{"id":162516,"date":"1969-02-19T00:00:00","date_gmt":"1969-02-18T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/commissioner-of-income-tax-vs-a-dharma-reddy-morthad-on-19-february-1969"},"modified":"2018-04-20T00:12:47","modified_gmt":"2018-04-19T18:42:47","slug":"commissioner-of-income-tax-vs-a-dharma-reddy-morthad-on-19-february-1969","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/commissioner-of-income-tax-vs-a-dharma-reddy-morthad-on-19-february-1969","title":{"rendered":"Commissioner Of Income-Tax, … vs A. Dharma Reddy, Morthad on 19 February, 1969"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Commissioner Of Income-Tax, … vs A. Dharma Reddy, Morthad on 19 February, 1969<\/div>\n
Equivalent citations: 1969 AIR 940, \t\t 1969 SCR (3) 782<\/div>\n
Author: A Grover<\/div>\n
Bench: Grover, A.N.<\/div>\n
           PETITIONER:\nCOMMISSIONER OF INCOME-TAX, ANDHRA PRADESH,HYDERABAD\n\n\tVs.\n\nRESPONDENT:\nA.   DHARMA REDDY, MORTHAD\n\nDATE OF JUDGMENT:\n19\/02\/1969\n\nBENCH:\nGROVER, A.N.\nBENCH:\nGROVER, A.N.\nSHAH, J.C.\nRAMASWAMI, V.\n\nCITATION:\n 1969 AIR  940\t\t  1969 SCR  (3) 782\n 1969 SCC  (1) 580\n\n\nACT:\nIncome-tax  Act\t (11 of 1922), s. 24(2)(ii)  as\t amended  in\n1955--Loss  sustained by a partner in a dissolved  firm,  if\ncan be set off against profit earned in another firm in\t the\nsubsequent year.\n\n\n\nHEADNOTE:\nThe  assessee  carried on two businesses in Bidi  leaves  as\npartner in two different firms.\t The first firm consisted of\ntwo partners, and the second of four; both these firms\twere\nassessed  to income tax separately and it was admitted\tthat\nthe two firms had nothing to do with each other.  The  first\nfirm  sustained\t losses\t and was  dissolved.   The  assessee\nclaimed\t that  the losses sustained by him in  the  previous\nyear (sustained in the first firm) should be carried forward\nand  set  off  against his profit  in  the  subsequent\tyear\n(earned\t in  the second firm) under s. 24 (2)  (ii)  of\t the\nIncome-tax Act, 1922 as the assessee carried on the business\nin  Bidi  leaves during that year.  The\t Income-tax  Officer\nrejected  the  claim,  and  his\t order\twas  upheld  by\t the\nAppellate   Assistant  Commissioner.   But   the   Appellate\nTribunal accepted the claim and the question was answered by\nthe  High  Court  in the  assessee's  favour.\tThe  Revenue\nappealed  to this Court and contended that for\tgetting\t the\nbenefit under s. 24(2) (ii) the same concern or\t partnership\nwhich  carried\ton in the previous year should\tcontinue  to\nfunction in the year of assessment.\nHELD : The appeal must be dismissed.\nIn  order  to get the benefit of s. 24 (2) (ii) of  the\t Act\nespecially after the amendment made by the Finance Act\t1955\nit  was not necessary that the assessee should carry on\t the\nsame business in the year of assessment.  The change in\t the\nlanguage  of the provision substituted by the  Amending\t Act\nwas  significant and all that the assessee had to  show\t was\nthat  the  business in which loss was  originally  sustained\ncontinued to be carried on by him in the assessment year.\nIf the first partnership was dissolved it did not mean\tthat\nhis  business  in Bidi leaves came to an end so long  as  he\ncontinued  to  do that business either\tindividually  or  in\npartnership  with  others.  During the\tassessment  year  in\nquestion  he  was carrying on that business  in\t partnership\nwith three others.  According to the provisions of s.  24(2)\nas  they stood before the amendment made by the Finance\t Act\nof  1955 he continued to carry on the same business but\t for\nthe  purpose of the present case s. 24(2) (ii) as  it  stood\nafter  the amendment was relevant and on the plain  language\nof  the aforesaid provision the business in which  the\tloss\nwas originally sustained was continued during the assessment\nyear.\tThe word \"business\" has been defined in s.  2(4)  of\nthe  Act as including any trade, commerce or manufacture  or\nany adventure or concern in the nature of trade, commerce or\nmanufacture.  These words are of wide import the  underlying\nidea  being of continuous exercise of an activity.   In\t the\npresent\t  case,\t  the  business\t did  not  depend   on\t the\nconstitution  of  a partnership firm through  which  it\t was\ncarried\t on  nor  could it come to an end  so  long  as\t the\nassessee carried on the same systematic or organised  course\nof activity with a set purpose. [786 G--787 C]\n783\nWhen  the profits of a registered firm are ascertained,\t the\nassessee for the purpose of paying tax is not the registered\nfirm  but  each partner of that firm.  The identity  of\t the\nbusiness for the purpose of s. 24(2)(ii) does not change  by\nreason\tof the change in persons who carry on that  business\nsince it continues to be carried on by the same\t individual.\nA  set off for loss which had been carried forward from\t the\nearlier\t years under the provisions of s. 24 would  only  be\navailable  to  the individual partner who had  suffered\t the\nloss and not to the other partners of the firm or the  firm.\n[787 F]\nNarain\tSwadeshi  Weaving Mills v.  Commissioner  of  Excess\nProfits Tax,<\/a> [1954] 26 I.T.R. 765, 773, Dwarkadas  Leeladhar\nv.  Commissioner  of Income-tax, Kerala, 47 I.T.R.  619,  S.\nNarain Singh v. Commissioner of Income-tax, Delhi, 66 I.T.R.\n341 and Sitaram Motiram Jain v. Commissioner of\t Income-tax,\n43 I.T.R. 405, referred to.\n\n\n\nJUDGMENT:\n<\/pre>\n
CIVIL  APPELLATE  JURISDICTION : Civil Appeal  No.  1057  of
\n1966.\n<\/p>\n
Appeal\tfrom the judgment and order dated April 17, 1964  of
\nthe  Andhra  Pradesh High Court in Case Referred No.  48  of
\n1962.\n<\/p>\n
S.   Mitra,  R.\t N.  Sachthey  and B.  D.  Sharma,  for\t the
\nappellant.\n<\/p>\n
S.   T. Desai and K. Jayaram, for the respondent.
\nThe Judgment of the Court was delivered by
\nGrover, J. This is an appeal by certificate from a  judgment
\nof the High Court of Andhra Pradesh answering the  following
\nquestion  referred to it by the Tribunal arising Out of\t the
\nassessment  of the assessee for the assessment year  1956-57
\nin the affirmative and in his favour :\n<\/p>\n
\t       “Whether\t the assessee is entitled under\t the
\n\t      provisions of Section 24(2) of the Act to\t set
\n\t      off his share of unabsorbed loss amounting  to
\n\t      Rs. 24,532 from the dissolved firm to M\/s.  A.
\n\t      Dharma Reddy, Morthad brought forward from the
\n\t      assessment  year\t1955-56\t against  his  other
\n\t      business income for the assessment year  1956-\n<\/p><\/blockquote>\n
\t      57.”\n<\/p><\/blockquote>\n
The  assessee is an individual whose only sources of  income
\nwere his shares in several partnership concerns.  Apart from
\nthe  firms which carried on other businesses there were\t two
\nfirms  which  carried on the business in Bidi  leaves.\t The
\nfirst  was  styled as M\/s.  A. Dharma Reddy,  Morthad.\t The
\nsecond\tfirm was called A. Dharma Reddy &  Co.,\t Ditchpally.
\nThe  first partnership was dissolved on March 31,  1955\t but
\nthe second one continued during the assessment year 1956-57.
\nDuring the assessment year 1955-56 the assessee sustained  a
\nloss of Rs. 30,255 in the first firm. As he was carrying  on
\nseveral\t other businesses, after the necessary set  off\t the
\ntotal  loss  sustained\tby him for that\t year  came  to\t Rs.
\n24,532.\t During the assessment year 1956-57 the
\n784<\/span>
\nassessee’s  profit in the second firm was estimated  at\t Rs.
\n11,853\tand  his total taxable income was  assessed  at\t Rs.
\n28,758 for that assessment year.  As the assessee carried on
\nthe business in Bidi leaves during that year he claimed that
\nthe  loss  sustained  by  him in  the  previous\t year  viz.,
\nassessment  year 1955-56 should be carried forward  and\t set
\noff against his profit in the subsequent year 1956-57  under
\nS. 24(2)(ii) of the Income tax Act 1922, hereinafter  called
\nthe “Act”.  The Income tax Officer rejected the claim.\t His
\nview  was  that\t the set off could be allowed  only  if\t the
\nbusiness,   profession\tor  vocation  in  which\t  loss\t was
\noriginally  sustained  continued  to be carried\t on  by\t the
\nassesssee during the relevant assessment year.\tAccording to
\nhim  the business in which the loss of Rs. 30,255  had\tbeen
\nincurred  had ceased to exist because of the dissolution  of
\nthat  firm  on\tMarch 31,  1955.   The\tAppellate  Assistant
\nCommissioner  in appeal considered the constitution  of\t the
\ntwo  firms.   The first consisted of two partners  in  which
\noriginally  the\t loss had occurred and which had  ceased  to
\nexist  in  the relevant assessment year.   The\tsecond\tfirm
\nagainst\t whose\tincome\tthe loss was sought to\tbe  set\t off
\nconsisted  of  four  partners.\tBoth  the  firms  had  filed
\nseparate  returns  and\twere  assessed\tseparately  for\t the
\nassessment  year  1955-56.  The assessee had admitted  in  a
\nlatter\tdated  September  16, 1960 that the  two  firms\t had
\nnothing\t to do with each other and there was no material  to
\nshow that the business of the dissolved firm was taken\tover
\nby  the other firm.  The Appellate  Assistant  Commissioner,
\ntherefore, came to the conclusion that the business in which
\nthe loss was originally sustained could not be said to\thave
\ncontinued during the assessment year 1956-57.  The  assessee
\ntook  the matter to the Income tax Appellate Tribunal  which
\nupheld\tthe  contention\t ‘of  the  assessee  that  the\tsame
\nbusiness  of  Bidi leaves continued during  the,  assessment
\nyear.\tAccording to the Tribunal the assessee was  carrying
\non two businesses in Bidi leaves as partner in two different
\nfirms.\tOne of these firms was dissolved but he continued to
\ncarry  on  the\tsame business in conjunction  with  his\t co-
\npartners in the year under appeal.  The High Court  disposed
\nof the matter in a fairly simple way.  It was observed
\n\t      “When  a\tfirm carries on business.  it  is  a
\n\t      business\tcarried on by the partners  of\tthat
\n\t      firm and the individual partners of that\tfirm
\n\t      are  assessed to tax.  When the profits  of  a
\n\t      registered firm are ascertained, the assessee,
\n\t      for the purpose of paying the tax, is not\t the
\n\t      registered  firm,\t but  each  partner  of\t the
\n\t      registered firm.\tIn the present case, it\t was
\n\t      in  the business in the beedi leaves that\t the
\n\t      assessee\tsustained a loss for the  assessment
\n\t      year 1955-56.  He carried on the same business
\n\t      in  beedi\t leaves during the  accounting\tyear
\n\t      1955-56  i.e.,  the  assessment  year  1956-57
\n\t      though in partnership
\n\t      785<\/span>
\n\t      with  others.  Entering into partnership\twith
\n\t      another  in one case and three others  in\t the
\n\t      other  case,  was only the  mode\tof  carrying
\n\t      business;\t  but  the  business  is  the\tsame
\n\t      business\tviz.,  trade  in  beedi\t leaves.\n<\/p>\n
\t      Section 24 (2) (ii) does not require that\t the
\n\t      business should be continued to be carried  on
\n\t      for  the\tassessment year in question  by\t the
\n\t      same concern or partnership or firm as in\t the
\n\t      previous\tyear  when the loss  was  originally
\n\t      sustained by the assessee.  The only condition
\n\t      prescribed  by  that clause is that  the\tsame
\n\t      business must be continued to be carried on by
\n\t      “him” (the assessee)”.\n<\/p>\n
\t      In order to dispose of the contentions of\t the
\n\t      learned\t counsel   for\t the   Income\t tax
\n\t      Commissioner who is the appellant before us it
\n\t      is necessary to set out the relevant statutory
\n\t      provisions.  Before the amendment made by\t the
\n\t      Finance  Act of 1955 s. 24(2), was as  follows
\n\t      :-\n<\/p>\n
\t      “(2)  Where  any assessee sustains a  loss  of
\n\t      profits or gains in any year, being a previous
\n\t      year  not earlier than the previous  year\t for
\n\t      the assessment for the year ending on 31st day
\n\t      of March, 1940, in any business, profession or
\n\t      vocation,\t and the loss cannot be\t wholly\t set
\n\t      off under sub-section (1), so much of the loss
\n\t      as  is not so set off or the whole loss  where
\n\t      the assessee had no other head of income shall
\n\t      be  carried forward to the following year\t and
\n\t      set off against the profits and gains, if any,
\n\t      of  the  assessee\t from  the  same   business,
\n\t      profession or vocation of that year……….
\n\t      Sub-section (2) of s. 24 was substituted by S.
\n\t      16 of the aforesaid Finance Act.\tThe material
\n\t      portion was in the following terms :-\n<\/p>\n
\t      “(2)  Where  any assessee sustains a  loss  of
\n\t      profits or rains in any year, being a previous
\n\t      year  not earlier than the previous  year\t for
\n\t      the assessment for the year ending on the 31st
\n\t      day of March 1940, in any business, profession
\n\t      or vocation, and the loss cannot be wholly set
\n\t      off  under sub-s. (1), so much of the loss  as
\n\t      is  not  set off or the whole loss  where\t the
\n\t      assessee had no other head of income shall  be
\n\t      carried forward to the following year, and\n<\/p>\n
\t      (i)   …………………………\n<\/p>\n
\t      786<\/span><\/p>\n
\t      (ii)where the loss was sustained by him in any
\n\t      other  business,\tprofession or  vocation,  it
\n\t      shall  be\t set  off against  the\tprofits\t and
\n\t      gains, if any, of any business, profession  or
\n\t      vocation\tcarried\t on  by him  in\t that  year;\n<\/p>\n
\t      provided\tthat  the  business,  profession  or
\n\t      vocation\tin  which the  loss  was  originally
\n\t      sustained continued to be carried on by him in
\n\t      that year.”\n<\/p>\n
The  arguments of the learned counsel for the appellant\t are
\nbased mainly on the fact that the partners of the two  firms
\nwere  different although the assessee was a partner of\tboth
\nthe  firms.  It is contended that since the first  firm\t was
\ndissolved  on March 31, 1955 it could not be said  that\t the
\nbusiness  in  which the loss was sustained continued  to  be
\ncarried on by the assessee during the assessment year  1956-
\n57  within  the\t meaning of s.24(2)(ii)\t of  the  Act.\t For
\ngetting the benefit under that section it was essential that
\nthe  business  in  which the loss was  sustained  should  be
\ncontinued  to  be  carried on for  the\tassessment  year  in
\nquestion.   This means that the same concern or\t partnership
\nwhich  carried on the business in the previous\tyear  should
\ncontinue to function in the year of assessment.
\nThere  is  no  warrant for the proposition  put\t forward  on
\nbehalf of the appellant that in order to get the benefit  of
\ns. 24(2) (ii) of the Act especially after the amendment made
\nby  ‘the Finance Act 1955 the assessee should carry  on\t the
\nsame  business partnership in the year of  assessment.\t The
\nchannge in the language of the provision substituted by\t the
\nAmending Act is significant and all that the assessee has to
\nshow  is  that\tthe business in which  loss  was  originally
\nsustained  continued  to  be  carried  on  by  him  in\t the
\nassessment  year,  Now, in the present\tcase,  the  assessee
\ncarried\t on  the business in bidi leaves  apart\t from  other
\nbusinesses.  This business he was doing in partnership\twith
\nanother\t person.   Nevertheless the business was  of  taking
\ncontracts  in  respect of or dealing in\t bidi  leaves,\tThis
\nbusiness  he could do either individually or in\t partnership
\nwith some one else.  If the first partnership was  dissolved
\nit did not mean that his business in bidi leaves, came to an
\nend  so\t long as he continued to do  that  business  either
\nindividually  or  in partnership with  others.\t During\t the
\nassessment  year in question he was admittedly\tcarrying  on
\nthat  business in partnership with three others.   It  could
\nwell  be  said that even according to the  provision  of  s.
\n24(2)  as  they\t stood before the amendment  made  by  the
\nFinance\t Act  of  1955 he continued to\tcarry  on  the\tsame
\nbusiness  but for the purpose of the present case it  is  s.
\n24(2) (ii) as it stood after the amendment which is relevant
\nand  we fail to see on the plain language of  the  aforesaid
\nprovision  how it could be held that the business  in  which
\nthe loss was originally sustained was not con-\n<\/p>\n
787<\/span><\/p>\n
tinued\tduring\tthe  assessment\t year  1956-57.\t  The\tword
\n“business”  has\t been  defined in s. 2 (4)  of\tthe  Act  as
\nincluding   any\t trade,\t commerce  or  manufacture  or\t any
\nadventure  or  concern in the nature of trade,\tcommerce  or
\nmanufacture,  These words are of wide import the  underlying
\nidea  being  of\t continuous exercise  of  an  activity.\t  As
\npointed\t out  by S. R. Das, J. (as he then  was)  in  Narain
\nSwadeshi  Weaving  Mills v. Commissioner of  Excess  Profits
\nTax<\/a>(1), the word “,business” connotes, some real substantial
\nand  systematic or organised course of activity\t or  conduct
\nwith  a set purpose.  The systematic or organised course  of
\nactivity of the assessee, in the present case, consisted  of
\ndealings  or  taking  of  contract  in\tbidi  leaves.\tThat
\nbusiness did not depend on the constitution of a partnership
\nfirm through which it was carried on nor could it come to an
\nend  so long as the assessee carried on the same  systematic
\nor organised course of activity with a set purpose.
\nThe  computation of a partner’s share in the firm’s  profits
\nis  dealt  with by s. 16(1) (b).  The proviso  thereto\tlays
\ndown that if his share was computed as a loss such loss\t may
\nbe set off or carried forward and set off in accordance with
\nthe provision of s. 24. Under s. 23 (5) when the assessee is
\na registered firm and the     total  income of the firm\t has
\nbeen assessed under sub-ss. (1), (3)\tor  (4) as the\tcase
\nmay  be,  the  total  income of each  partner  of  the\tfirm
\nincluding therein his share of its income, profits and gains
\nof  the previous year shall be assessed and the sum  payable
\nby him on the basis of such assessment shall be\t determined.
\nThere  is  a proviso which says that if such  share  of\t any
\npartner\t is  a loss it shall be set off\t against  his  other
\nincome or carried forward and set off in accordance with the
\nprovisions  of\tS. 24.\tThe High Court was right  in  saying
\nthat  when the profits of a registered firm are\t ascertained
\nthe  assessee for the purpose of paying the tax is  not\t the
\nregistered firm but each Partner of that firm.\tIn a  number
\nof  decided cases it has been held that the identity of\t the
\nbusiness for the purpose of s. 24(2)(ii) does not change  by
\nreason\tof the change in persons who carry on that  business
\nsince it continues to be carried on by the same\t individual.
\nThe Kerala High Court in Dwarkadas Leeladhar v. Commissioner
\nof Income tax, Kerala (2)  held that where a registered firm
\nwhich  was working at a loss was dissolved and one  of\tthe
\npartners continued the same business as a sole proprietor he
\nWas  entitled to set off his share of the loss\tincurred  by
\nthe  firm  against  the profits accruing  to  him  from\t the
\nbusiness  as a sole proprietor.\t The Delhi High Court in  S.
\nNarain Singh v. Commissioner ‘of Income tax, Delhi(3) had to
\ndeal with a case where an assessee had taken certain  liquor
\ncontracts  and carried on the business of sale of liquor  in
\nhis’ individual name and sustained losses.  Subsequently
\n(1) [1954] 26 1,T.R. 765, 773.\t      (2) 47 T.T.R. 619,
\n(3)66 I.T.R. 34 1,
\n788<\/span>
\nhe  carried on the same business with 10 other\tpersons\t and
\nsought\tto set off the previous losses against\tthe  profits
\nmade  in the accounting year.  Referring to the meaning\t the
\nconstruction  of the words “same business” as they stood  in
\nS.  24(2)  before the amendment made by the Finance  Act  of
\n1955,  it was held that the assessee was entitled  to  carry
\nforward\t the losses for the previous year and have them\t set
\noff  against the share of his income of the registered\tfirm
\nduring\tthe assessment year because the business’  in  which
\nthe loss was sustained was the same business.
\nIn  both the above cases reference was made to the  decision
\nof  the\t Gujarat  High\tCourt in  Sitaram  Motiram  Jain  v.
\nCommissioner of Income-tax(1).\tIn that case an assessee had
\nincurred losses in a business carried on by him as the\tsole
\nproprietor  and a registered firm of which he was a  partner
\ntook over that business as a running concern.  The  question
\nwas whether he could have the losses incurred by him in\t the
\nbusiness which he carried on as the sole proprietor  carried
\nforward and set off against his share of the profits of\t the
\nregistered firm.  After referring to s. 24(2) (ii) and s. 23
\n(5)  it was observed, what has to be determined in the\tcase
\nof a registered firm is the total income of each partner  in
\nthe firm as the individual partners are assessed to tax ‘and
\nnot  the  firm as such.\t A set off for loss which  had\tbeen
\ncarried forward from the earlier years under the  provisions
\nof  s. 24 would only be available to the individual  partner
\nwho  had suffered the loss and not to the other partners  of
\nthe firm or the firm.\n<\/p>\n
In  our judgment there could be no manner of doubt that\t the
\nbusiness  in  which  the  loss had  been  sustained  by\t the
\nassessee  when he was a partner of the first firm which\t was
\ndissolved  on March 31, 1955 continued to be carried  on  by
\nhim  in\t partnership  with three other\tpersons\t during\t the
\nassessment  year  1956-57, the business, as  stated  before,
\nbeing of dealing in or entering into contracts in respect of
\nbidi  leaves.  The mode in which he carried on the  business
\nin bidi leaves was one of taking other persons as partners’.
\nHe  did not stop doing that business in the assessment\tyear
\nin question.\n<\/p>\n
The  view taken by the High Court, in the present  case,  is
\nunexceptionable and must be upheld.  The appeal fails and it
\nis dismissed with costs.\n<\/p>\n
Y.P.\n<\/p>\n
(1) 43 I.T.R. 405,
\nAppeal dismissed.\n<\/p>\n
789<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Commissioner Of Income-Tax, … vs A. Dharma Reddy, Morthad on 19 February, 1969 Equivalent citations: 1969 AIR 940, 1969 SCR (3) 782 Author: A Grover Bench: Grover, A.N. PETITIONER: COMMISSIONER OF INCOME-TAX, ANDHRA PRADESH,HYDERABAD Vs. RESPONDENT: A. DHARMA REDDY, MORTHAD DATE OF JUDGMENT: 19\/02\/1969 BENCH: GROVER, A.N. BENCH: GROVER, A.N. SHAH, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-162516","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nCommissioner Of Income-Tax, ... vs A. 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