COMMISSIONER OF INCOME TAX Vs. B M EDWARD INDIA SEA FOODS

JUDGEMENT

(1.) AT the instance of the Revenue, the Tribunal, Cochin Bench, has sent up its statement of the case and referred the following question of law for our opinion, under s. 256(1) of the Act, namely:

(2.) THE assessee is an individual and a partner in the firm of M/s India Sea Foods, Cochin. He is also a partner in M/s 'Beeyems' in which his wife Mrs. Susanna Edward is another partner. The assessment year with which we are concerned is 1971-72. The accounting year is the year ended December 31, 1970. For the assessment year in question, the business of M/s "Beeyems" ended in a loss of Rs. 30,292 for the assessee as well as for his wife, Mrs. Susanna Edward. In the income- tax assessment for the earlier years, the income of the wife in the partnership firm of M/s "Beeyems" was included in the assessee's own income and assessed together under s. 64 of the IT Act. For the assessment year in question, the assessee claimed that the loss incurred by, or debited to, his wife, should similarly be set off against his other income. This was disallowed by the ITO on the ground that under s. 64 only the "income"of a spouse can be included in the total income, and not the loss. On appeal, the AAC took the view that the expression "income"in s. 64 comprehends both positive and negative aspects, and would therefore include loss as well. The officer accordingly allowed the set-off claimed, and also allowed the assessee's appeal. In doing so, he followed the decision of the Mysore High Court in Kapadia's case (1973) 87 ITR 511 (Mys).

(3.) FROM 1944, there was in operation a circular of the Board of Revenue, issued under s. 5(8) of the 1922 Act, corresponding to s. 119 of the 1961 Act. That circular, in brief, allowed the loss suffered by a spouse to be set off against the income of the other spouse. The circular was withdrawn on April 6, 1972, that is, after the expiry of the assessment year with which we are concerned. The assessment was, however, completed only on March 12, 1974, after the withdrawal of the circular. Under these circumstances, the Tribunal took the view that although the circular had been withdrawn at the time when the assessment was made, it was in operation at the commencement of the assessment year, and the circular was binding upon the authorities functioning under the IT Act, who were bound to follow the same. There is sufficient authority in support of the proposition stated by the Tribunal that circulars of the type involved, issued under s.119 of the 1961 Act (or s. 5(8) of the 1922 Act), are binding, so far as the officers of the Department are concerned. We may extract the section itself.