KESHARDEO SHRINIVAS MORARKA Vs. COMMISSIONER OF INCOME TAX
LAWS(BOM)-1962-6-6
HIGH COURT OF BOMBAY
Decided on June 20,1962

KESHARDEO SHRINIVAS MORARKA Appellant
VERSUS
COMMISSIONER OF INCOME TAX Respondents


Cited Judgements :-

COMMISSIONER OF INCOME TAX VS. MAHABIR PRASHAD AND SONS [LAWS(DLH)-1980-3-1] [REFERRED]
ADDITIONAL COMMISSIONER OF INCOME TAX VS. ALI AHMED F [LAWS(DLH)-1983-11-9] [REFERRED TO]
VIDYAPAT SINGHANIA VS. COMMISSIONER OF INCOME TAX [LAWS(ALL)-1973-5-23] [REFERRED TO]
LORD KRISHNA BANK LIMITED VS. INCOME TAX OFFICER [LAWS(KER)-1972-3-7] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. DAIMLER BENZ A G [LAWS(BOM)-1977-3-38] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. ASSOCIATED STONE INDUSTRIES KOTAH LIMITED [LAWS(RAJ)-1979-7-41] [REFERRED TO]
MAHALAXMI SUGAR MILLS COMPANY LIMITED VS. COMMISSIONER OF INCOME TAX [LAWS(DLH)-1973-10-10] [REFERRED]


JUDGEMENT

V.S.DESAI,J. - (1.)IN this reference under S. 66(1) of the IT Act, 1922, at the instance of the assessee, relating to his assessment for the year 1951 -52, the following three questions are referred to this Court by Tribunal:
"(1) Whether the amount of loss to be carried forward under S. 24(2) for the asst. year 1950 -51 is the sum of Rs. 20,933 or that sum increased by the sum of Rs. 11,860? (2) Whether S. 23A of the INCOME TAX ACT, 1922, is ultra vires the Legislature? (3) Whether any appeal lies to the AAC against levy of penal interest correctly computed in accordance with the provisions of S. 18A(6)?"

(2.)SO far as question No. 2 is concerned, the challenge which it set up against the vires of the provisions of S. 23A of the INCOME TAX ACT, 1922, is set at rest by the decision of the Madras High Court in C. W. Spencer vs. ITO (1957) 31 ITR 107 (Mad), and the decision of the Supreme Court in Sardar Baldev Singh vs. CIT (1960) 40 ITR 605 (SC) : (1961) 1 SCR 482 (See observations at page 614). In view of these decisions, the said question has to be answered in the negative, and we answer it accordingly.
The facts necessary to be stated in considering question No. 1 are as follows :

In the asst. year 1950 -51, the assessee's total income was determined at a loss of Rs. 20,933 by the ITO. During that assessment year, the assessee had an income of Rs. 16,729 including the dividend income which fell under S. 12 as income from other sources. From an unregistered firm, in which the assessee was a partner, he had received as his share of the profit, an amount of Rs. 11,860. He had also received an amount of Rs. 2,414 as the share of his profit from a registered firm in which he was a partner, and in another registered firm, in which he and his brother were partners, he had sustained a loss of Rs. 51,936. The ITO calculated the net result of the profit and loss of the business income of the assessee and determined it at Rs. 37,662 as the total business loss of the assessee. He set off this total loss against the income of Rs. 16,729, which was the assessee's income from other sources directly liable to be assessed in his hands, and thus found Rs. 20,933 as the amount of loss to be carried forward. In the assessment order, which he passed, he ordered: "It (the said determined loss of Rs. 20,933) shall be carried forward to the following year in accordance with the provisions of S. 24(2)." In the assessment for the asst. year 1951 -52, the assessee contended that the amount of loss which he was entitled to carry forward under S. 24 (2) was not Rs. 20,933 but the said amount increased by an amount of Rs. 11,860. The contention of the assessee was that the ITO had erred in determining the amount of loss to be carried forward at Rs. 20,933 because, in arriving at that figure, he had set off the loss sustained by the assessee in the business of the registered firm of himself and his brother against his share of profit in the unregistered firm, which he was not entitled to do. According to the assessee, the unregistered firm having been taxed no tax was liable to be paid by the assessee in respect of the share of profit which he had received from the unregistered firm, and the only purpose for which the said share of profit could be taken into consideration in his assessment was for the purpose of arriving at the total income for determining the rate at which the tax was to be paid. Setting off of the loss against the profits could only be against those profits or income which were liable to be taxed in the hands of the assessee. This contention of the assessee was negatived by the Tribunal and the Tribunal held that the ITO had correctly determined the loss to be carried forward at Rs. 20,933. Mr. B.A. Palkhivala, learned counsel appearing for the assessee, has argued that the view taken by the Tribunal is not sustainable in view of the decisions of the Supreme Court in Seth Jamnadas Daga vs. CIT (1961) 41 ITR 630 (SC) : (1961) 3 SCR 174 and CIT vs. Khushal Chand Daga (1961) 42 ITR 177 (SC) : (1962) 1 SCR 186. The contention of Mr. Palkhivala is correct and must be upheld. In Seth Jamnadas Daga vs. CIT (supra), it has been held by the Supreme Court that the assessee would be entitled to carry forward his share of the loss in the registered firm to the succeeding year under S. 24(2). It is clear from this decision that the said loss is not liable to be diminished by the amount of the profit from the unregistered firm which the assessee might have received in the said year. The profit from the unregistered firm, which is exempt from tax in the hands of the assessee, although it has to be included to ascertain his total income, in order to determine the rate applicable to his other income, cannot be taken to reduce the loss to be carried forward. The decision in CIT vs. Khushal Chand Daga (supra) is also to the same effect.

(3.)MR . Joshi, learned counsel for the Revenue, has argued that although in view of the Supreme Court decision referred to above, the view taken by the Tribunal would not be sustained, it is possible for him to argue that the conclusion of the Tribunal that the amount of loss which the assessee was entitled to carry forward in the asst. yr 1951 -52 could be only Rs. 20,933 is correct. Mr. Joshi's argument is that the amount of loss which the assessee was entitled to carry forward in the following year was determined by the ITO in the assessee's assessment of the asst. year 1950 - 51. By his assessment order, he had notified to the assessee in writing the amount of the loss as computed by him under S. 24(3) of the IT Act. This order has been made appealable under S. 30 of the Act. According to Mr. Joshi, the assessee had appealed from the assessment order passed by the ITO for the asst. year 1950 -51, but had made no challenge in that appeal as against the computation by the ITO of the loss to be carried forward. The said computation, therefore, at Rs. 20,933 was final and could not thereafter be agitated by the assessee in the assessment of the following year. In the assessment of the following year, i.e., of the asst. year 1951 -52, the ITO, therefore, was right in taking the loss to be carried forward in that year at Rs. 20,933.


Click here to view full judgement.
Copyright © Regent Computronics Pvt.Ltd.