- (1.) This is an appeal by certificate from a judgment of the High court of Andhra Pradesh answering the following question referred to it by the tribunal arising out of the assessment of the assessee for the assessment year 1956-57 in the affirmative and in his favour : "Whether the assessee is entitled under the provisions of Section 24 (2) of the Act to set off his share of unabsorbed loss amounting to Rs. 24,532. 00 from the dissolved firm to Messrs. A. Dharma Reddy, Morthad brought forward from the assessment year 1955-56 against his other business income for the assessment year 1956-57 -
(2.) The assessee is an individual whose only sources of income were his shares in several partnership concerns. Apart from the firms which carried on other businesses there were two firms which carried on the business in Bidi leaves. The first was styled as Messrs A. Dharma Reddy, Morthad. The second firm was called A. Dharma Reddy and Co. Ditchpally. The first partnership was dissolved on 31/03/1955, but second one continued during the assessment year 1956-57. During the assessment year 1955-56 the assessee sustained a loss of Rs. 30,255. 00 in the first firm. As he was carrying on several other businesses after the necessary set off the total loss sustained by him for that year came to Rs. 24,532. 00. During the assessment year 1956-57 the assessee's profit in the second firm was estimated at Rs. 11,853. 00 and his total taxable income was assessed at Rs. 28,758. 00 for thatassessment year. As the assessee carried on the business in Bidi leaves during that year he claimed that the loss sustained by him in the previous year viz. , assessment year 1955-56 should be carried forward and set off against his profit in the subsequent year 1956-57 under Section 24 (2) (ii) of the Income-tax Act, 1922, hereinafter called the "act". The Income-tax Officer rejected the claim. His view was that the set off could be allowed only if the business, profession or vocation in which loss was originally sustained continued to be carried on by the assessee during the relevant assessment year. According to him the business in which the loss of Rs. 30,255. 00 had been incurred had ceased to exist because of the dissolution of that firm on 31/03/1955. The Appellate Assistant Commissioner in appeal considered the constitution of the two firms. The first consisted of two partners in which originally the loss had occurred and which had ceased to exist in the relevant assessment year. The second firm against whose income the loss was sought to be set off consisted of four partners. Both the firms had filed separate returns and were assessed separately for the assessment year 1955-56. The assessee had admitted in a letter, dated 16/09/1960, that the two firms had nothing to do with each other and there was no material to show that the business of the dissolved firm was taken over by the other firm. The Appellate Assistant Commissioner, therefore, came to the conclusion that the business in which the loss was originally sustained could not be said to have continued during the assessment year 1956-57. The assessee took the matter to the Income-tax Appellate tribunal which upheld the contention of the assessee that the same business of Bidi leaves continued during the assessment year. According to the tribunal the assessee was carrying on two businesses in Bidi leaves as partner in two different firms. One of these firms was dissolved but he continued to carry on the same business in conjunction with his co-partners in the year under appeal. The High court disposed of the matter in a fairly simple way. It was observed : "When a firm carries on business, it is a business carried on by the partners of that firm and the individual partners of the firm are assessed to tax. When the profits of a registered firm are ascertained, the assessee, for the purpose of paying the tax, is not the registered firm, but each partner of the registered firm. In the present case, it was in the business in the Bidi leaves that the assessee sustained a loss for the assessment year 1955-56. He carried on the same business in Bidi leaves during the accounting year 1955-56 i. e. , the assessment year 1956-57 though in partnership with others. Entering into partnership with another in one case and three others in the other case, was only the mode of carrying business ; but the business is the same business viz. , trade in Bidi leaves. Section 24 (2) (ii) does not require that the business should be continued to be carried on for the assessment year in question by the same concern or partnership or firm as in the previous year when the loss was originally sustained by the assessee. The only condition prescribed by that clause is that the same business must be continued to be carried on by 'him' (the assessee). "
(3.) In order to dispose of the contention of the learned counsel for the Income-tax Commissioner who is the appellant before us it is necessary to set out the relevant statutory provisions. Before the amendment made by the Finance Act of 1955, Section 24 (2) was as follows : "(2) Where any assessee sustains a loss of profits or gains in any year, being a previous year not earlier than the previous year for the assessment for the year ending on the 31st day of March, 1940, in any 583 business, profession or vocation, and the loss cannot be wholly set off under Ss. (1) , so much of the loss as is not so set offer the whole loss where the assessee had no other head of income shall be carried forward to the following year and set off against the. profits and gains, if any, of the assessee from the same business, profession or vocation of that year. . . . " Sub-section (2) of Section 24 was substituted by Section 16 of the aforesaid Finance Act. The material portion was in the following terms :- "(2) Where any assessee sustains a loss of profits or gains in any year, being a previous year not earlier than the previous year for the assessment for the year ending on the 31st day of March, 1940, in any business, profession or vocation, and the loss cannot be wholly set off under Ss. (1) , so much of the loss as is not set off or the whole loss where the assessee had no other head of income shall be carried forward to the following year, and;