Assessee-favourable interpretation upheld for joint venture loss deduction and separate taxation of association of persons.

A joint venture loss debited in the assessee firm's profit and loss account was allowed as a deduction, as the Tribunal accepted that the loss could not be disallowed merely because the venture was treated as an association of persons. The competing positions turned on whether an association of persons is a separate assessable person under the Income-tax Act and whether section 70 permits only source-wise set-off rather than inter-personal allocation of loss. Applying the settled rule that where two views are possible the one favourable to the assessee must prevail, the Tribunal upheld the deduction and rejected the departmental appeal.

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Issues: Whether the assessee firm was entitled to claim as its deduction the share of loss arising from a joint venture treated as an association of persons, and whether such loss could be disallowed on the footing that it belonged only to that collective entity.

Analysis: The assessee's share of loss from the joint venture was debited in its profit and loss account. The competing views proceeded on whether an association of persons was a distinct assessable person under section 2(31) of the Income-tax Act, 1961, and whether section 70 permitted only set-off of loss from one source against income from another source, not inter-personal allocation of loss. In resolving the controversy, the Tribunal applied the settled principle that where two views are possible, the one favourable to the assessee should be preferred.

Conclusion: The assessee was held entitled to the deduction, and the departmental appeal was rejected.

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