The share income from an unregistered firm can be set off against the share loss from registered firms to determine the rate applicable to other income.

Judgment

HIDAYATULLAH, J. : The three appellants appeal against the judgment and order of the High Court of Bombay answering in the affirmative, the following question :

"Whether the share income of the assessees from the unregistered firm (which is separately taxed), namely, Rs. 26,110/- can be set off against their share loss from registered firms, namely, Rs. 13,167/- ?"

The facts are as follows : Two of the appellants are brothers, and the third appellant is the widow of a third brother, who died during the pendency of the appeal after certificate had been granted by the High Court. The three brothers were partners in two registered firms and one other firm, which was unregistered. The assessment years for the purposes of the appeal are 1948-49 and 1949-50. For the assessment year 1948-49, the income of the three brothers was the same, and it was as follows :

From registered firms ... Rs. 11,902 loss.

1,265 loss.

Total loss Rs. 13,167 .

Income from the unregistered firm Rs. 26,110 profit

Other income Rs. 262 .

The income of the unregistered firm was taxed on the firm and not in the hands of the partners, as was possible under the provisions of cl. (b) of sub-sec. (5) of the S. 23. In assessing the amount of Rs. 262/-, the Income-tax Officer first determined the total income of each of the appellants by setting off their share of the profits of the unregistered firm against their share of the loss of the registered firms. The appellants contended that inasmuch as tax had already been assessed on the unregistered firm, this could not be done, and that as there was loss in the business of the registered firms, no tax was demandable on Rs. 262/-. They also contended that they were entitled to carry forward the loss amounting to Rs. 12,905/- to the succeeding year under S. 24(2) of the Income-tax Act. These contentions were not accepted by the Income-tax Officer, to whose order it is not necessary to refer in detail. The assessment for the assessment year 1949-50 was also done on similar lines.

2. The appeal to the Appellate Assistant Commissioner was unsuccessful, and six appeals were taken to the Tribunal by the three appellants three for each assessment year. These appeal were disposed of by a common order. The Tribunal held, relying upon the second proviso to S. 24(1), that just as loss in an unregistered firm could not be set off against profits from a registered firm under that proviso, the profits in an unregistered firm could not be set off against the loss from a registered firm. It relied upon a decision of the Madras High Court in Commissioner of Income-tax v. Ratanshi Bhavanji, 1952-22 ITR 82, which it purported to follow in preference to a decision of the Punjab High Court in Banka Mal Niranjandas v. Commissioner of Income-tax, 1951-20 ITR 536*. The same reasoning was applied to the assessment year 1949-50, and in the result, all the six appeals we allowed.

* (Note - The decision referred to is a decision of the Lahore High Court - Ed.)

3. The order of the Tribunal involved, in addition to the point set out above, certain other questions, which were asked by the assesses to be referred to the High Court for decision under S. 66(1). The Commissioner also asked for a reference in respect of the decision, substance whereof has been set out above. The Tribunal referred two questions at the instance of the assessee and one question, which we have already quoted, at the instance of the Commissioner. In the High Court, the assessees abandoned the two questions, and the High Court accordingly expressed its opinion in the judgment and order under appeal, on the remaining question. The High Court differed from the decision of the Tribunal, and held that the profit from the unregistered firm could be set off against the losses from the registered firms to find out the rate applicable to Rs. 262/-, which was other income of the assessees. The High Court also held that the assessees could not carry forward the loss of the registered f