1995-VIL-374-P&H-DT

Equivalent Citation: [1996] 218 ITR 541, 133 CTR 279, 86 TAXMANN 342

PUNJAB AND HARYANA HIGH COURT

Date: 08.12.1995

TARA DEVI BEHL

Vs

COMMISSIONER OF INCOME-TAX

BENCH

Judge(s)  : ASHOK BHAN., N. K. SODHI 

JUDGMENT

The judgment of the court was delivered by

ASHOK BHAN J.--The following two questions of law for the assessment years 1976-77 and 1977-78 (being common for both the years) have been referred by the Income-tax Appellate Tribunal, Amritsar (hereinafter referred to as " the Tribunal ") for the opinion of this court by drawing up a common statement of cases for both the years at the instance of the assessee :

" (i) Whether, on the facts and in the circumstances of the case, the activity of becoming a partner in different partnership concerns, could not be said to be carrying on of a business by the assessee thus entitling her to the set off of the loss suffered by her in the earlier years from the firm, United Oil Mills ?

(ii) Whether the assessee is entitled, under the provisions of section 72(1) of the Income-tax Act, 1961, to set-off of her share of unabsorbed losses of the earlier years from the firm, United Oil Mills, against her share of income from other partnership concerns in the assessment years 1976-77 and 1977-78 when the said firm had not been dissolved ? "

The assessee-lady was having income from shares in three firms in the assessment year 1976-77, namely, Sham Sunder and Co., Vishnu Fabrics, Amritsar, and F. N. F. Dyeing and Finishing Mills. In the assessment year 1977-78, she disclosed profit from four firms, namely, Vishnu Fabrics, F. N. F. Dyeing and Finishing Mills, S. K. Textile Mills and J. P. Woollen Mills. She claimed set-off of the losses sustained by her in another firm, United Oil Mills, in the earlier years from the profits earned by her in the assessment years 1976-77 and 1977-78 in the firms in which she had become a partner referred to above. The assessee's claim for set-off for the assessment year 1976-77 was rejected by the Income-tax Officer by stating " loss from United Oil Mills cannot be carried forward since that business did not exist in this year." For the assessment year 1977-78, her claim for set-off was rejected by observing that the business of United Oil Mills had closed and, therefore, the assessee was not entitled to claim setoff of the losses sustained in the United Oil Mills in the assessment years 1976-77 and 1977-78.

The assessee filed appeals to the Appellate Assistant Commissioner who disposed of the appeals by a common order dated March 13, 1978. The Appellate Assistant Commissioner held that though the firm had not dissolved it had ceased to carry on its business and the assessee had lost her right to carry forward and set-off of the losses suffered in United Oil Mills. The assessee carried two separate appeals before the Tribunal which were rejected. The Tribunal recorded a finding of fact : " in the case before us, it is the admitted position that the business of United Oil Mills was not continuing in the assessment years 1976-77 and 1977-78 ". It was held by the Tribunal that from this, it follows that the assessee was not carrying on that business in the two years and the proviso to section 72(1) of the Income-tax Act clearly debars the set-off of the losses under appeals. On an application made by the assessee, the two questions of law have been referred for both the assessment years by passing a consolidated order for the opinion of this court.

The contention raised by counsel for the assessee is that the assessee was carrying on the activity of becoming a partner in different partnership and, therefore, could be said to be carrying on a business, thus entitling her to claim set-off of the losses suffered by her in the earlier years from United Oil Mills. No doubt, a partner can be said to be carrying on the same business which is being carried on by the firm in which he is a partner but it cannot be said that the activity of becoming a partner in several firms would be a business activity. Counsel for the assessee failed to substantiate the point that the activity of becoming a partner in several firms by itself would be a business activity.

Accordingly, it is held that the assessee would not be entitled to the set off of the losses suffered by her in the earlier years from United Oil Mills only on the ground that she was carrying on the business activity of becoming a partner in different partnership concerns.

The issue regarding set off of losses of United Oil Mills claimed by the assessee has to be viewed in the light of the provisions of clause (i) of section 72(1) of the Income-tax Act (hereinafter referred to as " the Act "). The relevant provisions of section 72 of the Act are reproduced below :

" 72. Carry forward and set off of business losses.--(1) Where for any assessment year, the net result of the computation under the head ' Profits and gains of business or profession ' is a loss to the assessee, not being a loss sustained in a speculation business and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off or, where the assessee has income only under the head ' Capital gains ' relating to capital assets other than short-term capital assets and has exercised the option under sub-section (2) of that section or where he has no income under any other head, the whole loss shall, subject to the other provisions of this chapter, be carried forward to the following assessment year, and--

(i) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year :

Provided that the business or profession for which the loss was originally computed continued to be carried on by him in the previous year relevant for that assessment year ; and . . . ."

On analysis of section 72(1) of the Act, it emerges that an assessee has to satisfy four conditions, namely, (1) for carry forward of business loss should be the net result of the computation under the head " Profits and gains of business or profession " ; (2) the loss is to the same assessee against whose business income it is sought to be set off (3) the business from which it has resulted is not speculative business and (4) the loss could not be or is not wholly set off against income under any other head of income in accordance with the provisions of section 71 ; then the entire, or so much of the loss, as has not been set off shall be carried forward to the assessment year following provided " that the business or profession for which the loss was originally computed continued to be carried on by him in the previous year relevant for that assessment year." In the present case, the Tribunal came to a firm finding of fact describing it to be the admitted position between the parties that business of United Oil Mills was not continuing in the assessment years 1976-77 and 1977-78. This finding of the Tribunal regarding discontinuance of the business of United Oil Mills has not been challenged and no reference has been claimed qua this finding before us. The finding regarding continuation of business is a finding of fact and would be dependent on its own facts in each case. Counsel appearing for the assessee relied upon a Supreme Court judgment in CIT v. A. Dharma Reddy [1969] 73 ITR 751, to contend that the assessee was entitled to claim set-off of the loss as against the profits earned in the subsequent years from the various partnership firms in which she had become a partner. In the said case, it was held by the Supreme Court that (at page 757) the " business in which the loss had been sustained by the assessee when he was a partner of the first firm which was dissolved on March 31, 1955, continued to be carried on by him in partnership with three other persons during the assessment year 1956-57, the business, as stated before, being of dealing in or entering into contracts in respect of bidi leaves." Their Lordships of the Supreme Court came to the conclusion that business continued to be carried on by the assessee but in the present case, the finding recorded, as observed earlier, is that the business of United Oil Mills ceased to be continued for the relevant years 1976-77 and 1977-78. The issue of set-off of loss of United Oil Mills claimed by the assessee has to be judged in the light of proviso (i) to section 72(1). The proviso lays down that business loss can be carried forward against the profits of business of the following years only if the business in which the loss was suffered continued to be in existence. In case the assessee ceases to carry on the business then the loss suffered in the said business cannot be carried forward in the subsequent assessment years to be set off against the profits earned in some other business.

Counsel for the assessee then contended that the business in which the loss was suffered may not be the same as the business in which the profits are earned to claim a set-off, and a set off can be claimed against a business which is of totally different nature. For this reliance was placed on Standard Refinery and Distillery Ltd. v. CIT [1971] 79 ITR 589 (SC). There is no quarrel with this proposition of law. The conditions in proviso (i) to section 72(1) requiring continuation of the carrying on of the same business by the assessee does not limit that the unabsorbed loss shall be set off against the income from the same business. If the assessee continues to do the same business then carry forward of the unabsorbed loss may be set off against the income of the assessee against any business. The condition is regarding continuation of the same (emphasis supplied) business by the assessee to carry forward the unabsorbed business loss to be set off against the income of the assessee from any business. Clause (i) of section 72(1) provides that the loss would be set off against the profits and gains, if any of any business (emphasis supplied). In this case, the assessee discontinued its business and, therefore, would not be entitled to carry forward the unabsorbed loss in United Oil Mills to be set off against the profits earned by the assessee as a partner from the other firms.

Counsel for the assessee then contended that the firm, United Oil Mills, may have discontinued its business but since it had not been dissolved, the assessee was entitled to carry forward the loss suffered in United Oil Mills to be set off against the profits earned by the assessee as a partner in the other firms for the subsequent years. Although the Tribunal has not recorded the finding regarding dissolution or otherwise of United Oil Mills but we find from the order of the Appellate Assistant Commissioner where counsel for the assessee had raised an argument that business of United Oil Mills may have been discontinued but the firm had not been dissolved and, therefore, the business had not been finally closed and the assessee should be allowed to carry forward the loss suffered from United Oil Mills and claims set off against the profits earned by the assessee as a partner in the other firms. The proviso to section 72 of the Act talks of continuation of business and not of dissolution of the firm. The firm though not dissolved may discontinue its business and once the business is discontinued then under the provisions of section 72(1) the assessee would not be allowed to carry forward the loss to claim set-off against the profits earned in the assessment year in question. Cessation of business would result in the loss of the right to carry forward its loss to the following years.

In view of the reasons recorded above, we answer the question referred to us in the affirmative and against the assessee. No costs.

 

 

 

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