Law: Income Tax Act, 1922

Section: 66(1)

Section 75 of the Income-tax Act, 1961 [Corresponding to section 24(2) of the Indian Income-tax Act, 1922] - Losses - Carry forward and set off of registered firm - Assessment year 1957-58 - Whether on dissolution of firm which was running at loss, and with one of two partners taking over same business as sole proprietor, he was entitled to set off his share of losses, incurred by firm, against profits accruing to him from business as its sole proprietor under section 24(2) - Held, yes FACTS The assessee was one of the two partners of a registered firm carrying on business in hessian, cloth and jute products. The partnership was dissolved, and, after the dissolution, the assessee continued the same business as its sole proprietor. The partnership was working at a loss and as such the share of the assessee in the said loss was determined under section 16(1)(b) for the assessment years 1953-54 and 1954-55. According to the department, the registered partnership and assessee should be treated as distinct entities and the lack of identity should preclude the loss apportioned to assessee as a partner being set off against his subsequent profits as a proprietor. This was the contention that found favour with the Appellate Tribunal. On reference : HELD There was no doubt that even a registered partnership is a taxable entity. The Finance Act 1956, made such firms liable to income-tax though only at special rates provided in that Act. The provision, however, for including the shares of the partners in the profits of the firm within the total income of those partners for the purposes of their individual assessment was retained and an element of double taxation came into the picture. In Sitaram Motiram Jain v. CIT [1961] 43 ITR 405 , it was held that the identity of the business does not change by reason of the change in persons who carry on that business and the business also continues to be carried on by that individual; for, a business carried on by a firm is a business carried on by the partners of the firm and one partner is the agent of the others in carrying on that business, and when a partnership carries on a business each partner thereof carries on that…

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