This is a reference by the Income-tax Appellate Tribunal, Bombay, under section 66 (1) of the Indian Income-tax Act, 1922, hereinafter called the Act. Four questions of law are raised in the reference, three at the instance of the assessee and one of the Commissioner of Income-tax Madhya Pradesh and Bhopal, Nagpur.
2. The assessee Seth Khushalchand Daga is a son of late Sir Bisesardas Daga. He received during the year ending Diwali of 1941 his share of assets and properties from the old firm of R. B. Bansilal Abirchand of Nagpur and then started business at Nagpur, Bikaner, Secunderabad and Shailu where the firm in the past had business. Bikaner, Secunderabad and Shailu were outside British India at the relevant time. The sources of the assessees income in the year of account were speculation, allowance from Government as treasurers, house properties and dividends.
3. In the course of the assessment for the year 1942-43, a question of setting off the profits of the year of account against loss of the immediately preceding year came up for consideration by the Income-tax Officer. In paragraph 3 of his order, the Income-tax Officer observed : "Last year the assessee was in net loss of Rs. 53,078, which has been carried forward. It is to be split up in the proportion of the individual British Indian business loss, the foreign business loss and the share loss. The loss from the individual British Indian business was Rs. 2,62,012, and that from the foreign business Rs. 2,200. The share loss from the R. B. B. A. was Rs. 38, 158. In this year the firm of R. B. Bansilal Abirchand stopped all business and there is no income or loss from that source. The loss to be set off will be Rs. 53,078 less Rs. 6,698 = Rs. 46,380, (Rs. 45,994 from British Indian business and Rs. 386 from foreign business)." This order was confirmed in appeal by the Appellate Assistant Commissioner. When the matter came up before the Tribunal, it observed as below : "The third ground of appeal relates to the assessment made for the year 1941-42. For a long time Mr. Thakkar himself was not quite clear what was claimed by the third ground. Ultimately, he said that in so far as the computations made in the year under appeal were concerned, there was nothing wrong. The assessee was a partner of an unregistered firm in the year of account relevant for the assessment year 1941-42. His share of profits in that unregistered firm amounted to Rs. 1,75,256, according to the assessment order. The assessee, it appears, had suffered a loss of more than Rs. 2 1/2 lakhs. The Income-tax Officer set off the assessees share of profit in the unregistered firm against the loss of Rs. 2 1/2 lakhs. Thus, according to the Income-tax Officer, there was only a loss of Rs. 53,840 to be carried forward to the next year. Now Mr. Thakkars contention is that the figure determined, namely Rs. 53,840, is incorrect and that it should be much more. This contention could only be preferred in an appeal against the assessment for the year 1941-42. We find from the records that the assessee did prefer an appeal against the assessment for the year 1941-42, but did not take up the contention now sought to be raised. In our opinion, the third ground of appeal cannot be raised in the appeal against the assessment for the year 1942-43." "Whether the assessee was competent is law to raise a question with regard to the determination of loss for the assessment year 1941-42, as finally determined in appeal, in the course of proceedings for the assessment year 1942-43 when the loss brought forward from 1941-42 was being set off ?" 4. One of the points raised by the assessee in his appeal before the Tribunal for the assessment year 1948-49 was with regard to the imposition of tax on capital gains. He sold during the year of account ending Diwali of 1947 four houses which had come to his share on 30th October, 1940, on distribution of the assets of the firm of R. D.Bansilal Abirchand, Kamptee, of which he was partner. Three of the houses were sold at a profit of Rs. 16,400. The assessees contention was that the profit was covered by the second proviso to section 12B (1) of the Act was intra vires. The following question of law arise from the order : "(1) Whether section 12B of the Indian Income-tax Act of 1922 is ultra vires the Indian Legislature (2) Whether on the facts and in the circumstances of the case the profit of Rs. 16,400, on the sale of the three houses can be said to be covered by the second proviso to section 12B (1) of the Act ?" 5. The case of the department concerns two assessment years, namely 1948-49 and 1949-50. The assessees share of the profits of an unregistered firm for the year 1948-49 was Rs. 1,82,773. The Income-tax Officer included the entire share income for the purpose of determining the total income of the assessee, as also for the purpose of determining the rate at which tax on total income was to be paid. For the purpose of exemption under section 14 (2) (c) of the Act the share income from the unregistered firm, namely Rs. 1,82,773, was reduced by the amount of business loss suffered by the assessee to the extent of Rs. 1,18,913 made up of Rs. 1,08,90, loss in his individual business and Rs. 10,008, share loss in another firm. In other words, the Income-tax Officer did not calculated tax on the amount of Rs. 63,860 (Rs. 1,82,773 minus Rs. 1,18,913). The action of the Income-tax Officer was upheld in appeal by the Appellate Assistant Commissioner, The Tribunal did not agree with this view and held that the loss, if any, to be carried forward had to be determined without reference to the assessees share income from the unregistered firm. Similar is the case with regard to the assessment year 1949-50 in which the Income-tax Officer had reduced the share income of the assessee from the unregistered firm amounting to Rs. 1,39,922, by Rs. 60,589, made up of Rs. 49,979, loss from individual business and Rs. 10,610, share loss in another firm. The following question of law arises from the order : "Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the loss suffered by the assessee from his personal business (including his share of loss from another firm) cannot be set off under section 24 (1) against his taxed share income from an unregistered firm ?" 6. The assessee has filed an application for calling for a further statement of case from the Tribunal. It is contended that in computing tax on the capital gains the Tribunal did not take into consideration the fact the Shailu Factory which was sold was situated in the Nizam State and the sale proceeds were appropriated for purchasing land and machinery to instal an oil mill at Judcharia in the Nizam State itself.
As regards the houses, it is contended that the assessee was a co-owner as there was no registered partition deed or a registered deed of dissolution of the partnership, and the transfers were effected by all the members jointly. These facts were not put up before the Taxing Authorities at any time, and as an entirely new case is now sought to be made out, the application cannot be entertained and is dismissed.
7. The first question raised by the assessee is whether he is entitled to raise a question with regard to the determination of loss for the assessment year 1941-42 in the course of proceedings for the assessment year 1942-43 when the loss brought forward from 1941-42 was being set off. A similar question arose in All India Groundnut Syndicate Ltd. v.Commissioner of Income-tax and was answered as below : "It is then urged that inasmuch as the loss was not computed in the relevant year of assessment, there is no right left to the assessee in the assessment year 1948-49. That contention, again, is based upon a misapprehension. The right to claim a relief which the assessee is claiming only arose to the assessee in the assessment year 1948-49 when the assessee had made profits. The fact that the Income-tax Officer has not computed the loss of the earlier years can have no bearing upon right of the assessee which arise in the year 1948-49. There is nothing to prevent the income-tax Officer from computing those losses which the assessee may have incurred earlier and which he has failed to do." In that case the question was as to the effect of the failure of the Income-tax Officer to notify the loss of the previous years as required by section 24 (3) of the Act, but that does not make any difference to the principle enunciated above. No question arose in the assessment year 1941-43. Therefore, what was done in the preceding year does not affect the fight of the assessee to get the amount of the loss which was liable to be carried forward duly determined in the subsequent proceedings. We accordingly answer of the question in the affirmative.
8. As to the question of the assessee whether section 12B of the Act is intra vires the Indian Legislature, his learned counsel admitted that it must be answered in the affirmative in view of the decision of their Lord-ships of the Supreme Court in Navinchandra Mafatlal v.Commissioner of Income-tax, Bombay City. We 9. Coming to the last question of the assessee, namely, whether the profit Rs. 16,400 on the sale of the three houses can be said to be covered by the second proviso to section 12B (1) of the Act, the answer, on the facts on record, must be in the negative. The said proviso exempts the profits or gains from sale of property, only when it has been possessed by the assessee or a parent of his for not less than seven years before the date on which the sale took place. On the facts as stated before the Tribunal, it was right in holding that the houses belonged to a firm which, for purpose of taxation, is a separate entity from the partners constituting it. No case of co-ownership as now sought to be raised was then made out. Nor was it then contended that the profits or gains under the head "Capital gains" were mostly made in the Nizam State. The question about the vires of section 12B (1) or of section 14 (2) (c) so as to cover the profits or gains accruing or arising in Indian States, therefore, does not arise. We accrodingly answer the question in the negative.
10. As regards the question raised in Miscellaneous Civil Case No. 98 of 1954 decided by us to day, for the reasons stated therein we answer the question in the affirmative.