This case is referred by the Income-tax Appellate Tribunal Bombay Bench, under section 66(1) of the Income-tax Act.
2. The relevant facts are as follows : The assessee in the case was the late Sir Maneckji Dadabhoy. He was a partner in an unregistered firm styled "Bissesar House Nagpur." His total income for the assessment years 1950-51 and 1951-52 was determined by the Income-tax Appellate Tribunal as under : Foreign income (net) brought into India Rs. 2,732 (being less than Rs. 4,500 not taken into account in 1950-51).
According to the Income-tax Officer, the amount on which the assessee was liable to pay the tax was Rs. 1,25,620. The figure of Rs. 1,25,620 was arrived at after deducting from the net income of Rs. 6,38,579 the sum of Rs. 5,16,434 which was the income of the assessee from the Bissesar House (which had already been taxed in the hands of the firm) and adding thereto the sum of Rs. 3,475. The Appellate Tribunal held that the income on which the tax was leviable was Rs. 1,22,145 which was arrived at by deducting Rs. 5,16,434 from Rs. 6,38,579. This was for the assessment year 1950-51. In the year 1951-52 the gross income of the assessee was, as would appear from the third column, Rs. 4,32,226 and his share of income from the Bissesar House Rs. 2,86,788.
The loss which he had incurred in his personal business was Rs. 2,797.
The Income-tax Officer taxed him on an income of Rs. 1,45,438. The Appellate Tribunal modified the order and deducting from the amount of Rs. 4,32,226 the amount of Rs. 2,86,788 (which was already taxed in the hands of the firm) assessed him on an income of Rs. 1,42,641.
4. The commissioner of income-tax was not satisfied with this and suggested that the following question be referred the High Court under section 66(1) of the Income-tax Act : "Whether on the facts and circumstances of the case the Tribunal was right in holding that the losses suffered by the assessee from his personal business cannot be set off under section 24(1) from his taxed share income from an unregistered firm ?" "It is not clear to us in what manner the Commissioner of Income-tax is invoking the provisions of section 24(1). Apparently he is referring to the second proviso to section 24(1) of the Act, but as far as we can make out that proviso has no application to the facts of the present case.
"(1) Whether the assessee is required to pay tax on the income of Rs. 1,22,145 or Rs. 1,25,620 at the rate application to Rs. 6,38,579 for the assessment year 1950-51 (ii) When the assessee is required to pay tax on the income of Rs. 1,42,641 or Rs. 1,45,438 at the rate applicable to Rs. 4,29,429 for the assessment year 1951-52 (The figures are the relevant figures for the assessment year 1951-52.)" 5. The firm Bissessar House was assessed to income-tax and super-tax separately as the firm is an assessable entity. Under section 14(2) (a) of the Income-tax Act, the tax shall not be payable by an assessee who is partner of an unregistered firm, in respect of any portion of his share in the profits and gains of the firm computed in the manner laid down in clause (b) of sub-section (1) of section 16 on which the tax has already been paid by the firm. The Income-tax Officer, instead of deducting the entire income of Rs. 5,16,434 for the year 1950-51 and Rs. 2,86,788 for the year 1951-52 received as the share income from Bissesar House, Nagpur, deducting therefrom the loss incurred by the assessee is his own business. The Appellate Tribunal has held that the Income-tax Officer erred in doing so and we agree with it. There is no provision in the Income-tax Act under which the Income-tax Officer could do what he did. Indeed to reduce the income derived from an unregistered firm would be in contravention of the principle underlying section 14(2) (a) of the Act which exempts the whole of such income from being taxed, as the thereon has already been paid by the firm 6. Again section 24(1) (a) of the act provides that an assessee, who has sustained a loss in any year under any of the heads mentioned in section 6, shall be entitled to have the amount set off against his income under any other head in that year. The gross income of the assessee in the two years was Rs. 6,42,054 and Rs. 4,32,226 and the respective profits in these years from the unregistered firm were Rs. 4,32,226 and the respective profits in these years from the unregistered firm were Rs. 5,16,434 and Rs. 2,86,788. Deducting the latter from the former, the net receipts of the assessee on which tax did not been paid already come to Rs. 1,25,620 and Rs. 1,45,438. It is against these amounts that he is entitled to set off under section 24(1) (a) the losses he had incurred in the respective years. The Income-tax Officer deprived him of this right by computing the taxable income in the way he did. He was thus clearly in error and the Appellate Tribunal was right in modifying this order.
7. Our answers to the questions formulated by the Appellate Tribunal accordingly are : (i) The assesses is required to pay tax on the income of Rs. 1,22,145 at the rate applicable to Rs. 6,38,579 for the assessment year 1950-51.
(ii) The assessee is required to pay tax on the income of Rs. 1,42,641 at the rate applicable to Rs. 4,29,429 for the assessment year 1951-52.
8. Costs of this petition shall be borne by the Commissioner of Income-tax. Counsels fee Rs. 100.