Case: Commissioner of Income Tax Vs. P.M. Muthuraman Chettiar &amp; Another

two were working partners in-charge of the management of the business. The Rangoon firm suffered a loss and as no accounts were said to have been maintained, a statement of affairs as on December 31, 1946 of the Rangoon firm was taken and this showed a loss of Rs. 43,969. The partnership was later dissolved and a registered deed of dissolution of the firm was executed on January 13, 1947, under which the assessee agreed to bear the whole loss of Rs. 43,969 as the other partners were unable to contribute their share of the loss and also to take over the assets and liabilities of the Rangoon firm as on December 31 1946. In the books maintained by the assessee at Madras for the period ending March 31, 1847, the sum of Rs. 43,969 was adjusted to the capital account of the assessee and in the return of the total income filed for the assessment year 1947-48, the assessee claimed that the loss of Rs. 43,969 from the Rangoon firm should be allowed as a set off. The Income-tax authorities negatived the claim of the assessee to set off either wholly or partly the loss of Rs. 43,969. On appeal to the Tribunal it held that the Rangoon firm was a different entity from the assessee and, therefore, he was not entitled to any set off of the loss incurred lay the Rangroon firm and dismissed the appeal. A case was then stated under S. 66 (2) of the Income-tax Act to the High Court on the following question of law, namely:"Whether on the facts and circumstances of the case the share of the assessees loss of the sum of Rs. 43,969 cannot be set off against the profits of the assessees business in arriving at the total assessable income?”The High Court answered the question in favour of the assessee.5. The only point for decision in the two appeals is whether the High Court has correctly answered the two questions.6. It appears that in the High Court the point urged on behalf of the present appellant was that there was no identity between the unit which derived the income and the units which sustained the loss and on this ground it was urged that there could be no set off under S. 10 which permitted the loss incurred by the same unit being set off against the profit derived by it; in other words, the argument was that under income-tax law when an individual or the Karta of a Hindu undivided family was a partner in a firm, the unit of assessment in regard to the firms profits or gains was the firm itself which was an entity separate and distinct from the partners composing it, notwithstanding that for the purpose of computing the total income of an individual, his share of the profits from the firm has to be included in his total income. The High Court repelled this argument and, in our opinion. rightly repelled it in the circumstances of these two cases. A similar argument was considered and repelled by the Privy Council in Arunachalam Chettiar v. Commissioner of Income-tax, Madras, 1936-4 ITR 173: (AIR 1936 PC 133 ). It was observed therein that whether a firm was registered or unregistered, a partners share of the loss in the firm could be set off against the profits and gains made by him in his individual business. That principle applies in the present cases, even though after the amendment of the Income-tax Act in 1939 the position of a partner in an unregistered firm may stand on a different footing, a distinction which is not material for the present cases.7. The Learned Advocate for the appellant has not supported the case sought to be made out by the Revenue in the High Court. He has, however, relied on the second proviso to S. 24 (1) of the Income-tax Act. It seems clear to us that that proviso has no application to the facts of the cases under our consideration. In Commissioner of Income-tax, Mysore, Travancore-Cochin and Coorg v. Indo-Mercantile Bank Ltd., l959-36 ITR l: (AIR 1959 SC 713 ), this Court pointed out that the object of S. 24 (1) of the Indian Income-tax Act was to allow the set off of loss of profits or gains under one head against income, profits or gains under any other head, and there was nothing in the section or in the first proviso thereto which would favour the disintegration of the head "business"; it further pointed out that S. 10 of the Indian Income-tax Act did not distinguish between business in British India and business in an Indian State or so divide business. The ratio of that decision must apply to the cases under our consideration and the assessees are entitled to set off losses which they had suffered in business outside the taxable, territories against profits and gains made from business within the taxable territories. It is worthy of note that though the profits of each distinct business may have to he computed separately, the tax is chargeable under S. 10, 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 S. l0 old not under S. 24 (1), to set off losses in one business against profits in another. If as we hold that S. 24 (1) has no application to the facts of the present cases, the second proviso thereto can also have no application. Moreover, the second proviso to S. 24 (1) 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 proviso to S. 24 (1) can have no application in these cases.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]6. It appears that in the High Court the point urged on behalf of the present appellant was that there was no identity between the unit which derived the income and the units which sustained the loss and on this ground it was urged that there could be no set off under S. 10 which permitted the loss incurred by the same unit being set off against the profit derived by it; in other words, the argument was that underlaw when an individual or the Karta of a Hindu undivided family was a partner in a firm, the unit of assessment in regard to the firms profits or gains was the firm itself which was an entity separate and distinct from the partners composing it, notwithstanding that for the purpose of computing the total income of an individual, his share of the profits from the firm has to be included in his total income. The High Court repelled this argument and, in our opinion. rightly repelled it in the circumstances of these twowas observed therein that whether a firm was registered or unregistered, a partners share of the loss in the firm could be set off against the profits and gains made by him in his individual business. That principle applies in the present cases, even though after the amendment of theAct in 1939 the position of a partner in an unregistered firm may stand on a different footing, a distinction which is not material for the presentseems clear to us that that proviso has no application to the facts of the cases under our consideration. In Commissioner ofin and Coorg v.ITR l: (AIR 1959 SC 713  ), this Court pointed out that the object of S. 24 (1) of the IndianAct was to allow the set off of loss of profits or gains under one head against income, profits or gains under any other head, and there was nothing in the section or in the first proviso thereto which would favour the disintegration of the head "business"; it further pointed out that S. 10 of the IndianAct did not distinguish between business in British India and business in an Indian State or so divide business. The ratio of that decision must apply to the cases under our consideration and the assessees are entitled to set off losses which they had suffered in business outside the taxable, territories against profits and gains made from business within the taxable territories. It is worthy of note that though the profits of each distinct business may have to he computed separately, the tax is chargeable under S. 10, 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 S. l0 old not under S. 24 (1), to set off losses in one business against profits in another. If as we hold that S. 24 (1) has no application to the facts of the present cases, the second proviso thereto can also have no application. Moreover, the second proviso to S. 24 (1) 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 proviso to S. 24 (1) can have no application in these cases.