Same business test allows set-off of carried forward loss where partnership firms are operationally interdependent.

For set-off of carried forward loss, the real test is whether the later profits arose from the same business in which the loss was incurred. On the facts, two partnership firms were engaged in film exhibition with common management, coordinated dealings with distributors, and financial interdependence, showing inter-connection, inter-lacing and unity of operations. The separate partnership form did not by itself break continuity of the business for section 24(2) purposes. The assessee was therefore entitled to set off the carried forward loss against the business income and share income from the other firm.

---

---

Issues: Whether the assessee was entitled to set off the carried forward share of loss from one partnership firm against the business income and share income earned from another partnership firm carrying on the same line of business.

Analysis: The governing test under section 24(2) of the Indian Income-tax Act, 1922 was whether the profits arose from the same business in which the loss had been incurred. The two firms were engaged in film exhibition business, and the record showed common management, coordination in obtaining films from distributors, and financial transactions between them. The constitutional form of the partnership did not by itself break the continuity of the assessee's business for the purpose of set-off. The principle applied was that the real inquiry is whether there is inter-connection, interlacing, inter-dependence and unity between the activities so as to constitute the same business.

Conclusion: The assessee was entitled to set off the carried forward loss against the business income and share income in question.

Ratio Decidendi: For the purposes of set-off of carried forward loss, businesses carried on through different partnership firms may still be the same business if they are substantially unified by common management and operational interdependence.

---