The main legal point established in the judgment is that an assessee is entitled to set off losses against their income, profits, or gains under Sec. 24(1) of the Income Tax Act if the losses were sustained in the same accounting year. The court also clarified the limited applicability of Sec. 26(2) in cases where the succeeding entity did not sustain any loss in the relevant year.

JUDGMENT

DERBYSHIRE, C.J. - The assessees, Messrs, B. K. Paul and Company, are an undivided Hindu family. Prior to April 14, 1934, the assessee owned real property, Government securities, shares in private companies and some 17 businesses which either made or sold drugs and the like.

During the accounting year ("the previous year") which ended on April 13, 1933, the assessees received income from the real property, Government securities and shares in the companies, but the 17 business each suffered losses. The assessees were not assessed during the normal assessment year which ended on March 31, 1934, owing to a delay on the part of the income tax Officer. On April 11, 1934, four private limited companies were formed, the shareholders being members of the Hindu undivided family. On April 14, 1934, 16 of the 17 losing businesses were transferred to the four new companies. On September 28, 1934, the income tax Officer made an assessment on the assessees in respect of their income, profits and gains from the real property, Government securities and (old) company shares in respect of the year ending April 13, 1933. The amount of the assessment was Rs. 1,38,229. During the same accounting year the losses in the 17 business amounted to Rs. 2,18,682. The assessees claimed to set off this loss against the above mentioned gains during the same year. The income tax Officer allowed the assessees to set off the loss in the 17th business which was not transferred to any of the four new companies, but refused to allow the set-off of the losses of the 16 other businesses transferred to the four new companies, on the ground that there had been a succession under Sec. 26 (2) of the Act and that any right of set-off had passed from B. K. Paul & Co., under the succession. The assessees B. K. Paul & Co. relied on Sec. 24(1) of the Act, and the income tax authorities on Sec. 26 (2) which are set out below :

Sec. 24(1) : "Where any assessee sustained a loss of profits or gains in any year under any of the heads mentioned in Sec. 6, he shall be entitled to have the amount of the loss set-off against his income, profits or gains under any other head in that year."

Sec. 26(2) : "Where at the time of making an assessment under Sec. 23, it is found that the person carrying on any business, profession or vocation has been succeeded in such capacity by another person, the assessment shall be made on such person succeeding, as if he had been carrying on the business, profession or vocation throughout the previous year, and a if he had riveted the whole of the profits for that year."

The question submitted to the Court is as follows :

"Where an assessment proceeding for 1933-34 is started but not completed during that year and during its pendancy in the next year the assessee hitherto carrying on business is succeeded in such capacity by another person whether set-off under Sec. 24 of the Indian income tax Act for the loss sustained in that business during the year 1932-33 can be claimed by the assessee or whether such set-off will be allowable only to the successor."

In my opinion, it is, as Sec. 24 (1) specifically states, the "assessee who sustains a loss" in any year, who is entitled to have the amount of the loss set-off against his income, profits or gains under any other head in that year. Here B. K. Paul & Co. were assessed on September 28, 1934, in respect of the income, profits or gains from real property, interest on Government securities and dividend form (old) companies during the accounting year ending April 13, 1933. B. K. Paul & Co., undoubtedly owned the 16 losing businesses throughout the whole of the same accounting year an therefore sustained a loss during that same year. It seems to me that B. K. Paul & Co., come precisely within the words of Sec. 24(1).

It is true that in the accounting year next but one following, the four new companies which had no existence during the accounting year ending April 13, 1933, succeeded to the 16 businesses. Ye