K.T. Desai, C.J.
1. The assessee in this case is Shri Sitaram Motiram Jain. He carried on business in the name and style of 'Motiram Sitaram Jain' as the sole proprietor thereof for a number of years. During the assessment year 1954-55, the accounting year being Samvat year 2009, the assessee suffered a loss in his business. He became entitled to carry forward the sum of Rs. 29,308 on account of such loss under the provisions of section 24(2) of the Income-tax Act. On 7 November, 1953, the assessee entered into a deed of partnership where under he admitted his brother Kirparam Motiram as his partner in the said business from Kartik Sub 1st, Samvat year 2010, i.e., 7 November, 1953. The shares of the assessee and Kirparam Motiram in the profit and loss of the partnership were respectively ten annas and six annas in a rupee. The deed of partnership shows that the capital required for the partnership business was to be provided by the assessee. It was further provided that the partnership was take over the running business of the assessee and was to take over the assets and liabilities of the business at book value as shown in the balance-sheet. It was provided further that each partner was to devote his whole time and attention to the business of the partnership. This partnership was registered under the provisions of section 26A of the Income-tax Act. For the assessment year 1955-56, the accounting year being Samvat year 2010, the income of the partnership was determined at Rs. 14,546 and a sum of Rs. 9,091 came to the share of the assessee. The assessee claimed to set off as against this sum of Rs. 9,091 the loss incurred by him during Samvat year 2009. The Income-tax Officer allowed the assessee to set off the amount of such loss. The assessee had income from other sources for Samvat year 2009 which was assessed at Rs. 13,446.
2. For the assessment year 1956-57, the accounting year being Samvat year 2011, the income of the firm was assessed at Rs. 31,391. The firm was registered for this year also under the provisions of section 26A of the Income-tax Act. The share of the assessee came to Rs. 19,619 in connection with the income of the firm assessed as aforesaid. The assessee claimed to set off the loss which had been carried forward from the earlier years as against this income of Rs. 19,619. The Income-tax Officer did not allow the assessee to set off this loss. The assessee preferred on appeal from this order to the Appellate Assistant Commissioner who dismissed the appeal.
3. On November 8, 1958, the Commissioner of Income-tax passed an order under section 33B(1) of the Income-tax Act in connection with the assessment for the assessment year 1955-56. The Commissioner considered that the order passed by the Income-tax Officer in connection with the assessment year 1955-56 was erroneous in so far as it was prejudicial to the interests of the revenue. He directed the Income-tax Officer to include the aforesaid sum of Rs. 9,091 which had come to the share of the assessee for the assessment year 1955-56 in respect of the income of the partnership in the total income of the assessee.
4. The assessee went in appeal to the Appellate Tribunal against the order of the Commissioner in respect of the assessment year 1955-56. He filed another appeal before the Appellate Tribunal in respect of the order of the Appellate Assistant Commissioner for the assessment year 1956-57. The contention of the assessee in both these appeals was that since the business formerly carried on by the assessee as the sole proprietor was the same as the business subsequently carried on by the firm in which he and his brother were partners, the set-off of loss was allowable to him under section 24(2) of the Act. The Income-tax Tribunal in both these matters rejected the contention of the assessee. The matter has now come up before us on a reference made under section 66(1) of the Indian Income-tax Act, 1922.
5. By the reference the question that is referred to us is the following :
'Whether on the facts and in the circumstances of the case, on a proper construction of clause (ii) of sub-section (2) of section 24 read with proviso (e) to section 24(2) of the Income-tax Act, the assessee was entitled to the set-off of loss suffered by him in a year in which he was carrying on business as the sole owner thereof in a subsequent year when the business is carried on by him in partnership with another against his share of profit in the firm ?'
6. Section 24(2) in so far as it is relevant provides as under :
'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 March 31, 1940, 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 for ward 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
(iii) if the loss in either case cannot be wholly set off, the amount of loss not so set off shall be carried forward to the following year and so on :
Provided that - .... (e) where a change has occurred in the constitution of a firm noting in this section shall be deemed to entitle the firm to have set off so much of the loss proportionate to the share of a retired or deceased partner computed in accordance with the provisions of clause (b) of sub-section (1) of section 16 as exceeds his share of profits, if any, of the previous year in the firm, or to entitle any partner to the benefit of any portion of the said loss which is not apportionable to him under the said clause (b), and where any person carrying on any business, profession or vocation has been succeeded in such capacity by another person, otherwise than by inheritance, nothing in this section shall be deemed to entitle any person other than the person incurring the loss to have it set off against his income, profits or gains;....'
7. It is clear from the provisions of sub-section (2) of section 24 that where a loss is sustained by the assessee in any business other than business consisting of speculative transactions, it shall be set off against the profits and gains, if any, of any business carried on by him in the assessment year and if such loss cannot be wholly set off the amount of the loss not so set off can be carried forward to the following year and so on, the only condition being that the business in which the loss was originally sustained was continued to be carried on by him in that year.
8. Two question have been raised before us in connection with this provision. One is whether it could be said in the present case that the business which the assessee carried on in Samvat year 2009 was continued during Samvat years 2010 and 2011. The other question that requires consideration is whether it could be said that the business that was carried on during Samvat years 2010 and 2011 by the partnership could be regarded as a business carried on by the assessee during those respective years
9. As regards the business it is clear that the business which was carried on by the assessee alone in Samvat year 2009 was continued by the partnership in the same name in which it had been carried on by the assessee during Samvat year 2009. The partnership had taken over the business of the assessee as a running business together with all the assets and liabilities of that business. By clause 14 of the deed of partnership it is provided that in the event of the dissolution of the partnership all the goodwill rights and trade name would revert to the assessee who would be entitled to continue the business thereafter as he thought best. From the deed of partnership it appears that it was the intention of the parties to maintain the continuity of the business. The intention was not merely to maintain such continuity during the subsistence of the partnership but it was the further intention of the parties that in the event of the dissolution of the partnership, the assessee was to be at liberty to continue the said business thereafter if he so desired.
10. Reliance was placed by Mr. Parikh, the learned advocate for the assessee, upon a decision of the Supreme Court in Commissioner of Income-tax v. A. W. Figgies and Co. That was a case under the provisions of section 25(4) of the Indian Income-tax Act, 1922. In that case a partnership firm consisting of three partners carried on business and paid tax under the Indian Income-tax Act, 1918. There were several changes in the constitution of the firm since then resulting in a change in the shares of the partners. In 1947 the partnership was converted into a limited company and the assessee firm claimed relief under section 25(4) of the Indian Income-tax Act. The Income-tax Officer disallowed the claim on the ground that the partners of the firm in 1939 being different from the partners of the firm in 1947, on relief could be given to the assessee. The Appellate Tribunal and the High Court allowed the assessee's claim on the ground that in spite of the change in the constitution of the firm, the business of the firm as originally constituted continued right from its inception till the time it was succeeded by the limited company and that it was the same unit all through, carrying on the same business at the same place and there was no cesser of that business or any change in the unit. The Supreme Court in that case held that the Tribunal and the High Court were right and that the assessee was entitled to the relief claimed under section 25(4). Mahajan J., as he then was, who delivered the judgment of the Supreme Court, in the course of his judgment, observes as follows :
'The true question to decide is one of identity of the unit assessed under the Income-tax Act, 1918, which paid double tax in the year 1939, with the unit to whose business the private limited company succeeded in the hear 1947. We have no doubt that the Tribunal and the High Court were right in holding that in spite of the mere changes in the constitution of the firm, the business of the firm as originally constituted continued as tea brokers right from its inception till the time it was succeeded by the limited company and that it was the same unit all through, carrying on the same business, at the same place and there was cesser of that business or any change in the unit..... To all intents and purposes the firm as re-constituted was not a different unit but it remained the same unit in spite of the change in its constitution.'
11. The observations made in this case support the argument advanced by the learned advocator for the assessee. In the case before us, the continuity of the business is established. In our view, the same business which was carried on by the assessee alone in Samvat year 2009 was continued and carried on by the assessee and his partner is Samvat years 2010 and 2011.
12. The learned Advocate-General contended that a business which is carried on by a firm cannot be said to be the same business as the one carried on prior thereto by one of its partners. We are unable to accept this contention of the learned Advocate-General. What we have to consider is whether the business that had been originally carried on had been continued. The activity that was being carried on by the assessee and the individual was continued by the assessee and another in partnership. The business remained the same. Only there was a change in the persons who carried on that business. The identity of the business would not change merely by reason of the change in the persons who carry on that business.
13. We shall next deal with the point whether a business which has been carried on by a partnership could be regarded as a business carried on by a partner. A 'partnership' is defined by section 4 of the Indian Partnership Act as the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. When a firm carries on business, it is a business carried on by the partners of that firm. One partner is the agent of the other in carrying on that business. When a partnership carries on a business each partner thereof carried on that business. The language used in section 24(2) requires that the business should be continued to be carried on by the individual concerned. The requirements of that section are satisfied when a partner carries on the same business which was carried on previously by him on his sole account. What was urged before us was that the words 'continued to be carried on by him' meant that it was continued to be carried on by him and no other person. There is no warrant for adding the words 'and no other person' having regard to the language used in this sub-section.
14. Some light is thrown on the intention of the Legislature in using these words when we turn to the provisions contained in proviso (e) to this sub-section. Proviso (e) is in two parts. The first part is applicable where a firm carries on business and there has been a change in the constitution of the firm. In the case, the right of set-off would not be available to the extent set out in the section. Except to that extent the right of set-off would be available if the other conditions are fulfilled. The second part related to a person who has been succeeded in his business by another person. The words 'another person' are wide enough to include a firm. They are wide enough to include a firm in which the person who has been succeeded is also a partner. By that section the Legislature has provided that any person other than the person incurring the loss would not be entitled to claim a set-off. The words of the section clearly imply that the person incurring the loss would be entitled to claim a set-off provided the other conditions are fulfilled. If we accept the contention of the learned Advocate-General that the words 'another person' were not capable of including the person who was previously carrying on the business in which the loss has been sustained, then the necessity for the provision itself would disappear. Reading the provisions of proviso (e) and the provisions of sub-section (2)(ii) of section 24, were are of the view that where a business carried on by a person on his sole account has been continued by that person in partnership with another, the provisions relating to set-off would apply.
15. The learned Advocate-General urged before us that a firm was an entity under the Income-tax Act separate from the individuals who constituted that firm. So far as unregistered firms are concerned, that no doubt is true. An unregistered firm is assessable to tax as a firm and is constituted an entity under the income-tax law. When we are concerned with registered firms, we have to examine the relevant provisions relating to registered firms as they existed during the relevant assessment year. Section 23(5) as it existed during the relevant assessment years ran as under :
'Notwithstanding anything contained in the foregoing sub-sections, when the assessee is a firm and the total income of the firm has been assessed under sub-section (1), sub-section (3) or sub-section (4), as the case may be, - (a) in the case of a registered firm, the sum payable by the firm itself shall not be determined but the total income of each partner of the firm, including therein his share of its income, profits and gains of the previous year, shall be assessed and the sum payable by him on the basis of such assessment shall be determined.'
16. In the present case we are concerned with a registered firm. It is clear from this provision that the sum payable by such registered firm itself was not to be determined. What was to be determined was the total income of each partner of the firm. In the case of registered firms, the individual partners of the firm are assessed to tax and not the firm as such. A set-off for loss which has been carried forward from the earlier years under the provisions of section 24 would only be available to the individual partner who has suffered the loss and not to the other partners of the firm or the firm or the firms. It is clear from what is stated above that the right of set-off would be available to an individual who had been carrying on business alone in which loss has been incurred when he is succeeded in that business by a registered firm in which he is a partner to the extent of his own individual share in the profits of that firm.
17. Reliance in this connection was placed by Mr. Parikh upon the observations of Chief Justice Chagla in the case of Shantikumar Narottam Morarji v. Commissioner of Income-tax. In that case Chief Justice Chagla observed that when the profits of a registered firm are ascertained, the assessee for the purpose of paying the tax is not the registered firm but each partner of the registered firm. At pages 76 and 77 he observed that in the eye of the law a firm was a compendious expression used to indicate that several persons constituting that firm were carrying on a business. But that compendious expression could not give to the firm a legal entity or a legal existence. In law it was only the partners who exist and who carry on the business.
18. Reliance was also placed by Mr. Parikh on a decision in the case of Hassan Kassam v. Commissioner of Income-tax, in which case a Division Bench of the Patna High Court took the view that where a business was carried on by an individual and thereafter the same business was carried on at the same place by the same person in partnership with his sons, the same business continued and that the identity of the business did not change. A reference was made to the case of Meka Venkatappaiah v. Additional Income-tax Officer, Bapatla. That was a case of an unregistered firm. An unregistered firm stands entirely on a different footing as regards assessment from a registered firm. The learned judges in that case were at pains to point out at more than one place that it was not necessary for them in that case to consider the legal position of a registered firm as it was admitted that the firm in that case was not registered before the relevant period. In express terms at page 284 the learned judges have observed thought-out was not necessary in that case to express their view on the legal status of a registered firm. This decision is not of much help to the respondent in this case. In our view, the assessee is entitled to claim the benefit of the loss which he had incurred during Samvat year 2009 and is entitled to set off such loss as against the income earned by the assessee as a partner in the firm in question during Samvat years 2010 and 2011.
19. In the result, we answer the question in the affirmative. The respondent will pay to the assessee the costs of the reference.
20. Question answered in the affirmative.