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Commissioner of Income-tax Vs. S.K.S. Rajamani Nadar - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 64 of 1970 (Reference No. 15 of 1970)
Judge
Reported in[1977]109ITR258(Mad)
ActsIncome Tax Act, 1961 - Sections 70, 70(1), 71 and 77
AppellantCommissioner of Income-tax
RespondentS.K.S. Rajamani Nadar
Appellant AdvocateJ. Jayaraman, Adv.
Respondent AdvocateK. Srinivasan and ;K.C. Rajappa, Advs.
Cases ReferredGanga Metal Refining Co. v. Commissioner of Income
Excerpt:
.....1963-64, 1965-66 and 1966-67 - section 71 provide for set off of loss under any other head of income - loss from any source in a year may be set off against income from any other source in that year - question answered in affirmative. - - he also argued that under the old income-tax act, 1922, even though there was no specific provision like section 70, the loss incurred by an assessee in a unit where he was merely a member or a partner was permitted to be set off against his income from other sources on the general principle that an assessee is liable to pay tax on his total income and that this position is now made clear by the provisions contained in section 70 of the income-tax actr 1961. we are of the view that the learned counsel for the assessee is well founded in his..........has income from business in salt. m/s. n. k. perianna nadar is another iirrn of partnership. the assessee-firm and the firm of m/s. n. k. perianna nadar jointly negotiated for the contract each year for the supply of salt with m/s. west coast salt fisheries department at mangalore. in the assessment year 1959-60, they were successful in getting the contract and made a profit of rs. 14,676. the assessee included its half share of rs. 7,338 in this profit in its total income. the income-tax officer treating the assessee and m/s. n. k. perianna nadar as an unregistered firm of partnership in respect of their contract for the supply of salt to m/s. west coast salt fisheries department at mangalore included the sum of rs. 7,338 in the total income. the assessee's contention that the.....
Judgment:

V. Ramaswami, J.

1. The assessee is a firm of partnership consisting of two partners. Among other sources, it has income from business in salt. M/s. N. K. Perianna Nadar is another iirrn of partnership. The assessee-firm and the firm of M/s. N. K. Perianna Nadar jointly negotiated for the contract each year for the supply of salt with M/s. West Coast Salt Fisheries Department at Mangalore. In the assessment year 1959-60, they were successful in getting the contract and made a profit of Rs. 14,676. The assessee included its half share of Rs. 7,338 in this profit in its total income. The Income-tax Officer treating the assessee and M/s. N. K. Perianna Nadar as an unregistered firm of partnership in respect of their contract for the supply of salt to M/s. West Coast Salt Fisheries Department at Mangalore included the sum of Rs. 7,338 in the total income. The assessee's contention that the contract taken by the assessee and the other firm was a joint venture was not accepted by the Income-tax Officer. This view was also confirmed by the Appellate Assistant Commissioner and the Tribunal. In the assessment year 1960-61, the two firms did not succeed in getting a contract and, therefore, there was neither an income nor a loss. But for the assessment year 1961-62, they succeeded in getting the contract. It ended in a loss and the half share of the assessee in the loss came to Rs. 4,449. They did not get any contract for the assessment year 1962-63. But in the assessment year 1963-64, though they obtained a contract, again it ended in a loss and the share of loss of the assessee came to Rs. 23,085. In 1964-65, the assessee made a profit in the contract and its share came to Rs. 5,924. For the assessment years 1965-66 and 1966-67 also, though they were successful in getting the contract, they suffered a loss and the share of loss of the assessee came to Rs. 4,095 and Rs. 605, respectively. In respect of the assessment years 1961-62 and 1963-64, the assessee claimed a set-off of the loss against the business profits made by the assessee-firm in its own business. The Income-tax Officer considered that the profit or loss arising from the contract with M/s. West Coast Salt Fisheries Department, Mangalore, should be considered as profit or loss arising from an unregistered firm of partnership between the assessee and M/s. N. K. Perianna Nadar and that, therefore, the loss could not be set-off in view of Section 77 of the Act. There was an appeal in respect of these two years to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner held that the two firms cannot be considered to have entered into a partnership for carrying on a contract business and that this larger entity consisting of two firms must be treated as an association of persons. On the ground that the prohibition contained in Section 77 is applicable only in respect of the income or loss of an unregistered firm and that there is no express prohibition in the Income-tax Act against the set-off of loss in the business carried on by an association of persons, the Appellate Assistant Commissioner allowed the claim of set-off for the share of loss of the business carried on by the assessee as an association of persons. The department filed an appeal against this order before the Income-tax Appellate Tribunal. Before the Tribunal, the department conceded that the business carried on by the assessee with M/s. N. K, Perianna Nadar was a business carried on by an association of persons but argued that even as such the claim of set-off was not permissible. The Tribunal held that there was no prohibition to set off a share of loss of an assessee in an association of persons and that Section 70 also permitted the set-off of the amount of loss from one source against another source under the same head of income. In the view of the Tribunal, the assessee is not different and it is the same assessee who carried on the partnership is also a member of the association of persons and that Section 70 was, therefore, applicable. In respect of the assessment years 1965-66 and 1966-67 also, the Appellate Assistant Commissioner, following his decision in respect of the assessment years 1961-62 and 1963-64, allowed the claim of set-off and this was confirmed by the Tribunal by a separate order. At the instance of the revenue, the following question has been referred :

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessee was entitled to the set-off of the share in the loss claimed by it for the assessment years 1961-62, 1963-64, 1965-66 and 1966-67 ?'

2. The learned counsel for the revenue contended that an association of persons is a unit of assessment under the Income-tax Act and that any loss incurred by it could be carried forward and set off by that unit against income in future assessment years and the proportionate part of the loss of an individual member of the association could not be set off by him or that member against his or its other income. He also referred to Section 86(v) which provided that even in a case where such association of persons makes a profit, though the proportion of the amount which a member of the association is entitled to receive is to be included in computing the total income of such person, no income-tax was payable by the assessee in respect of that portion of the amount. He also argued that Section 70 which allowed a set-off of the loss incurred in respect of one source of business against his income from any other sources under the same head could be invoked only when there is an identity, so to say, of the unit which made a profit and the unit which suffered the loss. He further contended that wherever the legislature intended a share of loss in a different unit is to be allowed as a set-off against income in another unit of the same person, it has specifically provided so, as in Section 75 of the Act. On the other hand, the learned counsel for the assessee contended that unless there is a specific prohibition against a set-off of the loss of an assessee in a different unit, such loss could be set off against the income of an assessee even though the income is from a unit different from the unit where he had suffered the loss. He also argued that under the old Income-tax Act, 1922, even though there was no specific provision like Section 70, the loss incurred by an assessee in a unit where he was merely a member or a partner was permitted to be set off against his income from other sources on the general principle that an assessee is liable to pay tax on his total income and that this position is now made clear by the provisions contained in Section 70 of the Income-tax Actr 1961. We are of the view that the learned counsel for the assessee is well founded in his contentions. Section 70 provides that where the net result for any assessment year in respect of any source falling under any head of income is a loss, the assessee shall be entitled to have such loss set off against his income from any other sources under the same head. Section 71(1) provided that where in respect of any assessment year, the net result of computation under any head of income is a loss, he shall be entitled to Have that amount of such loss set off against his income, if any, assessable for that year under any other head. Thus, while Section 70(1) provided for the set-off of loss from a source falling under the same head, Section 71 provided for set off of loss under any other head of income. The set-off allowed under Section 70(1) is subject to the saving clause in the same section which reads 'save as otherwise provided in this Act'. That in our opinion has reference to Section 77 where there is a prohibition against set-off in case where the loss is incurred by an assessee as a partner of an unregistered firm or where the assessee itself is an unregistered firm. We are, therefore, of the opinion that unless there is a specific prohibition, the set-off claimed in this case could not be refused. We are also unable to agree with the learned counsel for the revenue that in order to claim the benefit of Section 70, there should be an identity of the unit which made the profit and the unit which suffered the loss. Section 70 is not concerned with the units which suffered the loss or with the units which made the profit. It is concerned with an assessee who had more sources than one falling under the same head. It might be that one of the sources of income is as a member of an unregistered firm or an association of persons. But, all the same, the assessee could not be treated as two different entities. This was the view expressed by the Privy Council as early as in Arunachalam Chettiar v. Commissioner of Income-tax [1936] 4 ITR 173 . It was held in that case that 'whether a firm is registered or unregistered, a partner's share of loss in the firm can be set off against the profits and gains made by him in his individual trade or otherwise'. It may be mentioned that Section 24 of the Indian Income-tax Act, 1922, as it stood at that time, did not contain any prohibition against set-off of losses in an unregistered firm. It was only subsequently a provision similar to Section 77 was introduced in Section 24 of the Indian Income-tax Act, 1922. This principle was approved and followed by the Supreme Court in Anglo-French Textile Co. Ltd. v. Commissioner of Income-tax : [1953]23ITR82(SC) , which was also a case arising under the old Act. These decisions were followed by the Andhra Pradesh High Court in Smt. Abida Khatoon v. Commissioner of Income-tax : [1973]87ITR627(AP) , where the learned judges differing from the decision of the Calcutta High Court in Ganga Metal Refining Co. v. Commissioner of Income-tax : [1968]67ITR771(Cal) held that since the charge of tax is on the total income and income-tax is a single tax and not a collection of taxes, a loss from any source in a year may be set off against the income from any other sources in that year and there was no prohibition preventing a member of the association of persons from setting off his share of loss in the association of persons against his other incomes. That was also a case where an assessee claimed to set off the loss incurred by her as a member of an association of persons against her income from other sources. We are in entire agreement with this judgment of the Andhra Pradesh High Court.

3. In the result, the question referred is answered in the affirmative and against the revenue. The assessee will be entitled to its costs. Counsel's fee Rs. 250.


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