1960 PLP 439 (PTD)
COMMISSIONER OF INCOME‑TAX, BOMBAY CITY Versus BAI MANIBEN
| Citation | 1960 PLP 439 (PTD) |
| Forum / Court | Bombay (India) |
| Bench Members | Shah and S. T. Desai, JJ |
| Parties | COMMISSIONER OF INCOME‑TAX, BOMBAY CITY Versus BAI MANIBEN |
| Primary Law | STATEMENT OF CASE |
Q1: What are the key laws and sections cited in 1960 PLP 439 (PTD)?
This judgment primarily cites: STATEMENT OF CASE as referenced in Pakistani case law index.
Q2: Which judicial bench decided the case 1960 PLP 439 (PTD)?
The case was heard and decided by the Bombay (India) bench comprising: Shah and S. T. Desai, JJ.
Q3: What is the official citation format for this judgment on Pakistan Law Portal?
Cite this legal precedent as: 1960 PLP 439 (PTD) (COMMISSIONER OF INCOME‑TAX, BOMBAY CITY Versus BAI MANIBEN). Read the full summary and cross-referenced laws free on Pakistan Law Portal.
Laws Cited
Headnotes / Summary
Income‑tax Act (XI of 1922), S. 24 (2)‑Partnership‑Death of partner‑Widow taken as partner and partnership continued-- Widow whether entitled to set‑off against share of loss incurred while her husband was alive, against her share of profits. H and his nephew J were partners with equal shares in a partnership which conducted business in cloth. H died intestate on August 14, 1953, leaving him surviving only his widow, the assessee. On August 15, 1953, a partnership deed was executed between J and the assessee and‑ under that partnership agree ment the business was continued. In the assessment year 1955‑56 the assessee claimed to set off against her share of the profits her share of the loss of the year 1954‑55 as well as the share of the loss incurred prior to August 14, 1953, when her husband H was alive. The Appellate Tribunal, on the facts, came to the conclusion that the assessee had succeeded by inheritance to her husband H in his capacity as a partner, having regard to the quantum of the interest that H had, the extent of the capital he had brought into the partnership, the relation which subsisted between H and J, and the conduct of J and the assessee. The Tribunal gave the benefit of section 24 (2) of the Indian Income‑tax Act to the assessee and allowed the set off claimed by her. On reference: Held (i), on the facts, that the assessee had succeeded by inheritance to H's capacity as partner ; (ii) that the Tribunal's conclusion was one on a question of fact and having regard to the evidence, the Court would not be justified in interfering with that conclusion ; (iii) that the assessee was, therefore, entitled to set off against her share of the profits the losses suffered by the assessee's husband in the years 1953‑54 and 1954‑
55. The Commissioner of Income‑tax, Bombay, requires the Tribunal to state a case to the High Court of Bombay on a question of law which arises from the order of the Tribunal in I. T. A. No. 9185 of 1956‑
57. We agree with the Commissioner of Income‑tax that a question of law does arise from the aforesaid order of the Tribunal. We, therefore, draw up a statement of the case and refer it to the High Court of Bombay under section 66 (1) of the Indian Income‑tax Act.
2. Hiralal and his nephew Jayantilal used to carry on the business in equal partnership. Hiralal died on August 14, 1953, without leaving a will. He had no children. Jayantilal took the wife of Hiralal as his equal partner under a deed of partnership dated 16th August, 1953. The assessee's accounting year is S. Y. ending with Diwali 1954 and the assessment year is 1955‑56.
3. In the assessment year 1953‑54, when Hiralal was alive the partnership suffered heavy losses. Hiralal's share of the loss amounted to Rs. 1,07,
420. This loss was carried forward as provided under the law. In the following assessment year, i.e. 1954‑55 also, the firm suffered a loss. Hiralal's share of the loss for the assessment year 1954‑55 was Rs. 1,
620. Assessment was made for the first time on the widow in respect of the assessment year 1954‑55, the accounting year being a period commencing from August 14, 1953, to the end of Diwali 1953. This assessment also resulted in a loss. In the assessment year 1955‑56, i.e., the year under reference, the income‑tax authorities have allowed the assessee the benefit of the loss in respect of the period from August 14, 1953, to the end of Diwali 1953, under section 24 (2) of the Income‑tax Act. The claim of the assessee to take advantage of the loss of the earlier period was rejected.
4. The assessee claimed before the Income‑tax Officer that she bad succeeded to the share of her husband in the partnership by inheritance. She is, therefore, entitled to claim the benefit of the carry‑forward of the loss suffered by the husband in the assess ment years 1953‑54 and 1954‑55 amounting to Rs. 1,09,040 (Rs. 1,07,420 plus Rs. 1,620) under proviso (e) to section 24 (2) of the Act.
5. On the other hand, the Department's case is that the widow was a partner in her own right and, therefore, she cannot be said to have succeeded to the share of Hiralal by inheritance. The claim of the assessee to set off the losses suffered by Hiralal against the assessable income of the assessee was, therefore, rejected by the income‑tax authorities. The Tribunal allowed the assessee's appeal. It observed: "The share of the husband has been given to her. It has devolved on the widow as she was the legal heir to the deceased. She has, therefore, in our opinion, succeeded by inheritance to the share in the partnership". The order of the Tribunal is annexure "A" and forms part of the case.
6. The following question of law arises out of the aforesaid order of the Tribunal: "Whether on the facts and circumstances of the case the assessee is entitled to claim a set‑off of the assessable profits against the losses suffered by the assessee's husband in the assessment years 1953‑54 and 1954‑55 under section 24 (2) of the Income‑tax Act ?"
7. Parties accept the statement of the case. The partnership deeds dated July 18, 1952 and August 16, 1953, are made part of the case at the request of the departmental representative. They are annexures "B" and "C". G. N. Joshi with R. J. Joshi for the Commissioner. S. P. Mehta with Hemendra Shah for the Assessee.
Judgment & Decree
"The share of the husband has been given to her. It has devolved on the widow as she was the legal heir to the deceased. She has, therefore, in our opinion, succeeded by inheritance to the share in the partnership". The order of the Tribunal is annexure "A" and forms part of the case.
6. The following question of law arises out of the aforesaid order of the Tribunal: "Whether on the facts and circumstances of the case the assessee is entitled to claim a set‑off of the assessable profits against the losses suffered by the assessee's husband in the assessment years 1953‑54 and 1954‑55 under section 24 (2) of the Income‑tax Act ?"
7. Parties accept the statement of the case. The partnership deeds dated July 18, 1952 and August 16, 1953, are made part of the case at the request of the departmental representative. They are annexures "B" and "C". G. N. Joshi with R. J. Joshi for the Commissioner. S. P. Mehta with Hemendra Shah for the Assessee. SHAH, J.‑A business in cloth was conducted in the name of Hiralal‑Mathuradas in partnership at Mulji Jetha Market, Bombay. Of that partnership Hiralal and' his nephew Jayantilal were partners with equal shares in profits and loss. Hiralal died on 14th August, 1953, intestate and leaving him surviving his widow Bai Mani, but no children. On the 15th of August, 1953, a partnership deed was executed under which certain terms of partnership between Jayantilal and Bai Maniben, widow of Hiralal, were recorded and under which the business conducted in the name of Hiralal‑Mathuradas was to be continued, and under that agreement of partnership the business was conducted. In the assessment year 1953‑54, When Hiralal was alive, in conducting the business a loss of Rs. 1,07,420 odd was incurred. In the year 1954‑55 also in conducting the business loss was incurred. For the first time, assessment was made on the widow Bai Mani in the assessment year 1954‑
55. As the partnership had suffered a loss in that year, no tax was assessed as payable by, her. In the assessment year 1955‑56, the partnership earned some profit and her share of the loss of the year 1954‑55 and also a half share of the loss which was suffered prior to the 14th of August, 1953, was sought to be set off by the assessee Bai Mani under section 24 (2) of the Income‑tax Act. In respect of the share of loss suffered during the lifetime of Hiralal, Bai Mani claimed in the assessment proceedings that she had by inheritance succeeded him in the constitution of the firm and, therefore, his share in the loss was liable to be set off against the income, profits or gains of the business for the assessment year 1955‑
56. The Income‑tax Officer negatived that contention and the Appellate Assistant Commis sioner confirmed that order. The Tribunal, however, held that the share of Hiralal was given to Bai Mani and that it had devolved on her as she was the legal heir of Hiralal and that she had succeeded by inheritance to his share of the partnership. On that view they gave the benefit to the assessee of the provisions of section 24 (2). At the instance of the Commissioner, the Tribunal has now referred the following question: "Whether on the facts and circumstances of the case the assessee is entitled to claim a set‑off of the assessable profits against the losses suffered by the assessee's husband in the assessment years 1953‑54 and 1954‑55 under section 24 (2) of the Income‑tax Act ?" Section 24 (2) provides: "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, in any business, profession or vocation, and the loss cannot be wholly set off under subsection, (1), so much of the loss as is not so set off or the whole loss where the assessee had no other head of income shall be carried forward to the following, year." That provision is followed by a proviso which under clause (e) enacts that where a change has occurred in the constitution of a firm, nothing in this section shall be deemed to entitle the firm to have set off so much of the loss proportionate to the share of a retired or deceased partner computed in accordance with the provisions of clause (b) of subsection (1) of section 16 as exceeds his share of profits, if any, of the previous year in the firm, or to entitle any partner to the benefit of any portion of the said loss which is not apportionable to him under the said clause (b), and where any person carrying on any business, profession or vocation has been succeeded in such capacity by another person, otherwise than by inheritance nothing in this section shall be deemed to entitle any person other than the person incurring the loss to have it set off against his income, profits or gains. Evidently, there has been change in the constitution of the firm Hiralal Mathuradas and the losses in the year before the date on which the constitution of the firm was altered cannot be set off against the profits of the subsequent years unless the person carrying on the business, i.e. Hiralal, has been succeeded in such capacity by another person by inheritance. Therefore, the sole question to be decided in this case is whether Bai Mani has by inheritance succeeded to her husband Hiralal in the constitution of the firm as partner. On the materials placed, we have no doubt that she has so succeeded. The business was originally conducted under the agreement of partnership dated the 18th of July, 1952, between Hiralal and Jayantilal. It was a partnership which was terminable on either party giving six month's notice in writing to the other of his intention to terminate the same. Each of the partners under the term of the agreement was entitled to the capital and property for the time being of the partnership and to the goodwill of the business in equal shares. By clause 13 of the agreement, in the event of any partner dying during the continuance of the partner ship, the surviving partner was given an option to purchase the share of the deceased partner in the capital and assets of the business at a valuation to be made by agreement and in default of agreement by arbitration. By clause 14 it was provided that if the surviving partner did not exercise the option of purchasing the share and interest of the deceased partner or if the partnership was determined for any cause, whatever, the partnership was to be wound up and the assets distributed as provided by the Indian Partnership Act. On the death of Hiralal option was not exercised by the surviving partner Jayantilal to purchase the share of his deceased partner Hiralal nor was any attempt made to wind up the partnership and the business of the partnership was con tinued and a fresh partnership agreement was executed on the 15th of August, 1953, whereunder the business conducted in the name of Hiralal Mathuradas was conducted in partnership between Jayantilal and the assessee Bai Mani. On these facts, the Tribunal has come to the conclusion, especially having regard to the quantum of interest which Hiralal had, and the extent of capital which he had brought into the partnership and the relation which subsisted between Hiralal and Jayantilal and the conduct of the two partners Jayantilal and Bai Mani that the latter had succeeded to her husband Hiralal in his capacity as a partner by inheritance. In our view, the Tribunal's conclusion is one on a question of fact and we do not think we will be justified, having regard to the evidence in interfering with the conclusion of the Tribunal. On the view taken by us, the answer to the question submitted to us will be in the affirmative. Commissioner to pay the costs of the assessee. Question answered in the affirmative.