Spouse's partnership loss can be carried forward and set off in the assessee's hands under section 64(1)(i).

Under section 64(1)(i) of the Income-tax Act, 1961, the spouse's share of loss in a partnership firm where both spouses are partners can be carried forward and set off in the assessee's hands. The earlier contrary view was held unsustainable in light of Supreme Court authority recognising that the assessee may claim not only his or her own loss but also the spouse-linked loss for tax set-off purposes. The legal effect is that the spouse's allocated partnership loss is treated as available to the assessee for carry forward and adjustment against other income.

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Issues: Whether the loss allocated to the assessee's spouse in a partnership firm could be set off against the assessee's other income under section 64(1)(i) of the Income-tax Act, 1961.

Analysis: The question was answered in the light of the Supreme Court's ruling that, for purposes of section 64(1)(i), the assessee is entitled to carry forward not only his or her own share of loss but also the share of loss attributable to the spouse in the firm where both were partners. The earlier view rejecting the claim was therefore not sustainable.

Conclusion: The reference was answered in the affirmative, in favour of the assessee and against the Revenue.

Ratio Decidendi: Under section 64(1)(i) of the Income-tax Act, 1961, the spouse's share of loss in a partnership firm in which both spouses are partners is eligible for carry forward and set-off in the hands of the assessee.

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