TaxTMI 
TaxTMI 
1982 (9) TMI 52
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....e of loss from M/s. Tyre & Rubber Industries was Rs. 42,636 and her share of income from M/s. Natius Latex Industries was Rs. 3,764. The share income of each of the minor children of the assessee from the firm M/s. Ignatius Mills was Rs. 25,142. The assessee filed a return disclosing an income of Rs. 4,200. The loss incurred by her in the firm of M/s. Tyre & Rubber Industries was set off by her against the share income of her minor children included in her total income under s. 64 of the I.T. Act. This return was not accepted by the ITO who held that the share income of the minor children from the firm assessable in the hands of the assessee under s. 64(1)(iii) of the Act could not be taken into account for the purpose of adjustment against her loss, under s. 70 of the Act. Accordingly, he determined the total income as Rs. 48,620. The assessee preferred an appeal to the AAC who accepted the assessee's case and allowed a set-off of the loss against the share income of the minors in the firm. The Department took up the matter to the Appellate Tribunal. The Tribunal agreed with the view of the AAC and held that the share income of the minor children should be treated as the business ....
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.... the net result for any assessment year in respect of any source falling under any head of income other than 'capital gains' is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head. " Sub-section (1) of s. 71 provides that where, in respect of any assessment year, the net result of the computation under any head, of income other than " Capital gains " is a loss and the assessee has no income under the head " Capital gains " he shall, subject to the provisions of Chap. VI be entitled to have the amount of such loss set off against his income, if any, assessable for that assessment year under any other head. In other words, if the set-off is in the same year it need not be against the same head of income but may be against any other head of income of the year. But if it is a set-off of a loss carried forward then the set-off must be against the same head of income of the assessee. According to the Revenue, though the income of the minor children are included in the income of their mother, that does not partake the character of her income and it retains its identity as the income of the childr....
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.... the other fall under two different heads or not, a set-off is permissible under s. 71 (1). We need not be taken to have said that the income from the business of the minor brought in as part of the income of the mother by reason of s. 64(1) falls under the head of " Income from other sources" as contended by counsel for the Revenue. The examination of the question would be called for only if an adjustment is sought of a loss carried forward and not of a loss incurred in the same year. It seems to us that if the matter was res integra the answer to the question referred to us is plain and that is to be in the affirmative, that is, in favour of the assessee and against the Revenue. Now we will refer to the decisions cited at the Bar. The High Court of Gujarat in Dayalbhai Madhavji Vadera v. CIT [1966] 60 ITR 551 referred to the absence of definition of the term " income " in s. 16(3) of the Indian I.T. Act, 1922, and found that a loss arising under any of the sub-clauses of s. 16(3)(a) cannot be set off against the income arising from the other or the rest of the sub-clauses. In that case, the ITO, while assessing the applicant-assessee included in the total income of the assesse....
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....elevant comment on this aspect of the matter and it may be pertinent to notice it here, Referring to the decision of the Gujarat High Court the commentators state thus (p. 599 of 7th Edn.) : " It is submitted that the decision is incorrect. On general principles, income from membership in the firm would include a loss, and the context of cls. (i) and (iii) does not warrant the contrary construction. The liability to assessment cannot alternate from year to year between the individual and the spouse, depending on whether there is a profit or a loss. Besides, in the absence of other income, the right to carry forward the loss in a running business would be completely lost if the individual is to be vicariously liable when there is a profit and the loss is to remain a dead loss in the assessment of the spouse or minor child. " We are in agreement with the views expressed by the Karnataka High Court. The comment was made prior to the amendment of s. 64(2) by the incorporation of Expln. 2 to that section. Before we close we have to advert to a decision of the Madras High Court in CIT v. A. L. Srinivasan [1977] 108 ITR 667. There the assessee was the sole proprietor of a busines....