TaxTMI 
TaxTMI 
1965 (8) TMI 78
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....re in a registered firm, was also being included in the income of the assessee under the provisions of section 16(3) of the Act. The assessee was a partner along with four others in a firm which carried on business of manufacturing tea under the name and style of Terrace Nilgiri Tea Estate Co., Naduvattam, Ootacamund. This firm has been granted registration. All the partners of the said firm are non-residents and they are the assessee having 10/100, share, Smt. Prabhakunvarbai Dayalbbai, the assessee's wife having 10/100 share, the assessee's minor son, Rasikchandra Dayalbhai having 20/100 share and Vinodkant Dayalbhai and Narendrakant Dayalbhai, the assessee's sons having a share 30/100 each. The deed of partnership is dated February 2, 1956. The relevant clause of the deed is as follows: "4. The parties shall share the profits and losses in the same proportion as the capital contributed by them, viz.: First party ... 10 per cent. Second party ...10 per cent. Third party ... 30 per cent. Fourth party ... 30 per cent. Rasikchandra Dayalbhai Vade....
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....m of Terrace Nilgiri Tea Estate Co., Naduvattam, as per order of assessment passed by the I.T.O., Ooty Loss 1,132 8,451 Rs. Income from interest 9,890 Share in registered firm of Terrace Nilgiri Tea Estate Co., Naduvattam Loss 2,266 7,624 4. The Income-tax Officer, while assessing the applicant-assessee, included in the total income of the assessee the income from interest arising to his wife and minor son, but did not consider the share in loss of the registered firm. In doing so, he has observed as follows: "The assessee has property income, interest income and is also a partner in the firm of M/s. Terrace Nilgiri Tea Estate Co. In the shares from the firm of M/s. Terrace Nilgiri Tea Estate Co., the assessee has also shown the share of his wife and his minor son. These have been taken in the past in view of section 16(3)(a)(i) and (ii). However, this year the firm has been assessed at a loss and the share of the partners including the assessee's wife and minor son have been determined at loss. I....
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....the losses apportioned to the wife and minor son of the assessee ought also to have been taken into account in computing the total income of the assessee. Here again no specific ground relating to the set-off of the losses of the wife and minor son against their respective other incomes before inclusion in the income of the assessee was raised, but it was stated before us at the time of the hearing of this reference that such a contention was in fact raised. The Tribunal took the view that the term "income" in section 16(3) did not mean or include loss and hence the department's action in disregarding the losses of the wife and minor son in assessing the assessee was correct. A copy of the Tribunal's order is annexure "E" and forms part of the case. 7. The assessee has thereafter preferred this reference application and sought to raise the following two questions of law: (1) Whether, on the facts and circumstances of the case and on a proper interpretation of section 16(3) of the Income-tax Act, 1922, the loss-share of the wife and the minor son of the assessee in the registered firm in which the assessee is also a partner should be included in the total income of the as....
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.... for the assessment year 1958-59, the corresponding previous year being the year ending March 31, 1958. The assessee's income arose from property, interest, dividends and a share in a registered firm carrying on business in the name of Terrace Nilgiri Tea Estate Co., Naduvattam, Ootacamund. The income of his wife, Prabhakunvarbai, and his minor son, Rasikchandra Dayalbhai, who were also non-residents, from interest and share in the aforesaid firm, used to be included in the assessee's total income under the provisions of section 16(3). The assessee had other partners along with him in the said firm and all those partners like the assessee were also non-residents. The assessee and his wife had each a 10/100 share, while his minor son, the said Rasikchandra, had 20/100 share and two other major sons had together between them 30/100 share. The said firm was being assessed by the Income-tax Officer, Ootacamund. The firm's income consisted of income from property, business and other sources. For the assessment year 1958-59, there was a net loss computed at Rs. 11,322 and the Income-tax Officer, who made the firm's assessment for that year, held that as the firm was regis....
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....acted to prevent evasion of tax, that it did not come into operation unless there was income of a wife or a minor child and that if there was no positive income of the wife or the minor child, clause (a) of section 16(3) would not apply. He held that the word "income" used in section 16(3)(a) would only mean positive income and not a negative income, that is to say, loss. In this view, he confirmed the order passed by the Income-tax Officer. In a further appeal before the Tribunal, the assessee urged again that the share of loss apportioned to the wife and the minor son ought to have been taken into account in computing the total income of the assessee. But the Tribunal repelled that contention and held that the term "income" used in section 16(3) did not mean or include loss and, therefore, the Income-tax Officer's view of disregarding the share of loss of the wife and the minor son in computing the total income of the assessee was correct. On an application made by the assessee for a reference under section 66(1) of the Act, the Tribunal framed the following two questions for our answer: "(1) Whether, on the facts and circumstances of the case, and on a proper interpretati....
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.... Sub-section (3) of section 16 provides as follows: "16. (3) In computing the total income of any individual for the purpose of assessment, there shall be included-- (a) so much of the income of a wife or minor child of such individual as arises directly or indirectly-- (i) from the membership of the wife in a firm of which her husband is a partner; (ii) from the admission of the minor to the benefits of partnership in a firm of which such individual is a partner; (iii) from assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart; or (iv) from assets transferred directly or indirectly to the minor child, not being a married daughter, by such individual otherwise than for adequate consideration." The sub-section provides thus for the inclusion, while computing the total income of an assessee, of certain income of a wife or a minor child in the total income of such an assessee. The section obviously aims at preventing an attempt on the part of an assessee to avoid or to reduce the incidence of tax, either by transferring his assets to his wife or minor child....
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....ship? Looking to the sub- section, it is plain that no such idea is expressed or occurs therein, and what is simply provided in sub-section (3) is that while computing the total income of such an assessee, the income of his wife and minor child from the two sources set out therein is to be included. Prima facie, what the sub-section requires is that if there is income of the wife or the minor child from the partnership or from transferred assets, such income is to be included in the total income of the assessee. It there is no such income but the business has resulted in a loss, as in the present case, there is nothing which can be added under sub-clause (i) or (ii) of clause (a) in sub-section (3). Clause (a) of sub- section (3) has four sub-clauses and provides that if there is income under any one or more of them, that income is to be included in the total income of the assessee. The scheme of clause (a) in sub-section (3) thus is not to set off loss arising under any one of the sub-clauses against income arising from the other or the rest of the sub-clauses. Such a thing perhaps might have been possible if, instead of providing for the inclusion of income of a wife or a minor c....
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....t in the total income of the assessee. It is not as if he is called upon to work out the totality of all the sub-clauses (i) to (iv) and then add to the total income of the husband or the father, as the case may be, the balance as a result of the working out of that totality. But if the wife has income other than the one falling under this sub-section, she would be assessed in respect of such other income and if she has been admitted as a partner in the firm in which the assessee is a partner and the business of that firm has in a particular year resulted in a loss and part of that loss is allotted to her, then the wife undoubtedly would be entitled to set off her share of such loss as against her other income not falling within the purview of the subsection. If the construction suggested by Mr. Shah were to be accepted and such share of loss were to be set off against income which is to be included in the total income of the husband or the father, as the case may be, it would, in effect and in substance, be setting off such a share of loss for the benefit of the husband or the father, as the case may be. Such a construction would be contrary to the provisions of section 24 under w....
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....ficer must find out the actual and overall result of such operations and in computing profits and gains of such operations, he must take into account the losses which have actually occurred and then work out the final result of such operations. It is difficult to see how the construction of section 42(3) placed by the learned judges in that decision, of which the scheme and purpose are different from those of section 16(3), can possibly assist Mr. Shah. The next decision which he relied upon was Lawless v. Sullivan*, where the Privy Council had to construe section 4 of Act 31 Vict., Chapter 36. That section provided that: "The 15th section of the St. John City Assessment Act of 1859 is hereby repealed, and in lieu thereof the agent or manger of any joint stock company or corporation established abroad or out of the limits of this province, or of any person or persons, whether incorporated or not, doing business abroad, or out of the limits of this province, who shall carry on business within the City of St. John for, or who shall have an office or place of business in the said city of St. ....