Shah, J. - (1.) M/s. J. P. Kanodia and Company is a firm registered under the Income Tax Act, 1922. The partners of the firm were Smt. Shanti Devi and Badri Prasad. Three minors Pradeep Kumar, Anand Prakash and Rajendra Prasad were admitted to the benefits of the partnership.
(2.) In proceedings for assessment on tax for the assessment year 1957-58, the Income-tax Officer rejected the claim of the firm to set off loss from certain speculative transactions aggregating to Rs. 22,234/- and computed the income of the firm at Rs.25,365/-. The Income-tax Officer was of the opinion that since the capital contributed by the partners and the minors who were admitted to the benefits of the partnership was out of the capital of the respective Hindu Undivided Families to which they belonged, the profits allocated to the partners and to the minors were liable to be assessed in the hands of the respective Hindu Undivided Families to which they belonged.
(3.) The order passed by the Income-tax Officer was confirmed in a revision application by the Commissioner. The firm then moved a petition under Art. 226 of the Constitution before the High Court of Allahabad. Two contentions were raised in support of the petition: (i) that the Income-tax Officer erred in directing that the profits allocated to the shares of the partners and to the minors be assessed as the income of the respective Hindu Undivided Families to which they belonged; and (ii) that the loss in speculation business should have been set off under S. 24 (1) of the Income-tax Act against profits from other business.;