HYDERABAD DECCAN CIGARETTE FACTORY Vs. COMMISSIONER OF INCOME TAX ANDHRA PRADESH

JUDGEMENT

(1.) The assessee in this case is an association of persons consisting of two members, Abida Khatoon and Salima Khatoon. The relevant assessment year is 1969-70. The assessees total income was computed at Rs. 75,880 for the assessment year 1969-70. In respect of the earlier assessment years, the ITO computed the loss at Rs. 3,25,075. At the end of assessment year 1968-69, the total loss carried forward was Rs. 3,25,075. The assessee claimed that the profit of Rs. 75,880 should be set off against the loss carried forward. The ITO by his order dated 28/02/1972, rejected the claim. He observed that the High Court in Reference Nos. 38/69 and 29/70 dated 12-12-1971 (since reported as Smt. Abida Khatoon v. CIT [1973] 87 ITR 627 (AP)), in which both the members of the association sought for the allowance of their share of loss in the computation of their individual income from other sources held that both the members were entitled to set off their share of loss in the association of persons against their income from other sources. He held that it is a settled proposition of law that the same income or loss should not be taxed twice and since the loss carried forward had already been apportioned and set off against the other income of the members, the assessee was not entitled for the set-off of the aggregate loss of the earlier years against the income assessed for the years 1969-70. The assessee preferred an appeal before the AAC of Income-tax who allowed the appeal and held that the losses carried forward ought to be set off against the income for the year 1969-70 under s. 72 of the I.T. Act as there was no specific bar for so doing. Being aggrieved by the order of the AAC, the department filed and appeal before the Income-tax Appellate Tribunal and the Tribunal agreed with the ITO and allowed the appeal. On an application made by the assessee under s. 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the Tribunal has referred to this court the following two questions of law for decision :

(2.) The learned counsel for the assessee submits that the income or loss of an association of persons which is a separate assessee does not cease to be its income or loss merely because it was taken into consideration in computing the tax payable by the individual members of the association as provided in s. 66 read with ss. 86 and 110 of the Act. He argues that unless there is an express provision to the effect that such income or loss shall be allocated amongst the members and it shall thereafter cease to be that of the association of persons and does not continue to be that of the association of persons the assessee is entitled to set off the loss. It is his argument that while the Act makes express provision for the allocation of loss among its partners and its carry forward and set off in the case of registered and unregistered firms, no such provision is enacted in respect of association of persons. It is true, s. 75 of the Act expressly provides that the losses of a registered firm shall be apportioned between the partners of the firm and they alone shall be entitled to have the loss set off and carried forward for set off under ss. 70, 71, 72, 73, 74 and 74A of the Act. Section 77 deals with losses of unregistered firms or its partners. It provides that any loss of the firm shall be set off or carried forward and set off only against the income of the firm. It further provides that the partner of an unregistered firm shall not be entitled to set off the loss against his own income. But there is no provision, as argued by the learned counsel, in the Act for the apportionment of losses of an association of persons which is not a registered firm or an unregistered firm assessed like a registered firm. Therefore, in the absence of any such prohibition, it is submitted that the general rule of set-off and carry forward of unabsorbed loss for set off will be available to an association of persons since the loss is that of the association of persons which is a distinct assessee and the proportionate share of loss which is taken into consideration only for the purpose of tax computation of individual members as provided in s. 66 read with s. 86(v) and s. 110 is no bar for the set-off of the carried forward losses. The learned counsel invited our attention to a passage in the Law of Income Tax in India by V. S. Sundaram, Vol. I, at page 804, 10th edition, under the Chapter "Losses of unregistered firms or their partners". Under synopsis 4 of s. 77, the author states :

(3.) He also relied upon a passage in the Law of Income Tax by A. C. Sampath Iyengar. In his commentary on s. 76 of the Act, at page 1247 (6th edition) the learned author observed :