- (1.) THE question raised in this reference under section 66 (1) of the income tax Act, 1922 (hereinafter referred to as the Act) seems to be concluded by a decision of the Supreme Court and the interpretation put on that decision by the Bombay High Court and the Gujarat High Court.
(2.) THE assessee is a company and the year of assessment in question is 1956-57, the previous year ending on the 30th june, 1955. From the statement of the case, the following facts as found by the tribunal appear. There was an unregistered firm of two partners comprising of the assessae company and a firm named mis. Gopiram Poddar and Company. The assessee had ten annas share and the other party had six annas share in the profits and losses of this firm. The Hirji mills Ltd. , Bombay, had gone into liquidation and the firm took on lease from the Court Receiver, Bombay, the Hirji mills on a monthly rental of Rs. 30,000/ -. The Court Receiver, however, was unable to give possession of the weaving section of the mills and the firm found it difficult to carry on the operation of the mills and the lease was given up after a period of two months. There was a total loss of Rs. 1,40,798/- and the assessec company's ten annas share therein cams to Rs. 87,999/ -. The assessee claimed deduction of this loss out of its profits from other businesses. The income-tax Officer held that as there was no written agreement between the partners on the basis of which the joint venture was run, the firm must be held to be an unregistered firm and the loss sustained by such a firm could not be allowed as a set-off by allocation amongst its partners. He, therefore, disallowed the assessee's claim. The Appellate Assistant Commissioner dismissed the assessee's appeal and confirmed the disallowance made by the Income-tax officer on more or less the same reasons.
(3.) ON the assessee's further appeal to the Tribunal against the order of the appellate Assistant Commissioner, the tribunal held that an unregistered firm of two partners comprising of the assessee and Messers. Gopiram Poddar and Co. undertook to run the Hirji Mills Ltd. , bombay. As the department had not taxed the unregistered firm as an independent unit, the assessee could not be precluded from getting the set-off of its loss in the joint venture from its other business income. The loss was clearly allowable against the other business income of the assessee. In coming to this conclusion, the Tribunal relied on the decision of the Bom. High Court in (1)Jadavji Narsidas and Co. v. Commissioner of Income-tax, Bombay City, (1959) 36 i. T. R. 266. In view of its decision, the tribunal did not record any finding as to the other contention raised by the assessee before it, namely, that there could be no valid partnership between the assessee company and the firm of gopiram Paddar and Co. , as a firm could not legally be a partner in another firm and as such the venture in leasing the hirjee Mills was a joint venture between the assessee company and the firm of messrs. Gopiram Poddar and Co. , and the bar to set-off of a claim for loss in the second proviso to Section 24 (1) was not applicable to such a case.;