1923 (10) TMI 2 - HC - Income Tax

Partnership losses can offset individual profits under Income Tax Act, ensuring fair taxation.

The court ruled in favor of the assessee, holding that losses from partnership businesses can be set off against profits from individual trades for Income ... - Issues:Whether a person carrying on two different trades individually and as a member of an unregistered firm can set off losses from the partnership trade against profits from the individual trade.Analysis:The judgment discusses the issue of whether an assessee can set off losses incurred in partnership businesses against profits made in individual trades for Income Tax purposes. The court examines the relevant sections of the Income Tax Act, including Sections 6, 10, and 24, to interpret the legislative intent. The court notes that while Section 10 defines profits and gains from business, it does not specify restrictions based on partnership registration. The court emphasizes that each partner in a firm is an assessee liable for Income Tax, and partners are considered as carrying on the business. Therefore, the court holds that the assessee is entitled to set off losses from partnership businesses against profits from individual trades.The court further addresses the argument presented by the Crown that Section 10 limits set off to profits from each business separately. The Crown relies on the English Income Tax Act's provision allowing set off between different businesses. However, the court rejects this argument, pointing out that the Indian Income Tax Act permits set off between different heads of income under Section 24(1). The court emphasizes the Act's intention to tax a person's total net income and prevent unjust taxation based on profits from one business while ignoring losses from another. Therefore, the court interprets 'any business' in Section 10 to mean 'each and every,' allowing an assessee to set off profits and losses between different businesses, whether individual or partnership.Moreover, the court clarifies the nature of partnerships for Income Tax purposes, stating that partnerships are not separate legal entities like companies but are associations of individuals. The court highlights that the partnership's name is a description of its partners, who are jointly liable for debts and profits or losses. The court rejects the argument that set off is disallowed for unregistered firms based on Section 24, as this section pertains to set off between different heads of income, not different businesses under one head. The court concludes that partners of unregistered firms can set off partnership losses against their individual trade losses under the 'Business' head.In a concurring opinion, Justice Waller agrees with the judgment, affirming that the assessee is entitled to set off losses from partnership businesses against profits from individual trades. The court rules in favor of the assessee, allowing the set off and awarding costs to the assessee.