1979 (2) TMI 70 - HC - Income Tax

Court upholds assessee's right to set off losses between spouses per withdrawn circular

Commissioner Of Income-Tax, Kerala I Versus BM Edward, India Sea Foods, Cochin

The High Court held that the assessee was entitled to have the assessment completed in accordance with the circular allowing the set-off of losses between ... Assessment Year, Income Tax Act, In Part, Set Off, Total Income Issues involved:The issues involved in this case are whether the circular issued by the Central Board of Revenue, which allowed the set-off of losses incurred by a spouse against the income of the other spouse, was applicable for the assessment year 1971-72 even after its withdrawal, and whether the Income-tax Officer (ITO) was bound by it.Comprehensive details of the judgment for each issue:The assessee, an individual and a partner in two firms, claimed to set off the loss incurred by his wife in one of the firms against his other income for the assessment year 1971-72. The Income-tax Officer disallowed this claim based on the interpretation of Section 64 of the Income Tax Act, which led to an appeal by the assessee. The Appellate Assistant Commissioner allowed the set-off, following a decision of the Mysore High Court in a similar case.The department appealed to the Income-tax Appellate Tribunal, citing a previous unreported decision of the High Court that loss cannot be included in the definition of 'income' under Section 16 of the 1922 Act. The Tribunal considered a circular issued by the Board of Revenue in 1944, which allowed the set-off of losses between spouses, and was withdrawn in 1972 after the assessment year in question. The Tribunal held that the circular was binding on the authorities, even though it was withdrawn before the assessment was completed.The High Court examined the legal basis of such circulars under Section 119 of the Income Tax Act, which empowers the Board to issue instructions to subordinate authorities. Referring to previous Supreme Court decisions, the High Court emphasized that circulars providing guidelines or affecting important rights of assessees are binding on the Income-tax Officers, even if they are later withdrawn. The Court highlighted the importance of ensuring assessments are carried out in accordance with such circulars, especially when they were in force during the relevant assessment year.In light of the above analysis, the High Court held that the assessee was entitled to have the assessment completed in accordance with the circular that allowed the set-off of losses between spouses. Therefore, the Court answered the question in favor of the assessee and against the revenue, emphasizing the importance of following circulars that impact the rights of assessees.A copy of the judgment will be communicated to the Tribunal as required by law.