1956 (10) TMI 40 - HC - Income Tax

Court Allows Set-off of Losses in Non-Resident Firms Against Indian Business Income

The court allowed the set-off of losses incurred by the assessee in non-resident firms and a partnership business in Rangoon against the assessee's income ... - Issues Involved:1. Whether the loss incurred by the assessee as a partner of three non-resident firms could be set off against the assessee's income from business in India under the Indian Income-tax Act.2. Whether the share of the assessee's loss from a partnership business carried on at Rangoon could be set off against the profits of the assessee's business in India.Issue-Wise Detailed Analysis:1. Set-off of Loss from Non-Resident Firms Against Indian Income:The primary issue was whether the loss of Rs. 23,672 incurred by the assessee as a partner in three non-resident firms could be set off against the assessee's income from business in India. The Tribunal had disallowed the claim, reasoning that section 10 of the Indian Income-tax Act did not apply to businesses carried on in partnership, and the right to set-off could only arise under section 24, which was not applicable in this case.The court referred to its previous decision in Parasram Jethanand v. Commissioner of Income-tax, where it was held that losses incurred outside the taxable territories could be set off against income from business within the taxable territories. The court emphasized that under section 10(1), the tax is payable on the profits or gains of any business carried on by the assessee, and the net result of all transactions within the accounting year must be considered, irrespective of the geographical location of the business.The court rejected the Department's argument that there was no identity between the unit deriving the income and the units sustaining the loss, noting that the Income-tax Act regards a firm as a unit of assessment distinct from its partners. The court concluded that if a resident individual or Hindu undivided family (HUF) carries on business as a partner in a non-resident firm, the loss incurred in such a business could be set off against the profits from other businesses carried on by the assessee under section 10.2. Set-off of Loss from Rangoon Partnership Business:The second issue was whether the share of the assessee's loss from a partnership business carried on at Rangoon could be set off against the profits of the assessee's business in India. The assessee, a resident and ordinarily resident, carried on business in the manufacture and sale of lunghies, including a partnership business at Rangoon, which sustained a loss of Rs. 43,969 during the relevant accounting year.The Income-tax Authorities had disallowed the claim for set-off based on section 16(1)(b) and the second proviso to section 24(1). However, the court held that the share-income of a partner is income from business within section 10, and the loss sustained in such a business could be set off against the income from other businesses carried on by the assessee.The court referred to the judgment of Chagla, C.J., in Shantikumar Narottam Morarji v. Commissioner of Income-tax, Bombay City, where it was held that a partner in a registered firm carries on business, and the profits and gains derived by the assessee from the business must be brought to tax under section 10(1). The court also cited the decision of the Nagpur High Court in Mohanlal Hiralal v. Commissioner of Income-tax, C.P. and Berar, Nagpur, which supported the assessee's claim for set-off.In conclusion, the court answered both questions in the affirmative and in favor of the assessee, allowing the set-off of the losses incurred in the non-resident firms and the Rangoon partnership business against the assessee's income from business in India. The assessee was entitled to the costs of the references.