# Voltas Limited v. Its Workmen Wanchoo ]. December 1a

- **Citation:** [1961] 3 S.C.R. 174
- **Court:** Supreme Court of India
- **Decided:** 1961
- **Case number:** Civil Appeal No. 516of1959
- **Bench:** J. L. Kapur, M. Hidayatullah, J. c. SHAH
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/voltas-limited-v-its-workmen-wanchoo-december-1a-1952
- **Pages:** 7

## Headnote

Income-tax-Two firms registered and another unregisteredfocome from unregistered firm, if can be set off against loss from
registered firms-Losses of the registered firm, if can be carried
forward in subsequent year-Indian Income-tax Act, 19zz (II of
19aa), ss. 14(a), 16(r)(a) and 24(r).
The appellants were partners of two registered firms and
another firm which was unregistered. Their profit and loss for the
assessment year I948-49 were as follows:-From registered firms
Rs. n,902 loss, I,265 loss, total loss Rs. x3,167. Income from
the unregistered firm Rs. 26,no profit, other income Rs. 262.
The income of the unregistered firm was taxed on the firm. In
assessing the amount of Rs. 262 the Income-tax Officer first
determined the total income of each of the appellants by setting
off their share of the profits of the unregistered firm against their
share of the loss of the registered firm. The appeal to the
Appellate Assistant Commissioner being unsuccessful appeals
;-
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3 S.C.R. SUPREME COURT REPORTS
175
were taken to the Tribunal which relying on the decisions in
1960
Commissioner of Income-tax v. Ratanshi Bhavanji, [1952] 22 I.T.R.
82, held that just as loss in an unregistered fiun could not be Seth ]am11adas
set off against profits from a registered firm, the profits in an Daga ©- Others
unregistered firm could not be set off against the loss from a regisv.
tered firm.
On a reference being made to it the High Court Commissioner of
differed from the decision of the Tribunal. and held that the pro· Income-tax, South
fit from the unregistered firm could be set off against the loss
Bombay
from the registered firms to find out the rate applicable to Rs. 26~
which was other income of the assessees. • The High Court further held that the assessees could not carry forward the loss of
the registered firms to the following year, because such loss must
be deemed to have been absorbed in the profits of the unregistered firm. On appeal with a certificate of the High Court,
Held, that the view of the High Court that under ss. 14(2) and
16(1)(a) the profit and loss had to be set off against each other
to find out the total income, and that although the share of a partner in the profits of an unregistered firm is exempt trom tax, it
is included in his total income for the purpose of rate only, was
correct but the High Court erred in holding that the losses
suffered by the registered firms could not be carried forward
because they had been absorbed by the profits of the unregisttred firm.

## Text

Voltas Limited
v.
Its Workmen
Wanchoo ].
December 1a.
174
SUPREME COURT REPORTS
[1961)
Out of this, the tribunal has allowed five months'
basic wages as bonus to the respondents which works
out at Rs. 16.80 la.cs. In the circumstances it cannot be
said that the award of the tribunal is not justified. We
do not think that we would be justified in giving anything more than what the tribunal has a.warded,
because the appellant has to provide for a fund for
gratuity, for it is a new concern which took over the
old employees of another concern when it was started
and has thus a greater liability towards gratuity than
otherwise would be the case. We are therefore of
opinion that the tribunal's award of five months'
basic wages as bonus for the year in dispute should
stand. We therefore dismiss both the appeals. In the
circumstances we pass no order as to costs:
Appeals dismissed.
SETH JAMNADAS DAGA AND OTHERS
v.
COMMISSIONER OF TNCOME-TAX, SOUTH
'BOMBAY
(J. L. KAPUR, M. HIDAYATULLAH and
J. c. SHAH, JJ.)
Income-tax-Two firms registered and another unregisteredfocome from unregistered firm, if can be set off against loss from
registered firms-Losses of the registered firm, if can be carried
forward in subsequent year-Indian Income-tax Act, 19zz (II of
19aa), ss. 14(a), 16(r)(a) and 24(r).
The appellants were partners of two registered firms and
another firm which was unregistered. Their profit and loss for the
assessment year I948-49 were as follows:-From registered firms
Rs. n,902 loss, I,265 loss, total loss Rs. x3,167. Income from
the unregistered firm Rs. 26,no profit, other income Rs. 262.
The income of the unregistered firm was taxed on the firm. In
assessing the amount of Rs. 262 the Income-tax Officer first
determined the total income of each of the appellants by setting
off their share of the profits of the unregistered firm against their
share of the loss of the registered firm. The appeal to the
Appellate Assistant Commissioner being unsuccessful appeals
;-
\ '
I
(
f l
i
,.~ ...
3 S.C.R. SUPREME COURT REPORTS
175
were taken to the Tribunal which relying on the decisions in
1960
Commissioner of Income-tax v. Ratanshi Bhavanji, [1952] 22 I.T.R.
82, held that just as loss in an unregistered fiun could not be Seth ]am11adas
set off against profits from a registered firm, the profits in an Daga ©- Others
unregistered firm could not be set off against the loss from a regisv.
tered firm.
On a reference being made to it the High Court Commissioner of
differed from the decision of the Tribunal. and held that the pro· Income-tax, South
fit from the unregistered firm could be set off against the loss
Bombay
from the registered firms to find out the rate applicable to Rs. 26~
which was other income of the assessees. • The High Court further held that the assessees could not carry forward the loss of
the registered firms to the following year, because such loss must
be deemed to have been absorbed in the profits of the unregistered firm. On appeal with a certificate of the High Court,
Held, that the view of the High Court that under ss. 14(2) and
16(1)(a) the profit and loss had to be set off against each other
to find out the total income, and that although the share of a partner in the profits of an unregistered firm is exempt trom tax, it
is included in his total income for the purpose of rate only, was
correct but the High Court erred in holding that the losses
suffered by the registered firms could not be carried forward
because they had been absorbed by the profits of the unregisttred firm.
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
516of1959.
Appeal from the judgment and order dated September 3, 1957, of the Bombay High Court in Incometa.x Referenoe No. 49 of 1957.
J. M. Thakar, S. N. Andley, J. B. Dadachanji,
Rameshwar Nath and P. L. Vohra, for the appellants.
A. N. Kripal and D. Gupta, for the respondent.
1960. December 12. The Judgment of the Court
was delivered by
HIDAYATULLAH, J.-The three appellants appeal Hidayatulld /.
against the judgment and order of the High Court of
Bombay answering, in the affirmative, the following
question:
"Whether the share income of the a.ssessees from
the unregistered firm (which is separately taxed),
namely, Rs. 26,110 can be set off against their
share loss from registered firms, namely, Rs.
13,167?"
The facts a.re a.s follows: Two of the appellants a.re
176
SUPREME COURT REPORTS
[1961 J
'960
brothers, and the third appellant is the widow of a
Seth Jamnadas third brother, who died during the pendency of the
Daga & Others appeal after certificate had been granted by the High
v.
Court. The three brothers were partners in two regisCommissioner of tered firms and one other firm, which was unregistered.
Income-tax, South The assessment years for the purposes of the appeal
Bombay
are 1948-49 and 1949-50. For the assessment year
Hidayatullah ;. 1948-49, the income of the three brothers was the
same, and it was as follows:
From registered firms
... Rs. ll,902 loss
l,265 loss
Total loss Rs. 13,167
Income from the unregistered firm Rs. 26,110 profit
Other income
Rs.
262
The income of the unregistered firm was taxed on
the firm and not in the hands of the partners, as was
possible under the provisions of cl. (b) of sub-s. (5) of
s. 23. In assessing the amount of Rs. 262, the Income.
tax Officer first determined the total income of each of
the appellants by setting off their share of the profits
of the unregistered firm against their share of the loss
of the registered firms.
The appellants contended
that, inasmuch as tax had already been assessed on
the unregistered firm, this could not be done, and that
as there was loss in the business of the registered
firms, no tax was demandable on Rs. 262.
They also
contended that they were entitled to carry forward
the Joss amounting to Rs. 12,905 to the succeeding
year under s. 24(2) of the Income-tax Act. These contentions were not accepted by the Income-tax Officer,
to whose order it is not necessary to refer in detail.
The assessment for the assessment year 1949-50 was
also done on similar lines.
The appeal to the Appellate Assistant Commissioner'
was unsuccessful, and six appeals were taken to the
Tribunal by the three appellants three for each assessment year.
These appeals were disposed of by a common order.
The Tribunal held, relying upon the
second proviso to s. 24(1), that just as loss in an unregistered firm could not be set off against profits
i
I
\
3 S.C.R. SUPREME COURT REPORTS
177
from a registered firm under that proviso, the profits
r96o
in an unregistered firm could not be set off against Seth ] amnadas
the loss from a registered firm. It relied upon a deciDaga ,s, Others
sion of the Madras High Court in Commissioner of
v.
Income-tax v. Ratanshi Bhavanji ('), which it purported Commission" of
to follow in preference to a decision of the Punjab lncom•-1 ... South
High Court in Banka Mal Niranjandas v. OommissioBombay
ner of Income tax('). The same reasoning was applied H"d ~1 h 1
to the assessment year 1949-50, and in the result, all ' •ya " •
•
the six appeals were allowed.
The order of the Tribunal involved, in addition to
the point set out above, certain other questions, which
were asked by the assessees to be referred to the High
Court for decision under s. 66(1). The Commissioner
·also asked for a reference in respect of the decision,
substance whereof has been set out above. The Tribunal referred two questions at the instance of the
assessees and one question, which we have already
quoted, at the instance of the Commissioner. In the
High Court, the assessees abandoned the two questions, and the High Court accordingly expressed its
opinion in the judgment and order under appeal, on
the remaining question.
The High Court differed
from the decision of the Tribunal, and held that the
profit from the unregistered firm could be set off
against the losses from the registered firms to find out
the rate applicable to Rs. 262, which was other
income of the assessees. The High Court also held
that the asseBBees could not carry forward the loss of
the registered firms to the following year, because
.such fo11 must be deemed to have been absorbed in
the profits of the unregistered firm. It, however, certified the case as fit for appeal to this Court, and the
present appeal has been filed.
In our opinion, the High Court correctly answered
the question referred to it, but was in error in holding
that the losses of the registered firms could not be
carried forward, because they must be deemed to have
been absorbed in the profits of the unregistered firm.
Inasmuch as we substantially agree with the High
(1) (1952] •2 I.T.R. 82.
•3
178
SUPREME COURT REPO}tTS
[1961]
Court on the first part of the case, it is not necessary
Seth Jamnadas to examine closely or in detail the reasons on which
Daga & Othm the decision of the High Court proceeds. In our opiv.
nion, the matter is simple, and can be stated within a.
Commissioner 01 narrow compass. Under s. 3 of the Income-tax Act,
Incom~·
1
•;· South income-tax is chargeable for an assessment year at
om •y
rate or rates prescribed by an annual Act in respect
Hidayatullah J. of the total income of the previous year. Section 14
(2)(a), before its amendment in 1956, provided that the
tax shall not be payable by an assessee, if a partner
of an unregistered firm in respect of any portion of his
share in the profits and gains of the firm, computed in
the manner laid down in cl. (b) of sub-s. (1) of s. 16 on
which the tax had already been paid by the firm. The
section thus gave immunity from tax to the share of
the assessee as a partner in an unregistered firm in
respect of the share of profits received by him from
the unregistered firm and on which the unregistered
firm had already been taxed. Section 16(l)(a), however, provided that in computing the total income of
an assessee, any sum exempted under sub-s. (2) of
s. 14 shall be inchided. The combined effect of those
two sections was stated by the High Court to be,
"that although the share of a. partner in the profits of ari unregistered firm is exempt from ta.x, it is
included in his total income for the purpose of rate
only."
We agree that this is a. correct analysis. The Tribu.
nal relied upon the second proviso to s. 24(1), which
read a.s follows:
"Provided further tha.t where the assessee is an
unregistered firm which ha.a not been assessed under
the provisions of clause (b) of sub-section (5) of section 23 ... any such loss shall be set off only a.ga.inst
the income, profits and gains of the firm a.nd not
\lgainst the income, profits and gains of a.ny of the
partners of the said firm; a.nd where the assessee is
a registered firm, a.ny loss which cannot be set off
a.gains~ other income, profits and gains of the firm
shall be apportioned between the partners of the ·
firm and they alone shall be entitled to have the
amount of the loss set off under this section."
3 S.C.R. SUPREME COURT REPORTS
179
The Tribunal came to the conclusion that,
1960
" ... J·ust as a partner in an unregistered firm which Seth J amnadas
has suffered loss will not be allowed to set off his Daga ,s. Others
share loss in the unregistered firm against his
v.
income from any other source, so it stands to reason Commissioner of
that his loss from other sources .cannot also be set Income-tax, South
off against his aha.re income from an unregistered
Bombay
firm."
The decision of the Tribunal was not based upon any
specific provision of the Income-tax Act but upon a
parity of reasoning, by which a specific provision
about loss was held to apply the other way round
also. The High Court correctly pointed out that all
that s. 14, sub-s. (2), did was to save the profits of an
unregistered firm from liability to tax in the hands of
the partners. It did not affect the computation of the
total income to determine the rate applicable under
s. 3, in the light of s. 16(l)(a). Indeed, s. 16(l)(a)
clearly provided that any sum exempt under s. 14(2)
was to be included in computing the total income of
an assessee, and in view of this specific provision, the
converse of the second proviso to s. 24(1) which .we
have quoted above, hardly applied. To this extent,
the order of the Tribunal was incorrect. The error
was pointed out by the High Court, and the question
thus raised was properly decided. We see no reason
to differ from the High Court on this part of the case.
The question, however, arose before the High Court
as to whether in view of this decision, the assessees
could carry forward loss from the registered firms in
the subsequent year or years. The High Court came
to the conclusion that they could not carry forward
the loss. Indeed, the Tribunal had earlier stated that
if the profits from the unregistered firm were to be
set off against the losses of the registered firms, such
losses would not be carried forward to the following
year, and that that would be contrary to s. 24. The
High Court rejected this ground in dealing with the
question as to the rate applicable to the. other income,
and pointed out-and in our view, rightly, that under
ss. 14(2) and 16(l)(a) the profits and losses had to be
set off against each other, to find out the total income.
HidayatuUah ].
180
SUPREME COURT REPORTS
[1961]
z96o
The High Court, however, held that once losses were
set off against profits, they were to that extent absorbSeth Jamnadas
d
d th
th
h"
c
d T
Doga & Others e , an
at
ere was not mg to carry iorwar .
his
v.
conclusion does not follow. Section 24 provides for
Commissioner of a different situation altogether; it provides for the
Jn,ome-ta<, South carrying forward_ of a loss in business to the subBombay
sequent year or years till the loss is absorbed in
H ·a --;-;1 h 1 profits, or till it cannot be carried forward any further.
' aya" •
· That has little to do with the manner in which the
total income of an assessee has to be determined for
the. purpose of finding out the rate applicable to his
income, taxable in the year of assessment. To read
the provisions of ss. 14(2) and 16(l)(a) in this extended manner would be to nullify in certain cases s. 24
altogether. Neither is such an intention expressed;
nor can it be implied. In our opinion, though the
decision of the High Court on the main issue and on
one aspect of the question posed for its opinion was
correct, it was in error in deciding that the losses of
the registered firms could not be carried forward
because they had been absorbed by the profits of the
unregistered firm.
To this extent, the judgment and order of the High
Court will stand modified. Subject to that modification, the appeal will be dismissed. In the circumst.ances of the case, there will be no order as to costs.
Appeal dismissed with modification.