Decided on September 17,1982



S.K. Chander, Accountant Member - (1.) THIS appeal by the revenue is directed against the order of the Commissioner (Appeals) dated 1-10-1981 relating to the assessment year 1978-79.
(2.) In order to appreciate what is the issue involved, we first set out the facts which are relevant for determination of the disputed issue. Late Dr. R.N. Madan and his wife Dr. Kamlesh Madan were partners in the firm Madan & Co., Simla. The firm of Madan & Co. was assessed for the assessment year 1978-79 on 22-1-1980. In this assessment, share allocation to Dr. Kamlesh Madan inclusive of unabsorbed depreciation came to Rs. 69,822. During the course of the assessment proceedings, it was claimed that this loss should be set off against income of Dr. R.N. Madan in view of the provisions of Section 64(1)(i) of the Income-tax Act, 1961 ('the Act'). However, the ITO negatived this claim by placing reliance upon the Circular No. 104, dated 19-2-1973 issued by the CBDT and appearing at [1972] 85 ITR (St.) 76. The assessee, therefore, felt aggrieved and went in appeal before the Commissioner (Appeals). The Commissioner (Appeals) took into consideration the provisions of Section 64(1)(i), read with Explanation 2 to Section 64(2), inserted by the Finance Act, 1979 with effect from 1-4-1980. He held that the share of loss of Dr. Kamlesh Madan will have to be considered under the provisions of Section 64(1)(i) in the hands of her husband and, therefore, the assessee was entitled to relief of Rs. 68,822. The revenue has come up in appeal as a grievance against this order of the learned Commissioner. The issue, therefore, before us is as under : Whether, on the facts and in the circumstances of the case, the share of loss of Rs. 68,822 allocated to the partner Dr. Kamlesh Madan in the assessment of the firm of M/s Madan & Co., Simla, can be considered for purpose of set off against the income of her husband for that year in view of the provisions of Section 64(1)(i) read with the Explanation 2 to Section 64. This issue would really depend upon the connotation to be attached to the word 'income' used in Section 64(1)(i).
(3.) THE parties have been heard. Section 64(1), which was substituted by the Taxation Laws (Amendment) Act, 1975, with effect from 1-4-1975, provides that in computing the total income of any individual, there shall be included all such income as arises directly or indirectly (i) to the spouse of such individual from the membership of the spouse in a firm carrying on a business in which such individual is a partner. Explanation 1 to Sub-section (1) of Section 64 provides that for the purposes of Clause (i), the individual, in computing whose total income the income referred to in that clause is to be included, shall be the husband or wife whose total income (excluding the income referred to in that clause) is greater ; and where any such income is once included in the total income of either spouse, any such income arising in any succeeding year shall not be included in the total income of the other spouse unless the ITO is satisfied, after giving the spouse an opportunity of being heard, that it is necessary so to do. THE Finance Act, 1979 added Explanation 2 to Section 64(2) with effect from 1-4-1980. This Explanation clarifies that for the purposes of this section, 'income' includes loss.;

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