# M. Chockalingam v. In the result the appeals, are allowed

- **Citation:** [1963] Supp. 1 S.C.R. 609
- **Court:** Supreme Court of India
- **Decided:** 1963
- **Case number:** Civil Appeal No. 545 of 1961
- **Bench:** J. L. Kapur, A. K. Sarkar, M. Hidayatullar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-chockalingam-v-in-the-result-the-appeals-are-allowed-2733
- **Pages:** 16

## Headnote

Income Tax-Set-off-Profits of regi•tered firm and· loss
incurred in unregistered firm-Findings of Tribunal-When
binding on High Court-Indian Income-tax Act, 1922 (11 of
1922), SS, 24, 66 (2).
The respondent, a fir:n consisting of fonr partners, was
registered under the Indian Income-lax Act, I 922.
For the
assessment year
1946-4 7 it claimr.d to set off a sum of
Rs. 1,05,641, as its share of the loss in respect of certain
transactions said t? have beei: carried on i~ the name of D by
another partnership be'.".'een '.t and D, wh1~h was not registered.
The income-tax au~honU~s reJe~t.ed the clallll and the Appellate
Tribunal a~reed with theu decmon on the grounds (1) that it
being admitted that the ankdas were in the name of D there
was no satisfactory evidence that the assessee did business' in the
joint account, and (2) that, in any case, the asi:;essee could not
claim the set-off as the loss was suffered by an unregistered firm.
Hidayatullah, J.
1962
October, 12.
1962
Commissicm1r of
lncorn,..lax, Bombay
City 11, Bombay
v.
M/s. JadfJ1Jji
Narsidaf & Cn.
610 SUPREME COURT REPORTS [1963] SUPP.
On a reference, the High Court held ( 1) that there was no legal
admissible evidence to justify the Tribunal's finding that the
transactions in question were not those of the assessee, and (2)
that the assessee firm could claim a set-off in respect of the
share of loss in the unregistered firm "if the income-tax authorities did not proceed to determine the losses of the unregistered
firm and did not bring it to tax as permitted bys. 23 (5) (b)."
HeU, that the High Court erred in its view that the assessee firm could claim a set-off in respect of the loss incurred in
the unregistered firm.
Helil, further (per Kapur and Hidayatullah,.JJ.) : (1) that
if under s. 66 of the Indian Income-tax Act, J 922, a finding
given by the Appellate Tribunal is to be considered final, it is
necessary that the reasons for reaching it should be stated by the
Tribunal with sufficient fullness to inform all concerned what
they are.
(2) that there could not be a partnership between D and
the regiscered firm. If there w~s a partnership it was between
D and the four partners of the assessee firm in their individual
capacity, and under the provisions of s. 24 of the Act the loss of
Rs. 1,05,641 could not be set off against the profits of the
registered firm.
Per Sarkar, J .-In view of the decision in Dulicharul, Lakshminarayan v. The Commissioner of Income-ta.1', Nagpur, [1956]
S. C R. 154, that a firm as such is not entitled to enter into
partnership with another firm or indiuiduals, the assessee firm
could not in law enter into partnership with D, and the questions answered by the High Court did not really arise in the
present case.

## Text

l s.c.R. SUPREME COURT REPORTS
609
of the assessee and in our opinion this was such a
case.
1962
M. Chockalingam
v.
In the result the appeals, are allowed.
A writ
of Certiorari will issue and the order of the Incometax Officer will be quashed. The Income-tax Officer
will, however, be free to take such action as may be
open to him.
In the circumstances of the case, the
parties will bear their costs here and in the High
Court.
Commissioner of
fncomt-tax, Madras
Appeals allowed.
THE COMMISSJONER OF INCOME-TAX,
BOMBAY CITY II, BOMBAY
v.
M/s. JADAVJI NARSIDAS & CO.
(J. L. KAPUR, A. K. SARKAR and M.
HIDAYATULLAR, JJ.)
Income Tax-Set-off-Profits of regi•tered firm and· loss
incurred in unregistered firm-Findings of Tribunal-When
binding on High Court-Indian Income-tax Act, 1922 (11 of
1922), SS, 24, 66 (2).
The respondent, a fir:n consisting of fonr partners, was
registered under the Indian Income-lax Act, I 922.
For the
assessment year
1946-4 7 it claimr.d to set off a sum of
Rs. 1,05,641, as its share of the loss in respect of certain
transactions said t? have beei: carried on i~ the name of D by
another partnership be'.".'een '.t and D, wh1~h was not registered.
The income-tax au~honU~s reJe~t.ed the clallll and the Appellate
Tribunal a~reed with theu decmon on the grounds (1) that it
being admitted that the ankdas were in the name of D there
was no satisfactory evidence that the assessee did business' in the
joint account, and (2) that, in any case, the asi:;essee could not
claim the set-off as the loss was suffered by an unregistered firm.
Hidayatullah, J.
1962
October, 12.
1962
Commissicm1r of
lncorn,..lax, Bombay
City 11, Bombay
v.
M/s. JadfJ1Jji
Narsidaf & Cn.
610 SUPREME COURT REPORTS [1963] SUPP.
On a reference, the High Court held ( 1) that there was no legal
admissible evidence to justify the Tribunal's finding that the
transactions in question were not those of the assessee, and (2)
that the assessee firm could claim a set-off in respect of the
share of loss in the unregistered firm "if the income-tax authorities did not proceed to determine the losses of the unregistered
firm and did not bring it to tax as permitted bys. 23 (5) (b)."
HeU, that the High Court erred in its view that the assessee firm could claim a set-off in respect of the loss incurred in
the unregistered firm.
Helil, further (per Kapur and Hidayatullah,.JJ.) : (1) that
if under s. 66 of the Indian Income-tax Act, J 922, a finding
given by the Appellate Tribunal is to be considered final, it is
necessary that the reasons for reaching it should be stated by the
Tribunal with sufficient fullness to inform all concerned what
they are.
(2) that there could not be a partnership between D and
the regiscered firm. If there w~s a partnership it was between
D and the four partners of the assessee firm in their individual
capacity, and under the provisions of s. 24 of the Act the loss of
Rs. 1,05,641 could not be set off against the profits of the
registered firm.
Per Sarkar, J .-In view of the decision in Dulicharul, Lakshminarayan v. The Commissioner of Income-ta.1', Nagpur, [1956]
S. C R. 154, that a firm as such is not entitled to enter into
partnership with another firm or indiuiduals, the assessee firm
could not in law enter into partnership with D, and the questions answered by the High Court did not really arise in the
present case.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 545 of 1961.
Appeal from the judgment and order dated
October 23, 1958, of the Bombay High Court in
Incorne-tax Reference No. 23 of 1958.
K. N. Rajagopal 8astri and R. N. Bachthey,
for the appellant.
Purw;hottam Trikamrlas, 8. N. Andley, &meshwar Nath and P. L. Vohra, for the respondent.
l S.C.R.
SUPREME COURT REPORTS
611
1962.
October 12. The following judgments
were delivered.
The judgment of Kapur and Hidayatullah, JJ., was delivered
by Hidayatullah, J.,
Sarkar, J., delivered a separate judgment.
HIDAYATULLAH, J.- This is an appeal by the
Commissioner of Income-tax, Bombay, against the
judgment and order of the High Court of Bombay
dated October 23, 1958, by which the High Court
answered two questions referred to it under s. 66 (2)
of the Income-tax Act in favour of the respondent
Jadavji Narsidas & Co.
The High Court certified
this case as fit for appeal to the Supreme Court and
hence this appeal.
The facts are simple. The year of account is the
S. Y. 2001 corresponding to October 10, 1944, to
November 4, 1945, and the assessment year is 19464 7. The respondent is a firm consisting of four
partners and was registered under section 26A of the
Income-tax Act for the relevant year. The assessee
firm carries on business which is mainly speculation.
Iu the year of account it claimed inter alia a loss of
Rs. 1,05,641 which it was said, arose in speculation
in a venture of the assessee firm with one Damji
Laxmidas. This venture was carried on in the name
of Damji Laxmidas on behalf of an alleged firm in
which Damji was said to have a share of -/6/- and
the assessee firm the balance. A deed of partnership
dated November 14, 1944, was also produced before
the Income-tax Officer. The sum of Rs. 1,05,641
represented half the losses of the joint venture, the
other half being claimed by Damji in his own individual. assessment.
The so·called firm of Damji
Laxm1das and the assessce firm was an unregistered
one.
The Income-tax Officer, Bombay, ,disallowed
these losses and added back this amount along with
some others to convert a loss of Rs. 55,931 declared
by the assessee firm into a profit of Rs. 1,88,575.
THis profit was carried by him in accordance with the
ahare of the partners into their individual assessment,
1962
Commission1r of
Imome~tax, Bombay
Cily l l, Bombay
v.
/ll/ s. J ad""ji
Na,siJas & Co.
Hidayalul/oh, /,
1962
Commissioner cf
l/ncome-tax. Bombay
City I.I, ~omba~
v.
M/s.Jadavji
N arsidas & Co.
Hidayatullah J.
612 SUPREME COURT REPORTS [1963) SUPP.
In the assessment of Damji, it may be stated
here, the loss was not allowed on the ground that
having arisen in an unregistered partnership, it could
only be considered in the assessment of the unregistered partnership. In rejecting the evidence of the
loss of Rs. 1,05,641 in the assessment of the assessee
firm the Income-tax Officer gave three reasons (i)
that the ankdas were in the name of Damji Laxmidas
and not in the name of the unregistered firm or the
assessee firm, (ii) that the assessee firm claimed only
-/8/- of the losses and not -/10/- according to its share
and (iii) that the assessee firm which was a well-known
firm doing extensive busmess was said, surprisingly
enough, to have entered into a partnership with an
insignificant person like Dam ji Laxmidas to carry on
this vast business.
He held that the assessce firm had
purchased these losses from D amj i Laxmidas to be
able to set them off against its profits to avoid tax.
The Appellate Assistant Commissioner dismissed the
appeal filed by the assessec firm and so also the
Appellate Tribunal. The two
members of the
Appellate Tribunal gave different reasons.
The
Judicial Member (Mr. A. R. Aggarwal) observed :
"So far as the last item No. (3) is concerned we
are not satisfied
that really the loss
of
Rs. 1,05,641/- was the loss of the assessee. It is
.admitted by the assessee that the ankdas are
in the name of Damji Laxmidas. By no evidence we are satisfied (sic) that really the assessee did business in the joint account. Consequently, this claim of the asscssee is disallowed."
The Accountant Member (Mr. P. C. Malhotra)
observed :
"I agree with my learned brother in the .order
which he has passed.
I would, however, hke to
add a few words.
It is not even the assessee's
case that loss of Rs. 1,05,641/- was suffered by it.
1 S.C.R. SUPREME COURT REPORTS
613
According to the assessee it did some joint venture transactions with Damji Laxmidas. Damji
Laxmidas came in appeal to the Tribunal in respect of his share of the loss. It was held that the
loss arising to a person in a joint venture cannot
be allowed in his personal assessment as the loss
is suffered by an unregistered partnership. It
can only be carried forward in the account of
the unregistered firm."
The assessee firm applied to the Tribunal asking
that a case be stated to the High Court but failed.
The assessee firm then moved the High Court under
section 66 (2) of the Income-tax Act and under the
High Court's direction the Tribunal stated a case on
the following questions :-
"(l) Whether there was any legal, admissible
evidence to justify the Tribunal's finding
that the transaction in question was not the
transanctlon of the assessee.
(2) If not, whether the assessee can claim the
set-off of such loss although it is the loss of
an unregistered partnership."
The first question arises out of the observations
of the Judicial Member and the second question from
those of the Accountant Member. The High Court
answered both the questions against the Department.
It held that there was no legal, admissible evidence to
justify the finding that the transactions in question
were not those of the assessec firm and further that
the assesscc firm could claim a set-off in respect of
th~ share of loss in the unregistered firm
"if the
Income-tax Authorities do not proceed to determine
~he losses of the . unregistered firm and do not bring
1t to tax as permitted by s. 23( 5)(b ). "
On the first q nest ion the appellant argues that
the High Court has decided the case as an Appea 1
Comrnis.siomr of
lnconu-tax, BomlPay
City Tl, Bomb•J
v.
M/s. Jadavji
NaesidaJ .& <!o.
Hida)atullak,. J.
1962
Commission11r of
lncom,..tax, Bomba,
City II, Bombay
v.
M/r. Jadavji
Narsidas & Co.
Hida7atullalr, J.
614 SUPREME COURT REPORTS [1963] SUPP.
Court which it was not entitled to do.
This is not a
true representation of what the High Court did.
Whenever the question propounded is whether there
is any material on which a finding can be given the
discussion savours of an appellate approach but it
is not so. The High Court noticed that the Tribunal
had picked up only one reason from the order of the
Income-tax Officer and held that the a~sessee firm
had "purchased losses" from Damji ,Laxmidas but
said nothing about the other reasons which had
influenced the Income-tax Officer. The High Court,
however, examined all the reasons given
by the
Income-tax Officer and reached the conclusion that
there was 'IW evidence to justify the finding which had
been given in the case.
Before examining the evidence ourselves to see
which conclusion is justified, we wish to make a few
general observations. In a reference under s. 66, a
finding given by the Tribunal is considered final and
the High Court accepts it without examination of the
material. The High Court does not hear an appeal
but answers certain questions of law in the light of
the facts proved. If a finding is final in this way,
one does expect that the reasons for reaching it will
at least be stated with sufficient fullness to inform all
concerned what they were. Even if the reasons given
by an inferior Tribunal are not restated, at least a
general approval of them, or such of them as are
acceptable, should appear. In the present case, all
that is stated is :
"It is admitted by the assessee that the ankdas
are in the name of Damji Laxmidas. By no
evidence we are satisfied (sic) that really the
assessee did business in the joint account."
This, by itself, is hardly a fair disposal of the question whether the assessee firm did business in a joint
account with one Damji Laxmidas. The solitary
ground for rejecting the claim is too indefinite to
I S.C.R.
SUPREME COURT REPORTS
615
warrant this conclusion. It is contended that we
should take into account also the reasons given by the
Income-tax Officer which were before the Income-tax
Tribunal and which have also been mentioned in the
statement of the case.
The High Court did so and
we allowed those reasons to be brought before us. We
would, however, have preferred if the order of the
Tribunal in the appeal filed by the assessee firm had
even briefly expressed their approval of those reasons
and not left them to be mentioned in the statement
of the case.
The question, then, is whether there was evidence
to justify the Tribunal's finding that the transactions
with Damji Laxmidas were not the transactions of
the assessee firm.
In such an inquiry the Court
looks not to the sufficiency of the evidence but whether
any evidence exists at all.
Even if there be slight
evidence which was believed by the Tribw. al and on
which the conclusion can be rested, such question
must be answered in the affirmative.
But the finding
must not proceed upon conjecture, suspicion or
surmise. If there is not a scintilla of evidence, the
finding cannot be sustained because the proved facts
would not then support the inference.
In this connection, the Income-tax Officer gave
three reasons.
The most important of which being
the ankdas were in the name of Damji.
According
!o the deed of partnership, which has been produced
m the case, the four partners of the assessee firm and
Darnji had entered into a partnership to do business
together, specifying the shares of the partners of the
assessee firm which shares inter se are in the same
proportion as their interest in the asscssee firm. The
new firm was not given a trade name. This is no
doubt a~ unusual feature .. But if no name was given
then busmess could be earned on only in the name or
names of one or more partners. That Damji's name
~as chosen, and not any other, docs not lead to the
mference that business .was nut <lone. If Damji's
1962
Commissioner of
Income-tax, Bomha.r
City 11, Bombay
v.
M/s, Jadaoji
Narsidas & Co.
Hidayalullah, J.
616 SUPREME COURT REPORTS [1963] SUPP.
1962
Commissiontr of
lncomt-tax, Bomhay
City II, Bombay
name was used then it is reasonably clear that the
ankdas would be in his name and that is how the
matter stood.
The next reason is that the losses were claimed
on the basis of half and half by the assessee firm and
Damji, in their respective assessments contrary to the
proportion of -/10/- and -/6/- as in the deed. Whatever may be said of the losses claimed by Damji
which were in excess of the agreed share the same
cannot be said of the assessee firm which is claiming
a share of losses which is less than the agreed rate.
But sometimes additional responsibility is shouldered
by a partner because of some action taken by him
not meeting with the approval of the others. Often
enough the shares are readjusted by agreement. There
may be many reasons why the loss claimed by the
assessee firm was less than what it could have really
claimed but this hardly leads to the inference that
no business was done. This circumstance also does
not lead to the inference which has been drawn
from it.
v.
M/J . .Jadavji
Narsidas & Go.
Hidayalullah, J.
The third reason is that it is unlikely that the
partners of a big firm like the assessee firm would
enter into an agreement with a comparatively small
man for doing such vast business. It is pointed out
that Damji had at no time paid Income-tax in excess
of Rs, 1,300. The accounts of the new partnership
have been exhibited in the case. They show a long
course of business. The total business done was to the
tune of Rs. 9 lacs odd. As speculative business is made
up, almost always, of either loss orprofit we should also
look to the extent of the profits made and not merely
the losses. In this case, ·but for one or two transactions which miscarried, Damji would have made a
huge profit. It is possible that he was chosen as a part-
. ner in view of his acumen in these matters rather than
his
l\ bili ty
to finance the projects. This is not
to say that 'buying of losses' is not common or that
men of straw are not taken on as partners to give up
1 S.C.R.
SUPREME COURT REPORTS
617
their losses to equalise profits elsewhere. The fact
remains, as pointed out by the High Court, that losses
can only be bought if they have been incurred and
in the present case there is a long course of business
which at certain stages was profitable though ultimately it showed a loss. It is impossible to say in
this case that the assessee firm took over losses without actually having done business in company with
Damji. There is no foundation, whatever, for the
inference that the losses were purchased by the assessee firm from Damji whether we take the reasons
given by the Income-tax Officer individually or collectively. We are of the opinion that the High Court
did not exceed its powers in examining the evidence
in support of the inference of the Income-tax Officer
that no business was done in company with Damji
but the assessee firm took over some of his losses.
The answer of the High Court to the first question is
therefore upheld.
This brings us to the second question and it is
whether the assessee firm can set off the loss of
Rs. 1,05,641 against its other profits from its other
business? The High Court has held that it C!Ul do
so. In our opinion, and we say it with great
respect, the High Court was in error in reaching this
conclusion.
To begin with the assessee firm as a firm could
not enter into a partnership with Damji. · Damji
could be admitted into the assessee firm or the members of the assessee firm could enter into a partnership with Damji in their individual capacity. The
assessee firm however could not do so as a firm. This
was held by this Court in Dulicharul v. Commissioner
of Income-tax('). There was thus a partnership between
Damji and the four members of the assessee firm
acting for themselves and indeed the deed which has
been produced in this case shows as much.
In the
affairs of the unregistered firm, the assessee firm had
no loll'Ull standi. There were thus two
distinct
(I) [19561 29 l. T. I\, 515,
1962
The Commissiontr
of lncome·tax,B"mb
City II, Bombay
v.
Ms. JU®jiNarsidt
&Co.
HiJa)'atullah, J.
618 SUPREME COURT REPORTS [1963] SUPP.
1962
partnerships. One was the assessee firm which was
The Oommis•ioner
· registered consisting of four partners and the second
ef lncome·tax,Bombay was an unregistered firm consisting of five partners of
City II, Bomha;y
v.
whom the fifth was Damji.
M/1. Jadavji
Narsidas & Co.
The provisions which bear upon the question
are many and need not be set out at length. The gist
of the relevant sections will be stated by us in this
Hi Jayatullh, .T.
judgment. Under s. 24( 1) an
assessee sustaining a
loss of profits in any year under any of the heads
mentioned in s. 6 is entitled to have the amount of
the loss set off against his income, profits or gains
under any other head in that year.
From
April
J, 1953, loss sustained in speculative transactions can
only be set off against profits arising in the same kind
of business. In the present case, both the profits of
the assessee firm and the loss in the transactions with
Damji arose out of speculation and no difficulty
arises. By assessee in the section is meant the person
by whom tax is paid and in every instance it is neces·
sary to find out who that assessee is.
In this case the
assessee is a registered firm of four partners and these
partners did business resulting in profits as members
of the assessee firm and also as mem hers of another
unregistered firm which led to a loss.
Now the assessment of firms is done differently
accordingly as they are registered or unregistered.
Section 23 ( 5) states that when the assessee is a firm
the total income of the firm must be assessed but if
the firm is a registered firm the tax payable by the
firm is not to be determined but the total income is
to be carried to the assessment of the partners in
accordance with their shares and the profits or losses,
as the case may be, must be assessed as part of their
other income. But when the assessee is an unregistered firm, the assessment 'is of the firm itself unless
the Income-tax Officer finds that by assessing the
unregistered firm as a registered firm
~or:- tax is
likely to result.
The assessment otherwise 1~ of ~e
unregistered firm and not of the partners m their
I S.C.R.
SUPREME COURT REPORTS
619
private assessment.
This is the gist of the rule contained in the fifth sub-section of s. 23.
There are, however, other provisions
which
must also be noticed.
The first provision to notice
is s. 16 (1) (b) which says that when the assessee is a
partner of a firm, then whether the firm has made
a profit or loss, his share (whether a net profit or a
net loss) is to be computed in the stated manner and
if his share so computed is a loss, such loss may .be
set off or carried forward and set off in accordance
with the provisions of s. 24.
Section 24 then provides for the set off of the
loss as well as the carrying forward of the loss. The
second proviso deals with the question of set off in
relation to both registered and unregistered firm. It
says tnat when the assessee is an unregistered firm
(not assessed as a registered firm) the loss can only be
set off against the income, profits and gains of the
firm and not those of partners, but if the assessee is a
registered firm, the loss which cannot be set off against the income, profits and gains of the firm shall be
apportioned among the partners and they alone shall
be entitled to have the amount of loss set off under
the sectio~. Shortly stated, the losses incurred by
an unregrstered firm can he set off only against its
own profits while the net losses of a registered firm
are apportioned among the shareholders and they
alone are entitled to set them off .
. Then come the provisions with regard to the
carrymg forn.·ar~ of ~he losses under section 24 (2).
Here also there is a difference between registered and
u?r~gis~ered firms.
The difference
co~tinues the
distmction _made by_ the proviso to sub-s. (I) which
we. have JUSt noticed. Proviso (c) deals with a
registered firm and partners in unregistered firms in
the same manner as the proviso to sub-s. (I) above
analysed. It says that (a) a registered firm is not entitled to carry foiward and. set off any loss apportioned
1962
17/, Commissimu1
of Income-ta>:,llimu J
City II, Bomllay
v.
M/1. Jadauji
}{arsidas & l'o.
1962
TM Commissioner
ef lncU1114·111X,Bombay
Giry 11, Bombay
v.
M/s. Jadavji
.NOrsidas & Co.
Hidayatulloh, J.
620 SUPREME COURT REPORTS [1963] SUPP.
between the partners and (b) partners in unregistered firms assessed as such are likewise not entitled
to carry forward and set off against their own income
losses sustained by the firm.
An unregistered firm
assessed as a registered firm comes under (a) above.
What then is the position here ? The unregistered firm has not been assessed. The assessee firm
alone has been assessed and on its own assessment it
has shown a profit. It seeks to set off against its
profits a loss of Rs. 1,05,641 which, it is said, was
incurred by it in partnership with Damji. We have
shown above that there can be no partnership between
the assessee firm and Damji. There was however a
partnership between Damji and the four partners of
the assessee firm in their indfvidual capacity. Now
under s. 24 ( 1) 2nd Proviso the losses of the unregistered firm of Damji and these four partners can only
be set off against the income, profits and gains of the
unregistered firm and not those of its partners. The
loss of Rs. 1,05,641 could be set off against the
irn:ome, profits and gains (if any) of the unregistered
firm of five persons and not of the partners. In the
same manner the loss, if not absorbed, could be
carried forward to be set off against further income,
profits and gains of the same unregistered firm of five
persons.
The High Court was thus in error in holding that those losses could be set off against the
income of the assessee firm.
It makes no difference
that the Department has not assessed the unregistered
firm or taken action under s. 23 (5) {b). What the
High Court has ordered just cannot be done as it is
against the provisions of s. 24.
Whether the partners in their individual assessments would he able to take advantage of s. 16 (1)
(b) and the decision of the Privy Council in Arunachalam, Ohettiar v. Income-tax Commissioner (1) (a
point almost conceded before us), is not a matter .on
which we need pronounce our opinion. That question
does not arise for our consideration. The answer of
(I) (1936) t. R. 63 I. A, 231.
1 S.C.R. SUPREME COURT REPORTS
621
the High Court to the second question is set aside
and the question is answered in the negative. Iμ view
of the equal success parties will bear their own costs
here and in the High Court.
SARKAR, J.-The respondent, a firm registered
under the Income-tax Act, 19:!2, claimed in its assessment to that tax for the year 1946-47, a set off for a
sum of Rs. 1,05,641/- as its share of the loss of
another partnership said to exist between it and one
Damji Laxmidas and which, for convenience, I will
call the bigger partnership. The Income-tax Officer
refused to allow the set off on the ground that the
existence of the bigger partnership had not been
established.
The respondent firm's appeals, first to the
Appellate Commissioner and then to the Appellate
Tribunal from the order of the Income-tax Officer
failed. Thereafter pursuant to an order obtained by
the respondent firm from the High Court of Bombay,
two questions were referred by the Tribunal to that
Court for decision.
Both these questions were
answered by thi: High Court against the Department
and the Commissioner of Income-tax has thereupon
filed the present appeal.
The first of these questions '.s, "Whether there
was any legal admissible evidence to justify the
Tribunal's finding that the transaction in Question
was not the transaction of the assessee".
No~ it has
been held by this Court in Dulichand LakBhminarayan
v. The Commissioner of lncomP,-klx, Nagpur(') that
"a firm as such is not entitled to enter into partnership with another firm or individuals". The respondent firm, therefore, as a firm could not in law have
entered into any partnership with Damji. It would
hence be to no purpose to enquire whether there was
ev~dence to_justify the finding that such a partnership
ex!sted or m other words, to enquire whether the
evidence showed that an agreement of partnership
(1) [1956] S. C. R. 154, 163.
1962
Thi CommissiOMr
of lncome-tax,Bombt
Ci{'y 1!, Bomb•1
v.
M/s. JaJavji
MmidaJ &Co.
Sarkar, J.
U62
?ie Commissionlf'
· Income-iai:,Bombay
City II, Bomb.:y
v.
M/s. Jadavji
Jlf arsidas & Co.
Sarkor, J,
622 SUPREME COURT REPORTS [1963]SUPP
which in law could not be made had in fact been
made. That which the Jaw does not recognise does not
for a court of law exist. I think therefore that the
first question does not really arise and no answer to
it need be given.
The second question which was referred to the
High Court was, "If not, whether the assessee can
claim the set off of such loss, although it is the loss of
an unregistered
partnership."
As framed,
this
question is posed only if the first question is answered
in the negative.
As in my view the first question
does not arise at all, I will consider this question
independently of the first.
The High Court's answer
to this question was that the respondent firm can
claim the set off and this answer was based on the
assumption that a partnership between a firm and an
individual is permissible, an assumption which must
be held to be unwarranted in view of the decision in
Dulichand's case.(1) It must be held that no partnership in which the respondent firm as such is a partner,
exists. If the partnership does not exist, the respondent firm cannot have suffered any loss as a partner
in it and there is therefore no loss for which it can
claim a set off.
The sections of the Act dealing with set off
would not justify a set off in such circumstances.
Thus under s. 10 an assessee is entitled to set off the
loss incurred by him in one business against the
profits made by him in another business : see Anglo
French Textile Co. Ltd. v. Commissioner of Incometax (')-
It is hardly necessary to point out that in
the case of a single business its profits can only be
ascertained after its losses have been taken into
account. If this also is to be called a set off, I suppose
it may also be justified under s. 10. It is clear that
the set off contemplated by this section is of a loss
suffered by the assessee himself. That is not the
position in the present case. The assessce, the respo~
dent firm, has no interest in the bigger partnership
(I) [1956] s. C. R. 154, 163.
(2) (1953] S. C. R. 448,453.
1 S.C.R. SUPREME COURT REPORTS
623
and, therefore, no concern with its losses. Sub-section
(i) of s. 24 also provides for set off by an assessee of
a loss suffered by him under one head of income
against the profits earned by him umler another head.
This section would not assist the respondent firm or
the same reason as in the case of s. llJ and also because it applies when two heads of income are being
considered while in the present case we have only one
head of income, namely,
business.
The second
proviso to sub-sec. (1) of s. 24 provides for certain
rights of set off in the case of assessment of unregistered and registered firms.
That part of this proviso
which deals with an unregistered firm car>not obviously apply to the present case which is one of the
assessment of registered firIP.
The other part of the
proviso dealing with a registered firm
would not
assist the respondent firm either though it is a registered firm, because the right of set off that it gives is only
to the partners of a registered firm and not to the
registered firm itself and in the present case we
are not concerned with a claim of set off by any
partners of the respondent firm.
No other section of
the Act dealing with set off has been brought to our
notice.
The second question should thrrefore be answered in the negative. Strickly speaking, this question
also does not arise.
As the bigger partnership does
n~t exist, n? question of its being registered or otherwise can anse.
Learned counsel for t:ic respondent firm however contended that the
bigger partucrship was
really between Damji and the partners of the respondent firm.
I will assume that to have been so.
It
may be that in such .a case . the indi~'iual partners
of the r?spondent firm m their respective asses~ments
~ay claim a set off of their sl13res oJ' the loss of the
bigger partnership but with s11ch assessrncnts of indivi ..
du~l partnc.rs this case is not conc•::m:<l. The quc:stion
he1 e is whether the respondent firm ca11 claim a set
1962
TM Commissioner
of Incame-tnx,Bombay
Citv II, Bomba~v
v.
Mis. Jadauji
Narsiclas & Co.
Sarkar, /,
1962
Tht Commission"
f Jncomt-tax,Bambay
City II, Bombay
v.
M/s. Jndavji
Narsidas & Co.
Sarkar, J,
624 SUPREME COURT REPORTS [1963) SUPP.
off in its own assessment. I venture to say that it does
not follow that because the partners of the respondent
firm may in their individual assessments be able to
claim the set off, the respondent firm itself can do
so;, they are different assessecs each with a separate
and independent right of set off.
One cannot claim
a set off basing such claim on the other's right to it.
But it was said that in the present case the real
assessees were the partners of the respondent. I am
entirely unable to accept that contention.
Section
23( 5) of the Act contemplates a registered firm as an
assessee though it did not have to pay any tax itself
as the law stood prior to April 1, 1956. The whole
proceedings in the present case have been conducted
on the basis that the respondent firm was the assessee.
The questions raised in this case were framed on that
basis and we are not called upon by them to say
whether the partners of the respondent firm had any
right of set off.
The assessees in the present case
were not the partners of the respondent firm. If they
were, we would have found the respective incomes
of the individual partners from other sources being
considered but this was not what had happened. It
seems to me to be impossible to contend in the present
case that the assessees were the partners of the respondent firm.
I would allow the appeal with costs here and
below.
BY COURT : In view of the opinion of the
majority the answer of the High Court to the first
question is upheld and the answer to the second
question is set aside. The parties will bear their own
costs here and in the High Court.