- (1.) These appeals by the revenue relate to entitlement to set-off u/s. 78(2) of the Income-tax Act, 1961 (the Act), in respect of losses sustained in the proprietary business carried on by Madhukant M. Mehta against the income of the assessee, a registered partnership firm. These appeals relate to the assessment years 1965-66 to 1971-72. In relation to the assessment years 1965-66 to 1969-70, the matter was considered by the Gujarat High Court in its judgment dated 12.8.1980 - CIT V/s. Madhukant M. Mehta, 1981 132 ITR 159, in Income-tax Reference No. 115 of 1975, whereby the following questions referred to it for its opinion by the Tribunal were answered against the revenue and in favour of the assessee : 1. Whether the Tribunal was right in law in holding that there was succession by inheritance in this case as contemplated by Sec. 78(2) of the Act and, therefore, the assessee is entitled to carry-forward and set-off the deceased Shri Madhukant M. Mehtas loss in business against the income for these years 2. Whether the Tribunal was right in law in holding that Sec. 75(2) of the Act does not prevent the assessee from claiming the set-off of losses in question
(2.) Civil Appeal Nos. 94 to 98 (NT) of 1982, have been filed by the revenue against the said decision of the High Court on the basis of certificate of fitness granted u/s. 261 of the Act. The said judgment was followed by the High Court in its judgment dated 14.8.1980, in Income-tax Reference No. 121 of 1977, in relation to the assessment years 1970-71 and 1971-72. Civil Appeal Nos. 99 and 100 (NT) of 1982, have been filed against the said judgment.
(3.) The facts, briefly stated, are as follows : Madhukant M. Mehta was carrying on proprietary business of speculation in shares, cotton and other commodities. He died on 23.3.1964, leaving behind his widow, a son and a daughter. On 22.4.1964, the three heirs of Madhukant M. Mehta entered into a partnership and executed a partnership deed wherein they agreed to carry on the said business of speculation. In the said speculation business carried on in the name of the partnership firm, profits were earned and the assessee sought to carry forward and set off the losses incurred by the deceased in his proprietary business against the income from the speculation business of the partnership firm. The ITO disallowed such set off on the ground that there was no succession to the business of the deceased. The Appellate Assistant Commissioner dismissed the appeal filed by the assessee but, on further appeal, the Tribunal allowed the set off. The Tribunal found that there was succession to the business of the deceased on the basis of the following circumstances : (i) The partnership deed which was drawn up on 22.4.1964, within a month of the death of the deceased, records the fact of the parties thereto as heirs and legal representatives of the deceased, and having succeeded to and carried on the speculation business of the deceased. This claim of the assessee having carried on the speculation business even prior to the date of the partnership deed had not been disputed. Even if the date of the partnership deed is assumed to be the date from which the business had been carried on under the partnership deed, there was an interval of less than one month between the death of the deceased and the date from which the assessee had carried on the business, and such interval even reckoning the partnership to have commenced from the date of the deed of partnership could not be regarded as long as unusual in a case where succession is claimed to have taken place by inheritance on the death of the deceased. (ii) The nature of the business was identical, namely, speculation business, which was being carried on by the deceased. (iii) The business name continued to be the same. (iv) The business was carried on in the same premises. (v) The same telephone which was being used by the deceased also continued to be used by the assessee. (vi) The constituents of the assessees business were the same as those of the business of the deceased. (vii) The partnership deed clearly evidenced the intention of the legal heirs who constituted the assessee-firm to continue and carry on the business which was carried on by the deceased.;