P (PLP)

Jagan Nath Talwar, for Respondent. JUDGMENT.‑This is a case stated by the Income‑tax Appellate Tribunal. The questions referred, namely :‑

(1) whether income arising to the assessee as his share in the Association of Persons separately assessed to tax is an income falling under one of the heads enumerated in section 6 of the Act ? and (2) whether the assessee's share in the income of the Association of Persons can be' set off against the brought forward losses of past years' suffered by it in other businesses ? have arisen in the‑following circumstances: The assessee, Banka Mal Niranjan Das, is a Hindu undivided family carrying on business with its head office at Kaithal in the Kernal district. It also owns As. 7/9 share in a firm, Banka Mai' Lajja Ram & Co., at Kaithal, which, for purposes of tax, has been treated as an association of persons. In the previous year for the assessment for 1941-42, 'the assessee suffered a loss of Rs. 35471‑in its own business: This loss was set off against the income of the assessed from the business of Banka Mal Lajja Ram &,Co. The unabsorbed loss and depreciation was carried forward to the year of assessment 1942‑

43. In the assessment for the year 1942‑43, the assessed's income from the family business during the previous year was assessed at Rs. 13158 while its share of profits in the business of Banka Mal Lajja Ram & Co. was computed at Rs: 26525. The unabsorbed loss and depreciation, from the preceding year have been set off by the Income‑tax Department against the total income of the assessee from its family business and Banka Mal Lajja Ram & Co. The assessee's claim is that the loss brought forward from the preceding year could only have been set off against the income from its family business and not against that income and the income from Banka Mal Lajja Ram & Co. put together. The question is whether this contention is well- founded. The answer to the question depends upon the interpretation of section 24 of the Income‑tax Act; which is as follows :‑ (1), Where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in section 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. (2) Where any assessee sustains a loss of profits or gains in any year, being a previous year not earlier than the previous year for the assessment for the year ending on the 31st day of March, 1940, under the head `profits and gains of business, profession or vocation' and the loss cannot be wholly set off under subsection (1), the portion not so set off' shall be carried forward to the following year and set off against the profits and, gains, if any, of the assessee from the same business, profession or vocation for that year ; and if it cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following year, and so on ; but no loss shall be so carried forward for more than six years, and a loss arising in the previous years for the assessment for the years ending , )n the 31st day of March, 1940, the 31st day of March, 1941, the 31st day of March 1942, the 31st day of March, 1943, and the '31st day of March 1944, respectively, shall be carried forward only for one, two, three, four and five years, respectively". In the present case, by reason of section 14 (2) (b) no tax can be charged from the assessed in, respect of sums that it received from Banka Mal Lajja Ram & Co. But, by virtue of section 16 (1) (a) any such sum received has to be included in computing the total income of the assessee. The assessee's income for the assessment year 1941‑42 was rightly computed under section 24 (1) by setting off the losses from the family business against the assessee's share of income from Banka Mal Lajja Ram & Co. The, plain meaning of the provision under which this procedure was adopted is that, if an assessee sustains a loss under any of the heads mentioned in section 6 he is entitled to have the amount of the loss set off against his income under any other head in that year. The assessed had suffered a loss in the family business in the previous year for the year of assessment 1941‑42, but had earned profits in the business Banka Mal Lajja Ram & Co. As already pointed out, the assessee is merely one of the association of persons carrying on the business of Banka Mal Lajja Ram & Co. Therefore, its share in the profits of that business is income, whether any tax has or has not been paid on it by the association of persons, which is separately assessed by the department under the authority of section

3. It is immaterial whether the assessed's share in the profits of Banka Mal Lajja Ram & Co. is profits and gains of business under clause (iv) of section 6 or income from other sources under clause (v) of that section, whether it is one or the other, it is still a regularly recurring revenue receipt and therefore income in every sense of the term. The fact whether such receipt has already been taxed as the income of an association of persons is irrelevant to the determination of the question whether the share received by the assessed is or is not income. The incidence of income‑tax on the profits of Banka Mal Lajja Ram & Co. merely affects the amount of the receipt which the persons constituting that association receive as their share and not its nature. The receipt still remains income in the hands of the persons receiving it, oven though tax has been levied on it before its precise amount is determined. The loss suffered by the assessee in its family business in the previous year for .the year ‑of assessment 1941‑42 could, therefore, be rightly set off against the assesses's income from any other business or from any, other course. So far there 11 no difficulty and no dispute arises in regard to the assessment for the year 1941‑

42. The year of assessment to which the dispute relates is the year ending‑ on the 31st March 1943. The loss that was incurred by the assessee in the preceding assessment year was carried forward to the following year under subsection (2) of section

24. What the department has done for the year of assessment under consideration is to have again applied the, provisions of section 24, subsection (1), whereas then position was governed by sub section.(2) of that section which deals with the carrying .forward of losses. Once subsection (1) has been used in respect of a particular year's loss, it exhausts itself and the surplus of such loss can only be carried forward to, and set off in, subsequent assessments subject to the conditions of the second subsection. That subsection, however, provides that where an assessee sustains a loss of profits or gains in any year under the head "profits and gains of business, profession or vocation" and the loss cannot be wholly set off under subsection (1) the portion not so set off shall be carried forward to the following year and set off against the profits and gains of the assessee from the same business, profession or vocation for that year. The important word in this subsection is the word "same", the true effect of which is that the loss of the assessee from profits and gains of business, which has not been absorbed under sub section (1) can be carried forward to the next year and set off, not against the income of the assessee from any other source or business, but only against the profits and gains from the same business, profession or vocation. In the present case; therefore, the unabsor bed loss could only be set off against the income of the business in which loss had occurred in the preceding. year, and it could not be set off against another business of the assessee. It cannot be contended that the business carried on by Banka Mal Lajja Ram & Co., of which the assessee, who is a Hindu undivided family, is merely one of the members, is the same business, which is being carried on under the name of Banka Mal Niranjan Das and in which the loss in question was suffered. In the statement of the case, there is nothing to show whether the nature of the business of Banka Mal Niranjan Das is different from that of the business of Banka Mal Lajja & Co., but assuming that the character of both these businesses is 'the same, the persons who own them are different. The two businesses cannot, therefore, be described as the same businesses, and the profits or losses of Banka Mal Niranjan Das are not the profits and losses of Banka Mal Lajja Ram & Co. or of all of the persons who constitute that association of persons. Our reply, therefore, to the first question is in the affirmative and to the second in the negative. The assessee will have its costs from the department. K.M.A Reference Answered.