Case: Commissioner Of Income-Tax, Andhra Pradesh,Hyderabad Vs. A. Dharma Reddy, Morthad

24 (2) (ii) as it stood after the amendment which is relevant and we fail to see on the plain language of the aforesaid provision how it could be held that the business in which the loss was originally sustained was not continued during the assessment year 1956-57.The word "business" has been defined in Section 2 (4) of the Act as including any trade, commerce or manufacture or any advantage or concern in the nature of trade, commerce or manufacture. These words are of wide import the underlying idea being of continuos exercise of an activity.As pointed out by S. R. Das, J., (as he then was) in Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax, 26 ITR 765 , at p.773= (AIR 1955 SC 176 at p. 181) the word "business" connotes, some real substantial and systematic or organised course of activity or conduct with a set purpose. The systematic or organised course of activity of the assessee, in the present case, consisted of dealings or taking of contract in bidi leaves. That business did not depend on the constitution of a partnership firm through which it was carried on nor could it come to an end so long as the assessee carried on the same systematic or organised course of activity with a set purpose.5. The computation of a partners share in the firms profits is dealt with by Section 16 (1) (b). The proviso thereto lays down that if his share was computed as a loss such loss may be set off or carried forward and set off in accordance with the provision of Section 24. Under Section 23 (5) when the assessee is a registered firm and the total income of the firm has been assessed under subsection (1), (3) or (4) as the case may be, 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. There is a proviso which says that if such share of any partner is a loss it shall be set off against his other income or carried forward and set off in accordance with the provisions of Section 24.The High Court was right in saying 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 that firm. In a number of decided cases it has been held that the identity of the business for the purpose of Section 24 (2) (ii) does not change by reason of the change in persons who carry on that business since it continues to be carried on by the same individual.The Kerala High Court in Dwarkadas Leeladhar v. Commissioner of Income-tax, Kerala, (1963) 47 ITR 619 (Ker) held that where a registered firm which was working at a loss was dissolved and one of the partners continued the same business as a sole proprietor he was entitled to set off his share of the loss incurred by the firm against the profits accruing to him from the business as a sole proprietor. The Delhi High Court in S. Narain Singh v. Commissioner of Income- tax Delhi, 66 ITR 341=(AIR 1967 Delhi 75) had to deal with a case where an assessee had taken certain liquor contracts and carried on the business of sale of liquor in his individual name and sustained losses. Subsequently he carried on the same business with 10 other persons and sought to set off the previous losses against the profits made in the accounting year. Referring to the meaning and construction of the words "same business" as they stood in Section 24 (2) before the amendment made by the Finance Act of 1955, it was held that the assessee was entitled to carry forward the losses for the previous year and have them set off against the share of his income of the registered firm during the assessment year because the business in which the loss was sustained was the same business.6. In both the above cases reference was made to the decision of the Gujarat High Court in Sitaram Motiram Jain v. Commissioner of Income-tax, (1961) 43 ITR 405 (Guj) in that case an assessee had incurred asses in a business carried on by him as the sole proprietor and a registered firm of which he was a partner took over the business as a running concern. The question was whether he could have the losses incurred by him in the business which he carried on as the sole proprietor carried forward and set off against his share of the profits of the registered firm.After referring to Section 24 (2) (ii) and Section 23 (5) it was observed, what has to be determined in the case of a registered firm is the total income of each partner in the firm as the individual partners are assessed to tax and not the firm as such. A set off for loss which had been carried forward from the earlier years under the provisions of Section 24 would only be available to the individual partner who had suffered the loss and not to the other partners of the firm or the firm.7. In our judgment there could be no manner of doubt that the business in which the loss had been sustained by the assessee when he was a partner of the first firm which was dissolved on March 31, 1955, continued to be carried on by him in partnership with three other persons during the assessment year 1956-57, the business, as stated before, being of dealing in or entering into contracts in respect of bidi leaves. The mode in which he carried on the businees in bidi leaves was one of taking other persons as partners. He did not stop doing that business in the assessment year in question.8.

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

Explanation:
0[ds]For getting the benefit under that section it was essential that the business in which the loss was sustained should be continued to be carried on for the assessment year in question. This means that the same concern or partnership which carried on the business the previous year should continue to function in the year of assessment.4. There is no warrant for the proposition put forward on behalf of the appellant that in order to get the benefit of Section 24 (2) (ii)of the Act especially after the amendment made by the Finance Act 1955 the, assessee should carry on the same business in the year of assessment. The change in the Language of the provision substituted by the Amending Act is significant and all that the assessee has to show is that the business in which loss was originally sustained continued to be carried on by him in the assessment year. Now, in the present case, the assessee carried on the business in bidi leaves apart from other businesses. This business he was doing in partnership with another person. Nevertheless the business was of taking contracts in respect of or dealing in bidi leaves. This business he could do either individually or in partnership with some one else. If the first partnership was dissolved it did not mean that his business in bidi leaves came to an end so long as he continued to do that business either individually or in partnership with others. During the assessment year in question he was admittedly carrying on that business in partnership with three others. It could well be said that even according to the provisions of Section 24 (2) as they stood before the amendment made by the Finance of 1955 he continued to carry on the same business but for the purpose of the present case it is Section 24 (2) (ii) as it stood after the amendment which is relevant and we fail to see on the plain language of the aforesaid provision how it could be held that the business in which the loss was originally sustained was not continued during the assessment year 1956-57.The word "business" has been defined in Section 2 (4) of the Act as including any trade, commerce or manufacture or any advantage or concern in the nature of trade, commerce or manufacture. These words are of wide import the underlying idea being of continuos exercise of anpointed out by S. R. Das, J., (as he then was) in Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax, 26 ITR 765  , at p.773= (AIR 1955 SC 176   at p. 181) the word "business" connotes, some real substantial and systematic or organised course of activity or conduct with a set purpose. The systematic or organised course of activity of the assessee, in the present case, consisted of dealings or taking of contract in bidi leaves. That business did not depend on the constitution of a partnership firm through which it was carried on nor could it come to an end so long as the assessee carried on the same systematic or organised course of activity with a set purpose.5. The computation of a partners share in the firms profits is dealt with by Section 16 (1) (b). The proviso thereto lays down that if his share was computed as a loss such loss may be set off or carried forward and set off in accordance with the provision of Section 24. Under Section 23 (5) when the assessee is a registered firm and the total income of the firm has been assessed under subsection (1), (3) or (4) as the case may be, 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. There is a proviso which says that if such share of any partner is a loss it shall be set off against his other income or carried forward and set off in accordance with the provisions of Section 24.The High Court was right in saying 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 that firm.firm.7. In our judgment there could be no manner of doubt that the business in which the loss had been sustained by the assessee when he was a partner of the first firm which was dissolved on March 31, 1955, continued to be carried on by him in partnership with three other persons during the assessment year 1956-57, the business, as stated before, being of dealing in or entering into contracts in respect of bidi leaves. The mode in which he carried on the businees in bidi leaves was one of taking other persons as partners. He did not stop doing that business in the assessment year in question.