Carry forward of unabsorbed firm losses after registration allowed where prior unregistered losses remain apportionable among partners.

The statutory scheme under sections 71(1) and 75 of the Income-tax Act, 1961 was held to permit earlier unabsorbed losses to be carried forward, set off and apportioned among partners even when the firm had been unregistered in the year the losses arose. Registration was treated as affecting the rate and mode of taxation and related benefits, but not as extinguishing the character of losses already incurred or requiring the unregistered period to be disregarded. As the provisions for registered firms did not exclude such prior losses, the claim was accepted in favour of the assessee and against the Revenue.

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Issues: Whether the unabsorbed losses of the years when the firm was assessed as an unregistered firm could, after its registration, be carried forward, set off and apportioned among the partners.

Analysis: The statutory scheme under section 71(1) and section 75 of the Income-tax Act, 1961, was held to permit apportionment of losses among partners even where the firm had been unregistered during the year of loss. The registration of the firm was held to affect the rate and mode of tax and certain benefits, but not to extinguish the character of losses already incurred or to require that events during the unregistered period be ignored. The provisions governing registered firms did not express or imply any exclusion of such earlier losses from apportionment after registration.

Conclusion: The unabsorbed losses of the earlier years when the firm was assessed as an unregistered firm were held to be capable of being carried forward, set off and apportioned among the partners, in favour of the assessee and against the Revenue.

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