea of starting a thing after having given it up is more aptly conveyed by the word 'restarting' than resuming. Assuming that the word 'resume' means 'taking up a thing after having given it up' it will have to be seen whether the clause : 'provided that the business, profession or vocation in which the loss was originally sustained continued to be carried on by him in that year', is capable of bearing a construction so as to include restarting of a business, in which loss was suffered, after its discontinuance. In our opinion, having regard to the scheme underlying the relevant provisions of the section, it is not possible to put such a construction on the said clause. Section 24 relates to set-off of loss in computation of aggregate income, and the said section, so far as is relevant for the purposes of this case, read :

'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 yea :

Provided that in computing the profits and gains chargeable under the head 'profits and gains of business, profession or vocation', any loss sustained in speculative transactions which are in the nature of a business shall not be taken into account except to the extent of the amount of profits and gains, if any, in any other business consisting of speculative transaction :....

(2) Where any assessee sustains a loss of profits or gains in any year....in any business, profession or vocation, and the loss cannot be wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no other head of income shall be carried forward to the following year, and

(i) where the loss was sustained by him in a business consisting of speculative transactions, it shall be set off only against the profit and gains, if any, of any business in speculative transactions carried on by him in that year;

(ii) where the loss was sustained by him in any other business, profession or vocation, it shall be set off against the profits and gains, if any, of any business, profession or vocation carried on by him in that yea : provided that the business, profession of vocation in which the loss was originally sustained continued to be carried on by him in that year; and

(iii) if the loss in either case cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following year and so on, but no loss shall be so carried forward for more than eight years...'

7. It would be seen that sub-section (1) provides that the losses other than speculative losses suffered in an assessment year under any head whatsoever are available for being set off against the income derived in that year by the assessee under any other head whatsoever. Such, however, is not the position as regards the unabsorbed carried forward losses. Sub-section (2) relates to carrying forward to the 'following year' the unabsorbed loss. It would be seen that the said provision relates only to unabsorbed loss of profits and gains under other heads. This sub-section provides that in respect of loss of profits and gains suffered by the assessee in his business, profession or vocation, if unabsorbed, in setting it off against other heads either on account of there being no other head of income or the income being less than the loss, it would be carried forward to the 'following year.' Clauses (i) to (iii) of sub-section (2) relate to the manner in which the said carried forward loss is to be set off in the subsequent following years. Clause (i) relates to the loss suffered in speculative transactions, and it provides that the carried forward losses in speculative business could be set off only against the profits of speculative business and not against other profits. Clause (ii) provides that the carried forward loss sustained by the assessee in any other business, profession or vocation could be set off against the profits and gains of business, profession or vocation carried on by the assessee. It is clear that the carried forward loss of business, profession or vocation is not available for being set off against any other head of income except the profits and gains of business, profession or vocation, and this concession is available subject to the condition that 'business, profession or vocation under which the loss was originally sustained continued to be carried on by him in that year.' Clause (iii) relates to further carrying forward of the unabsorbed losses to the next following year in the event of these losses not even being absorbed in the manner prescribed in the following year to the year in which the loss has been suffered. This procedure has to be followed till the expiry of eight years. The scheme of the section as regards carrying forward the unabsorbed losses of profits and gains of a business, profession or vocation appears to be that in the year the loss is suffered, it is available for being set off against income under any heads. If for some reason or the other, the said loss is not absorbed against income under other heads, it is carried forward to the 'following year.' In the following year, this unabsorbed carried forward loss is not available for being set off against income under any other head except the income under the head 'business, profession or vocation.' If in the second year also they are not absorbed in this limited manner, then they are carried forward to the next 'following year' to be set off against profits and gains of the business, profession or vocation and so on, till the expiry of eight years from the year in which the loss was 'originally sustained.' It would thus be seen that the unabsorbed losses must enter the assessment of every 'following year ' for ascertaining whether they could be set off against the profits and gains of any business, profession or vocation. It is only when it is found in each year that they could not be absorbed then they are allowed to be carried forward to the next 'following year and so on.' The unabsorbed loss thus go on being carried forward from year to year as the case may be till the expiry of the period of eight years. But the condition precedent to avail himself of the advantage conferred on him by the aforesaid scheme provided in sub-section (2) of section 24 is that the business in which the loss was originally sustained by an assessee is continued to be carried on by him in that year. It would necessarily follow that the advantage or the right conferred by sub-section (2) of section 24 to carry forward unabsorbed loss of a business is available only when the business is continued without break from year to year and not otherwise. Cessation of the business in which the loss was originally sustained would necessarily result in the loss of the right to carry forward its loss to the 'following year and so on.' Having regard to the aforesaid scheme of sub-section (2) of section 24, the only construction that could be placed on the clause 'business, profession or vocation in which the loss was originally sustained continued to be carried on by him in that year' is that the said business is carried on without a break in the following eight years. Now, the facts found by the Tribunal are that the assessee was a partner in the partnership business styled as 'Jeramdas Naumal' till the assessment year 1953-54. Subsequent to that year, the assessee completely went out of the partnership business. The business was carried on thereafter, by his brother, Jawaharlal, as the sole proprietor. So far as the assessee was concerned, he discontinued the business from the assessment year 1954-55. These findings have not been disputed. The Tribunal has further found that there was no evidence that the joint venture in certain transactions, which the assessee carried on with his brother, was a continuation of the business carried on by him in the assessment years 1952-53 and 1953-54. These being the facts found, in our opinion, the Tribunal was right in holding that the assessee was not entitled to have the loss suffered by him in assessment years 1952-53 and 1953-54 set off against the profits earned by him in the assessment year 1956-57.

8. In the result, our answer to the question referred to us is in the negative. The assessee shall pay the costs of the Commissioner.

9. Question answered in the negative.


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