JUDGMENT [ENTITY], J.
1. This is an Income-tax Reference under [SECTION] of the [ACT]. Two questions have been referred to this Court for determination. They are as follows :
"(1) Whether, on the facts and circumstances of this case, the assessee was at all entitled to set off the loss of Rs. 11,875 suffered by it on a joint venture against its other income ?
(2) If the answer to question (1) be in the affirmative, then whether the assessee was entitled to claim a set off of the whole of the said amount of loss against its profits assessable for the assessment year 1959-60."
2. The facts giving rise to these two questions must be recorded at the outset. The assessee is Ganga Metal Refining Company (Private) Limited of 43, Strand Road, Calcutta. The status of the assessee is recorded as "company". It is a company incorporated under the [ACT]. The year of assessment is 1959-60. The assessee claimed a deduction of Rs. 11,875 as its share of loss in a joint venture. The assessee company's case is that it entered into a joint venture with two other companies, namely, (1) Binani Brothers Private Limited, Calcutta, and (2) Binani Commercial Company Private Limited, Bombay, for the purchase and sale of certain quantity of white metal slag and dust. 656 cwt. of those articles were purchased on 31st May, 1954. Those articles were sold in parts on several dates which the Tribunal records as falling within the accounting years 1955-56, 1956-57, 1957-58 and 1958-59. The last and final sale of these articles took place on the 18th April, 1958. The assessee company's case is that the accounts for the joint venture were maintained in the books of Binani Brothers Private Limited. On the basis of those accounts, the final result of the joint venture was a loss and the assessee's one-third share of that loss amounted to Rs. 11,875.
3. Originally, those articles were purchased on the 11th May, 1954, by Messrs. M. Gholam Ali Abdul Hussein and Co., in an auction at Kharagpur for Rs. 66,000. On or about the 31st May, 1954, the said lot was purchased at Rs. 99,900 by the assessee and the two other said companies. Those purchases, according to the agreed statement of facts before this Court, were made by these three companies including the assessee in a joint venture, wherein those three companies agreed to share the profits or losses resulting from the sale of those goods in equal shares. The characteristic features of what are normally associated with a partnership in the facts of this case are equal sharing of profits or losses.
4. It is common ground that there was no written agreement on the basis of which this joint venture was carried on. Therefore, the Income-tax Officer expressed the view that in the absence of a written agreement, the joint venture could only be treated as an unregistered firm. Once it is treated as an unregistered firm, the Income-tax Officer necessarily followed up that conclusion by the finding that the loss suffered by an unregistered firm can be carried forward and set off only against the income of that unregistered firm and could not be allocated to the partners and set off against the other incomes earned by them. Therefore, the Income-tax Officer disallowed the loss of Rs. 11,875 which the assessee in this case claims as a deduction for its share of loss in the joint venture.
5. It is also common ground, on the agreed statement of facts before this Court, that of all these three companies who carried on this joint venture, one, namely, Binani Commercial Company Private Limited, took away its own share of the goods and that since the 6th May, 1957, the sales of the remaining goods were made on behalf of the assessee company and the other company, namely, Binani Brothers Private Limited.
6. In fact, it is found by the Appellate Assistant Commissioner that Binani Commercial Company Private Limited took its share of remaining goods after the sale dated 18th October, 1956, and thereafter there were only two partners, the assessee company and Binani Brothers Private Limited. The Appellate Assistant Commissioner took the view that:
" Even though the purchase price, incidental expenses and sales have been apportioned amongst the partners in the ratio of their shares in the said business, it nonetheless shows that the business, at no stretch of imagination, can be considered as that of a joint venture. The business was run from 31st May, 1954, to 18th April, 1958, and mere entries in the books of accounts in a particular way cannot make such a business as that of a joint venture."
7. Finally the Appellate Commissioner came to the following conclusion :
"Such a business was essentially operated on by a firm of which appellant (assessee company) was one of the partners. The said firm not being registered under [SECTION], the loss arising out to appellant from such a firm is essential loss sustained by an assessee from an unregistered firm and as such the same cannot be set off against other income of the appellant,"
8. Therefore, the Appellate Assistant Commissioner decided that the Income-tax Officer was right in disallowing the claim of the assessee for deduction of the said sum of Rs. 11,875 as its share of loss in the joint venture and agreed with the conclusion of the Income-tax Officer.
9. The assessee appealed to the Tribunal. The Tribunal records and finds certain facts which are relevant for the purpose of this reference. The Tribunal found that the loss of these goods continued for nearly three years and there was a systematic and organised activity with the said purposes, viz., to realise profits, Therefore, the Tribunal holds the transactions in question to constitute an adventure in the nature of trade. The Tribunal further points out that it was not the assessee's case before the Tribunal that the profits and/or losses arising from those transactions were not taxable. The assessee's contention before the Tribunal was that this being a joint venture, the profit or loss should be apportioned between the partners or the parties taking part in the venture and taken to their individual assessments. It is on that ground that the assessee claimed to set off the said sum of Rs. 11,875 from its other income as a share of loss from a joint venture.
10. The Tribunal dismissed the appeal of the assessee and upheld the orders of the Income-tax Officer and the Appellate Assistant Commissioner. The reasons which the Tribunal gave in support of its conclusion may be briefly summarised at this stage. The allocation sought by the assessee company in this case is permissible only under the provisions of the [ACT] in case of the partners of a firm under [SECTION] of the [ACT]. The joint venture was, in fact, a transaction by a partnership firm, of which the three participating companies were the partners and that under [SECTION], the assessment in respect of a joint venture can only be either in the status of a firm or in that of an association of persons. The Tribunal expressed the opinion that it was a joint venture amounting to business within [SECTION] of the [ACT] and could only be assessed in the status either of a firm or of an association of persons. Therefore, the Tribunal says that there is no scope in such an assessment for allocation of the shares of the profit and/or loss of the participants in the venture and allow it to be taken to their individual assessments.
11. Mr. [ENTITY] appearing for the assessee has repeated these arguments before us in this reference for his client. He has relied on a number of decisions and authorities, to which we shall make reference at the appropriate stage. The substance of his argument is that the same assessee must be allowed to adjust incomes or losses appearing under different heads for its one total income that is being assessed under the [ACT]. In other words, he says that this assessee company certainly carries on business as such company and also carried on a joint venture of the nature indicated above and if it had incurred losses in such joint venture, it should be allowed to set off such losses against its assessment or against its profits otherwise attributed to it in its normal business as a company.
12. This argument has an apparent force by its very simplicity. Behind its apparent simplicity lies, however, the more dominant question, namely, whether it is the same assessee. No doubt, if the assessee is the same, then there can be computation under the different heads of income or revenue and then the final striking of the balance of profits and losses for the computation of the total income which is to be assessed but then the facts found and the agreed statement of facts are against this contention. It was not this assessee-company which qua the assessee and qua the company was earning this income or making or incurring this loss. The facts found are that this was entirely a different assessee for it was a joint venture of 3 separate companies. The fact found also was that it was a partnership of 3 companies but it was an unregistered firm under the [ACT]. Therefore, profits or losses from this joint venture belonging to an unregistered firm or even an association of persons under the [ACT] could not be adjusted against the income of the assessee as such.
13. The main reliance which Mr. [ENTITY] placed in support of his argument is on an unreported judgment of the Income-tax Bench of this court of [ENTITY] J. and [ENTITY] J. in [CASE NUMBER] under the title [ENTITY] Ltd., Calcutta v. Commissioner of Income-lax, delivered on June 17, 1965. There the assessee was a limited company incorporated under the [ACT] and had also a joint venture with one individual, [ENTITY], and where also the joint venture resulted in a loss and the assessee-company's share of the loss there, was intended to be set off against its other income. The ratio of that decision, without a formal expression therein, is that the assessee was entitled to adjust his share of the loss sustained by an unregistered firm in which he was a partner against the profits made by him in the business carried on by him individually.
If we could have followed that decision, our labour would have been considerably lightened. But Mr. [ENTITY], for the Commissioner of Income-tax, has drawn our attention to certain distinguishing features of the present reference. In our unreported case of [CASE NUMBER], dated 17th June, 1965, the assessee claimed to set of not under [SECTION] of the [ACT] at all but under [SECTION] of the [ACT]. Here the assessee's whole claim before us in this reference is made under [SECTION] of the [ACT]. [SECTION] of the Act with which the reference in the case of [CASE NUMBER] dated 17th June, 1965, was concerned, deals with the tax payable by the assessee under the head "profits and gains of business, profession or vocation" in respect of the profits or gains of any business, profession or vocation carried on by him. Naturally, there it is the question of the same assessee in the same status but [SECTION], which is the only section with which we are concerned in this reference on the admitted facts, introduces many other considerations and the major consideration before us is that this joint venture was carried on by an unregistered firm of 3 companies within the meaning of the [ACT]. This unregistered firm is a separate legal concept from the company as an assessee under the [ACT]. The company was assessed in the status of a company. Therefore, in that assessment it cannot be permitted to set off a loss which is not of the company in its status as an assessee-company but in a totally different status of an unregistered firm of which it was a partner. We are of the opinion that, while the different heads of income of business of the same assessee can be adjusted by a set-off, there can be no such set-off when the assessees are different as in the present reference before us. No doubt, this unregistered firm carrying on the joint venture, is not found to have been assessed in this case as an assessee. But that is not material because that unregistered firm carrying on such joint venture was within the concept of assessee under the [ACT] and as such assessee in its capacity and quality of an unregistered firm, it is distinctly different and separate from the company in which status and capacity it has been assessed and in which assessment it has claimed adjustment. This is really the crucial and significant point of difference between the reference before us and the reference in [CASE NUMBER], dated 17th June, 1965.
14. There is also a second distinction, which Mr. [ENTITY] has urged before us. He formulates that difference in this way. The venture in [ENTITY]' case was treated as that of an unregistered firm, but here in the reference before us, there is the further ground that this can also be an association of persons in this case. The decision in [ENTITY]' case, [CASE NUMBER] 17-6-1965. does not discuss at all the question of association of persons within the meaning of [SECTION] of the [ACT]. In support of this distinction, it can be said that 3 limited companies incorporated under the [ACT], even if they carry on a venture jointly, cannot be said to form a partnership within the meaning of the [ACT]. That is why the great authority of [ENTITY] on Partnership, 10th edition, at page 100, formulates the law thus :
" There is no general principle of law which prevents a corporation from being a partner with another corporation or with ordinary individuals, except the principle that a corporation cannot lawfully employ its funds for purposes not authorised by its constitution. Having regard, however, to this principle, it may be considered as prima facie ultra vires for an incorporated company to enter into partnership with other persons, "
15. It follows that this classical authority on the law of partnership is of the view that prima facie a company entering into a partnership with some other person or some other company would be ultra vires and will be against the principle that a particular company or an incorporated body cannot lawfully employ funds for purposes not authorised by its constitution which would be normally the memorandum and the articles of association. This difficulty is recognised in 28 [ENTITY] (Simonds 3rd Edn., page 499, Article 959). It has been pointed out there that a Corporation if so authorised by its constitution can enter into partnership with an individual person or with another corporation whatever may be its nationality and wherever it may be situated. Such a partnership however would require very special articles since many of the provisions of the [ACT] would be difficult to apply.
16. In the world of precedents one frequently comes across many mythologies growing round certain decisions. One such decision is that of the House of Lords in [PRECEDENT]., which is described in many text books and commentaries as laying down the law that a company can be a partner with another company and two companies incorporated can form a partnership. Scanning the speeches of the learned law Lords of the decision I find no warrant for such a mythical proposition claimed in favour of the decision. That point was never in issue before the House of Lords in that case nor was it discussed nor was it decided. Therefore, following Lord [ENTITY]'s dictum in [PRECEDENT]. that a case is only an authority for the proposition it decides and not for the proposition that was either assumed or seemed to follow from such decision, we do not think that this authority is of any help on this proposition.
17. On the other hand, the decision in In re European Society Arbitration Acts : Ex parte Liquidators of the British Nation Life Assurance Association, (1878) 8 Ch. D. 679. is a more relevant and telling authority on the proposition that we are considering. The observations of Lord Justice [ENTITY] at page 704 make the law on this point abundantly clear. It is observed there :
" The association was formed for the purposes mentioned in [SECTION] of their deed of settlement, such purposes to be carried into effect and the business to be managed by boards of directors and by general meetings in manner there prescribed. Prima facie there is nothing more inconsistent with the whole scope and character of such a body than that it should enter into a contract of partnership with any other person or persons in any other business whatever. It would require very clear powers to enable a man's partner or partners, or, in a joint stock company, his delegated officers, or the majority of his co-shareholders, to make him a partner with any other person or a shareholder in any other society. But if the society, in its quasi corporate character, could take shares in another partnership or body, it would in effect be to make every shareholder a partner or shareholder in such partnership or body But in truth, the more or less similarity of the objects, or even absolute identity of the objects, does not affect the principle. It is the entering into a new contract of partnership with new persons under a new constitution, which is absolutely ultra vires and void, unless specially provided for and authorised."
18. There is no special provision and authorisation in the present reference before us saying that the assessee-company or the two other companies who were its partners, were specially authorised by articles of association and memorandum of association to enter into such partnership. Be it noted here that mere implication -will not help but there has to be in such a case express and special authorisation, according to the authorities which we have just discussed.
19. It will not be a digression at this stage but an imperative necessity to bear in mind the very specific provisions of the [ACT]. [SECTION] of the [ACT] says that, "'Partnership' is 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. Persons who have entered into partnership with one another are called individually ' partners' and collectively 'a firm' and the name under which their business is carried on is called the ' firm name'." Notionally and juristically if two incorporated companies under the [ACT] enter into a partnership, then each company becomes agent for the other and agrees to share the profits. This will create many problems for the two incorporated companies. The two companies will have to be, therefore, agents for each other in a manner which may not be permissible at all by their own charters, articles and memorandum. It would be difficult to apply the very specific rights and obligations as between partners in the case of companies as partners such as in [SECTION], [SECTION], and [SECTION] of the [ACT]. Then there is need also for the registration of firms and the companies as such partners in a partnership will have to, therefore, obey two masters, the Registrar of Firms and Registrar of Companies. The access of each partner to the other partner's books of accounts will mean that one incorporated company would be entitled to get into the fields of the accounts of the other incorporated company which is its partner. This will make nonsense of the [ACT]. Strangers then will have access to the books, accounts and papers of the companies, whereas under the [ACT], they are only limited to their own members and shareholders.
20. Therefore, the regular concept of partnership under the [ACT] cannot really be applied to say that an incorporated company under the [ACT] can enter into a partnership with another incorporated company in the regular and technical sense. No doubt, there could be such partnership in the loose sense of the term between two incorporated companies for the purpose of the [ACT]. Instances are not rare and that has been so here. For instance, the Supreme Court decision in [PRECEDENT] . There it is held that a relationship brought into existence by agreement between 3 companies, A, B and C, was a relationship between partners and that the partnership consisted of these 3 partners, A, B and C, but because the deed of partnership did not 'specify their respective shares and as the application for registration under [SECTION] was not signed by all the 3 companies, the partnership was not entitled to registration under that section. That decision has to be understood in relation to partnership of firms or registration of firms under the [ACT] and not under the formal concepts of the [ACT] or under the [ACT].
21. It will be convenient here at this stage to refer to some of the cases cited at the Bar. In [PRECEDENT], it is laid down that it is the intention of the [ACT] that a firm should be given the benefit of [SECTION] only if it is registered under [SECTION] of the [ACT] in accordance with the conditions laid down in that section and the rules framed thereunder. And as the rules required the application to be signed by the partner in person, the signature by an agent on his behalf was held, to be invalid. The principle we have just indicated was clearly mentioned by the Supreme Court at page 171 of the Report (Income-Tax Reports) where the following observations appear :
"Under the common law of England, a firm is not a juristic person, the firm name being only a compendious expression to designate the various partners constituting it. But, as pointed out by this court in [PRECEDENT] ., inroads have been made by statutes into this conception, and firms have been regarded as distinct entities for the purpose of those statutes. One of those statutes is the [ACT], which treats the firm as unit for purposes of taxation."
22. The entity known as a partnership under the [ACT] is not the same entity of partnership strictly within the limits of the [ACT].
23. We may notice here a few more of the authorities cited at the bar. In the case of [PRECEDENT] ; [CASE NUMBER]., the Privy Council had occasion to discuss this very point of the income-tax entity of a partnership under the [ACT] as will be clear from the observations of Sir [ENTITY] delivering the judgment of the Privy Council at pages 178 and 179 of the report (Income Tax Reports). There the Privy Council expressed the view at pages 179 of Income Tax Reports.
"In their Lordships' opinion whether a firm is registered or unregistered, partnership does not obstruct or defeat the right of a partner to an adjustment on account of his share of loss in the firm, whether the set off be against other profits under the same head of income within the meaning of [SECTION] of the Act or under a different head [in which case only need recourse be had to [SECTION]]."
24. It is therefore essential always to keep clear in the mind that the income-tax entity of partnership under the [ACT] is a concept in income-tax law separate from the concept of partnership under the [ACT]. Income-tax entity of partnership under [ACT] may not satisfy the legal requirements of a partnership within the strict meaning of the [ACT].
25. The Supreme Court in [PRECEDENT] , had occasion to discuss this problem in the context of an assessee who was a partner in two registered firms and an unregistered firm. The question, therefore, arose if the assessee could carry forward loss of the registered firms in the subsequent year or years. [ENTITY] J., who delivered the judgment of the Supreme Court at page 635 of Income Tax Reports, expressly makes this point clear by the following observations :
"The High Court, however, held, that once losses were set off against profits, they were to that extent absorbed, and that there was nothing to carry forward. In our opinion this conclusion does not follow. [SECTION] provides for a different situation altogether; it provides for the carrying forward of a loss in business to the subsequent year or years till the loss is absorbed in profits, or till it cannot be carried forward any further. That has little to do with the manner in which the total income of an assessee has to be determined for the purpose of finding out the rate applicable to his income, taxable in the year of assessment."
26. The Supreme Court although it confirmed the decision of the High Court on the main issue held that the High Court was in error in deciding that the losses of the registered firms could not be carried forward because they had been absorbed by the profits of the unregistered firm.
27. The Supreme Court case however was concerned with [SECTION] and [SECTION] of the [ACT].
28. The point of set-off again came up for discussion before the Supreme Court in [PRECEDENT] . [ENTITY] J. delivering judgment of the Supreme Court expounded the principle at pages 713-14 of that report (Income Tax Reports) in the following terms:
"It is worthy of note that though the profits of each distinct business may have to be computed separately, the tax is chargeable under [SECTION], not on the separate income of every distinct business, but on the aggregate of the profits of all the businesses carried on by the assessee. It follows from this that where the assessee carries on several businesses, he is entitled under [SECTION], and not under [SECTION], to set off losses in one business against profits in another. If as we hold that [SECTION] has no application to the facts of the present cases, the second proviso thereto can also have no application. Moreover, the second [SECTION] applies only where the assessee is an unregistered firm. That is not the case here. The assessees before us are, in one case, a Hindu undivided family and, in the other, an individual. It is obvious, therefore, that the second [SECTION] can have no application in these cases."
29. It follows from this observation and on a parity of reasoning that if on the facts of this reference the joint venture between the assessee and two other limited companies was not the income-tax entity of an unregistered firm or partnership under the [ACT] then in that case these three limited companies could only be regarded as an association of persons under [SECTION] of the [ACT] and in which event [SECTION] would not be applicable.
30. It is essential to point out that set-off can be regarded both on general principles as well as on the terms of any special statute or legislation. The general principles of set-off are inherent in every accounting of the same assessee. Such general principles of set-off are, what the Supreme Court said, applicable where the assessee carries on several businesses so that under [SECTION] of the [ACT] he is entitled to set off losses in one business against the profit in another in computing the total income of the same assessee. That is the reason why the Supreme Court in this case expressly said that this set-off was not a set-off under [SECTION] when the assessees are not the same. In the present reference before us also the assessee-company is not the same as the assessee in the joint venture which was either an unregistered firm or an association of persons. In either event, it is not the same assessee and therefore on such general principles set-off cannot be permitted. Again, set-off may be the creature of a statute, as indeed it is, for instance, under [SECTION] of the [ACT], specially and expressly providing for a set-off of loss in computing aggregate income.
31. The Andhra Pradesh High Court, in [PRECEDENT] ., came to the conclusion that an assessee who was a partner in a registered firm is entitled in his assessment as an individual to have the loss incurred by him as a partner of the firm set off against his income, even though the firm has not been assessed to tax.
32. In a recent case of the [PRECEDENT] , the Supreme Court had again to consider this point and came to the conclusion that the loss on the facts of that case could not be set off against the income of the assessee-firrn on the ground that the losses of the unregistered firm could only be set off against the income of the unregistered firm and it made no difference that the department had not assessed the unregistered firm or taken action under [SECTION]. The point is made clear there in the observations of [ENTITY] J., delivering the majority judgment at pages 47-49 of Income Tax Reports.
33. In a recent decision of the Bombay High Court in [PRECEDENT] ., the point is clearly indicated and decided by [ENTITY] J., that [SECTION] has no application where the set-off is not of loss under one head of income against profits under another head but it is a case of adjustment and set-off between profits and losses under the same head and that the adjustment of profits and losses under the head of business is to be done not under [SECTION] but under [SECTION] of the [ACT].
34. In this view of the matter, we hold that the assessee is not entitled to set off against its other income the loss of Rs. 11,875 suffered by it in its joint venture with two other limited companies. We accordingly answer the first question in the negative. Having regard to this answer, question No. 2 does not arise for determination and we do not propose to express any opinion thereon. We need only record that the assessee's counsel's statement before the Tribunal that in the assessment of Binani Brothers Private Ltd., and Binani Commercial Company Private Limited, the losses from this joint venture have been allowed as a set-off and which was mentioned by the Tribunal, was a wrong statement by the learned counsel and the original records of assessment of Binani Brothers Private Limited, Calcutta, were produced before the court to show that the statement was wrong. That fact may be recorded.
35. There will be no order as to costs.
[ENTITY], J.
36. I agree.