1. By this reference under Section 256(1) of the Income-tax Act, 1961, hereinafter called' the Act1', the Income-tax Appellate Tribunal, Indore Bench, Indore, has referred the following questions of law to this court for its opinion :
'(1) Whether, on the facts and circumstances of the case, the assessee is entitled to carry forward and set off the losses sustained by her as partner in M/s. Alok Paper Industries in her assessment for the year 1970-71 even though she ceased to be a partner in the said firm from December, 1966
(ii) Whether, on a true construction of Section 72(1)(ii) of the Income-tax Act, 1961, the proviso under Clause (i) of Sub-section (1) of Section 72 governs Clause (ii) also ?'
2. The material facts giving rise to this reference briefly are as follows : The assessee is assessed in the status of an individual and the assessment year in question is 1970-71. For that assessment year, the assessee disclosed income from her share in two registered firms, M/s. Dinesh & Co. and M/s. Shrikishan Chandmal. According to the statement of carried forward losses filed by the assessee, the assessee had suffered losses amounting to Rs. 39,750, Rs. 4,867 and Rs. 41,546 in M/s. Alok Paper Industries for the assessment years 1965-66, 1966-67 and 1967-68, respectively. The assessee claimed to carry forward and set off loss of Rs. 39,750 from M/s. Alok Paper Industries in the assessment year 1965-66. The Income-tax Officer rejected the claim of the assessee, inter alia, on the ground that after the assessment year 1967-68 the assessee had ceased to be a partner of M/s. Alok Paper Industries and the said business was not continued by the assessee in the previous year relevant to the assessment year 1970-71. The assessee preferred an appeal before the Appellate Assistant Commissioner, who upheld the view taken by the ITO on the ground that Section 72(1) of the Act clearly prescribed the condition that the business in which the loss was determined should be carried on in the year in which it was sought to be set off. On further appeal to the Tribunal, the appeal was dismissed. At the instance of the assessee, the Tribunal has referred the aforesaid questions of law to this court for its opinion.
3. Shri Chaphekar, learned counsel for the assessee, contended that there was no proviso to Clause (ii) of Section 72(1) of the Act similar to the one occurring in Clause (i) of Section 72(1) of the Act and hence the Tribunal was not right in importing the condition prescribed by the proviso to Clause (i) of Section 72(1) of theAct while applying the provisions of Clause (ii) of Section 72(1) of the Act. The contention cannot be accepted. Clause (ii) of Section 72(1) of the Act merely provides that the loss when it cannot be wholly set off by recourse to the provisions of Clause (i) of Section 72(1) of the Act, the amount of loss not so set off shall be carried forward to the following assessment year. But this carried forward loss can be set off against the profits arid gains of any business or profession carried on by the assessee arid assessable for that assessment year by virtue of Clause (i) of Section 72(1) of the Act. If that is so, then it necessarily follows that the condition prescribed by the proviso to Clause (i) of Section 72(1) of the Act is required to be satisfied if the carried forward loss in an assessment year under Clause (ii) of Section 72(1) of the Act is sought to be set off against the profits and gains of any business or profession carried on by the assessee and assessable for that assessment year. In the circumstances of the case, therefore, the Tribunal was right in holding that the assessee was not entitled to set off the loss sustained by her as partner in M/s. Alok Paper Industries in the assessment year 1970-71 as she ceased to be a partner of that firm from December, 1966.
4. For all these reasons, our answer to the first question is in the negative and against the assessee and to the second question is in the affirmative and against the assessee. In the circumstances of the case, parties shall bear their own costs of this reference.