Tax reference evidence and set-off rules: factual findings need legal evidence, and loss can be claimed only by the correct assessee.

In a tax reference, the Supreme Court held that a factual finding must rest on some legal admissible evidence, and it may not be sustained on mere suspicion or conjecture. The Tribunal's conclusion that the transactions were not those of the assessee firm was unsupported by legal evidence, so that issue was decided for the assessee. The Court also held that a loss arising from a separate unregistered partnership could be set off only by the assessee who legally suffered that loss. As the registered firm was not that entity, it could not claim the set-off, and that issue was decided against the assessee.

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Issues: (i) whether there was any legal admissible evidence to support the Tribunal's finding that the transactions were not those of the assessee firm; (ii) whether the assessee firm could claim set-off of the loss arising from the unregistered partnership.

Issue (i): whether there was any legal admissible evidence to support the Tribunal's finding that the transactions were not those of the assessee firm.

Analysis: In a reference, the High Court does not reappreciate sufficiency of evidence but only examines whether there is any evidence at all to sustain the finding. The circumstances relied upon by the Income-tax Officer did not establish that the assessee had purchased losses or that no joint business was carried on. The use of Damji's name in the ankdas, the difference in the proportion of losses claimed, and the alleged improbability of the arrangement did not provide a foundation for the inference drawn.

Conclusion: The finding that the transactions were not the assessee firm's transactions was unsupported by legal admissible evidence. The answer on this issue was in favour of the assessee.

Issue (ii): whether the assessee firm could claim set-off of the loss arising from the unregistered partnership.

Analysis: A firm as such cannot enter into a partnership with another person or firm. On the facts, there were two distinct assessees: the registered assessee firm and the separate unregistered partnership consisting of Damji and the individual partners. The scheme of the Income-tax Act, 1922, especially the provisions governing set-off and assessment of registered and unregistered firms, permits set-off only by the proper assessee who has suffered the loss. The assessee firm, not being the entity that incurred the loss in the unregistered concern, could not set it off against its own profits.

Conclusion: The assessee firm was not entitled to claim the set-off. The answer on this issue was against the assessee.

Final Conclusion: The decision sustained the High Court's answer on the evidentiary issue but reversed its view on set-off, resulting in partial success for each side.

Ratio Decidendi: In a tax reference, a factual finding must rest on some legal evidence, and a loss can be set off only by the assessee who is legally entitled to claim it under the Act; a firm cannot claim as its own the loss of a separate unregistered partnership.

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