1980 (7) TMI 80 - HC - Income Tax

Court rules AOP can't claim set-off after loss apportioned among members. Precedents cited.

The court held in favor of the revenue, ruling that the association of persons (AOP) could not claim the set-off of carry forward loss once it had already ... Carry Forward And Set Off Issues Involved:1. Whether the assessee cannot claim the set-off of the carry forward loss under sections 70 and 71 of the Income-tax Act.2. Whether the Income-tax Officer who has already determined the carry forward loss to be set off against the income of the assessment year 1966-67 is competent to deny the right of the assessee for the set-off under the provisions of the Act.Issue-wise Detailed Analysis:Issue 1: Claiming Set-off of Carry Forward LossThe primary argument from the assessee's counsel was that the income or loss of an association of persons (AOP), which is a separate assessee, does not cease to be its income or loss merely because it was considered in computing the tax payable by individual members. The counsel argued that unless there is an express provision in the Act that such income or loss shall be allocated among the members and shall cease to be that of the AOP, the assessee is entitled to set off the loss. The counsel pointed out that while the Act provides for the allocation of losses in the case of registered and unregistered firms (under sections 75 and 77), no such provision exists for AOPs. Therefore, in the absence of any prohibition, the general rule of set-off and carry forward of unabsorbed loss should be available to an AOP.The court, however, noted that in the case of Smt. Abida Khatoon v. CIT [1973] 87 ITR 627 (AP), it was held that the general rule of set-off enacted in sections 70(1) and 71(1) allows a member of an AOP to set off their share of the loss against other income. The court emphasized that once the loss of an AOP is allocated to its members, there remains no loss to be carried forward by the AOP itself. The Appellate Tribunal had observed that the loss up to the assessment year 1968-69 had already been allocated to the individual members, and no loss remained to be carried forward and set off against the AOP in the assessment year 1969-70.Issue 2: Competence of Income-tax OfficerThe second issue was whether the Income-tax Officer (ITO) who had already determined the carry forward loss to be set off against the income of the assessment year 1966-67 could deny the right of the assessee for the set-off under the provisions of the Act. The court referred to the decision in Smt. Abida Khatoon v. CIT, where it was held that the loss suffered by the AOP was allowed to be allocated between individual members. The ITO had apportioned the aggregate loss carried forward and set it off against the other income of the individual members. The court concluded that the same loss, once set off in the hands of the members, could not be claimed again by the AOP.The court further referenced the Gujarat High Court's decision in CIT v. Garden Silk Wvg. Factory [1975] 101 ITR 659, which observed that once an allocation is made, there remains nothing with the firm to be carried forward. The court also considered the Supreme Court decision in Seth Jamnadas Daga v. CIT [1961] 41 ITR 630, which clarified that the provisions for carrying forward and setting off losses are intended to be invoked only once.The court held that there was no statutory prohibition preventing the AOP from carrying forward its loss, but once the loss has been apportioned among its members, it cannot be claimed again by the AOP. The court emphasized that allowing the same loss to be set off twice would lead to illogical and inequitable results, contrary to the intent of the law.Conclusion:The court answered both questions in favor of the revenue and against the assessee, concluding that the AOP could not claim the set-off of carry forward loss once it had already been apportioned among its members. The department was awarded costs from the assessee, with an advocate's fee of Rs. 250.