Chandrasekhara Sastry , J .
(1) This is a reference under Sec. 66 (1) of the Indian Income-tax Act, 1922. The assessee is an individual. His only sources of income were his shares in several partnership concerns. For the assessment year 1955-56, he carried on business in beedi leaves in partnership with another. That partnership was formed on 24-4-52. The assessee had an eight annas share in that business. For the assessment year 1955-56, the assessee sustained a loss of Rs. 30,255/-. During the same accounting year corresponding to that assessment year 1955-56, he carried on business also in beedi leaves in partnership with three others. That business was started on 1-4-54. The two partners in the first partnership were also partners in this second partnership also with two others the shares of each of the partners in the two partnerships being equal. For the assessment year 1955-56, the assessee also carried on business in partnership with others in timber and Gulmoha. The total loss sustained by him for the assessment year 1955-56 was Rs. 24,532/-.
The first partnership consisting of the assessee and another partner, which carried on business in beedi leaves was dissolved on 31-3-55 ; but the second partnership carried on by those two partners also in beedi leaves with two others was continued for the assessment year 1956-57 also (accounting year 1955-56). In that business in beedi leaves, the profits was estimated at Rs. 11,853/- for the assessment year 1956-57 and taken along with other business carried on by the assessee for that assessment year, taxable income was assessed at Rs. 28,758/-. This reference is concerned with that assessment year 1956-57, the 'previous year' for which is the financial year 1955-56. The assessee sought to set off the loss which he had carried forward for the assessment year 1955-56 sustained by him with respect to his business in beedi leaves against his share of the income for the assessment year 1956-57. His claim was that, since the business in beedi leaves was continued in the assessment year 1956-57, he was entitled to carry forward and set off the loss sustained in the business in beedi leaves for the previous assessment year 1955-56 under Sec. 24 (2) (ii) of the Indian Income-tax Act, 1922.
It may be noted that the two firms as partner of which the assessee carried on business in beedi leaves were registered under the provisions of the Income-tax Act. The Income-tax Officer rejected the claim of the assessee on the ground that the firm which sustained loss for the previous assessment year 1955-56 was dissolved and ceased to exist for the assessment year 1956-57 and that the business carried on by the second firm though in beedi leaves is not the same business as that carried on by the dissolved firm though the dissolved firm also carried on business in beedi leaves. This view was up held in appeal by the Appellate Assistant Commissioner of Income-tax. But on further appeal by the assessee, the Income-tax Appellate Tribunal, Hyderabad Bench, by its order dated 27-10-61 in I. T. A. No. 11196 of 1960-61 accepted the contention of the assessee. The tribunal held that the business carried on by the two firms, one consisting of two partners and the other consisting of these two partners is the same business carried on by the assessee in beedi leaves and that since both the firms were registered firms, the assessee is an individual. In that view, the tribunal held that the assessee is entitled to the set off as claimed by him.
(2) On an application made by the Commissioner of Income-tax, Andhra Pradesh, Hyderabad under Sec. 66 (1) of the Indian Income-tax Act, the Income-tax Appellate Tribunal, Hyderabad Bench, referred the following question to the High Court for decision :
' Whether the assessee is entitled under the provisions of Sec. 24 (2) of the Act to set off his share of unabsorbed loss amounting to Rs. 24,532/- from the dissolved firm to M/s. A. Dharma Reddy Morthad brought forward from the assessment year 1955-56 against his other business income for the assessment year 1956-57'.
(3) To decide this question, it is necessary to refer to the relevant clauses in Sec. 24 of the Income-tax Act.
'24 (1) : Where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in Sec. 6, he will be entitled to have the amount of the loss set off against his income, profits or gains under any other head in that year :
It is not necessary to refer to the proviso and Explanations to this clause. '24 (2) : Where any assessee sustains a loss of profits or gains in any year, being a previous year not earlier than the previous year for the assessment for the year ending on the 31st day of March, 1940, in any business, profession or vocation, and the loss cannot be wholly set off under sub-sec. (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 profits 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 year ; provided that the business, profession or vocation in which the loss was originally sustained continued to be carried on by him in that year ; and * * * * * * * * *'
(4) The argument of Sri Kondaiah, the learned counsel for the Commissioner of Income-tax is that the business, which was carried on by the assessee in partnership with another from 24-4-52 till 31-3-55 when that partnership was dissolved is not the same business as that carried on by him in partnership with three others though the assessee was carrying on business in beedi leaves as partner of both the firms. Therefore, it is argued that it cannot be held that the business in which the loss was originally sustained for the assessment year 1955-56 continued to be carried on by the assessee during the next year ( assessment year 1956-57) within the meaning of proviso in Sec. 24 (2) (ii) of the Income-tax Act. In other words, the argument of Mr. Kondaiah is that in order to satisfy the requirements of proviso in Sec. 24 (2) (ii), the same concern or firm must continue the business during the relevant years and that the business carried on by one firm in which the assessee is a partner cannot be held to be continued by the other partnership of which also the assessee is a member, though the commodity in which the trade was carried on is the same viz., beedi leaves. On the other hand, the learned counsel for the assessee argued that the business carried on by the assessee as member of the two firms, one consisting of himself and another and the other consisting of the two partners in the first partnership and two others is the same viz., trade in beedi leaves and that, therefore, the condition prescribed by Sec. 24 (2) (ii) is satisfied and that the assessee is entitled to the set off claimed by him. Reference is made to Sec. 2 Clause 4 of the Act which defines 'business' as including 'any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture'.
(5) Both the learned Counsel appearing in the case stated that there is no decision on the point.
(6) The two partnerships referred to above were registered under the Income-tax Act as already mentioned. When a firm carries on business, it is a business carried on by the partners of that firm and the individual partners of the firm are assessed to tax. When the profits of a registered firm were ascertained, the assessee, for the purpose of paying the tax is not the registered firm, but each partner of the registered firm. In the present case, it was in the business in the beedi leaves that the assessee sustained a loss for the assessment year 1955-56. He carried on the same business in beedi leaves during the accounting year 1955-56 i.e., the assessment year 1956-57 though in partnership with others. Entering into partnership with another in one case and three others in the other case, was only the mode of carrying business ; but the business is the same business viz., trade in beedi leaves. Section 24 (2) (ii) does not require that the business should be continued to be carried on for the assessment year in question by the same concern or partnership or firm as in the previous year when the loss was originally sustained by the assessee. The only condition prescribed by that clause is that the same business must be continued to be carried on by 'him' (the assessee ).
(7) For the above reasons, the question referred to the High Court is answered in the affirmative i.e., in favour of the assessee. The assessee will have his costs of this reference. Advocate's fee Rs. 150/-.
(8) Answer accordingly.