Law:

Section:

Section 71 of the Income-tax Act, 1961 [Corresponding to section 24 of the Indian Income-tax Act, 1922] - Losses - Set off of from one head against income from another - Assessment year 1955-56 - Assessee was running two businesses, namely, arecanuts, and rice mill - During relevant year assessee claimed loss in arecanuts business - ITO allowed assessee's claim - However, AAC disallowed claim of assessee on ground that arecanuts business was not carried on during previous or relevant assessment year - Whether in view of fact that there was nothing to show that assessee had completly abandoned and closed arecanuts business forever, disallowance of loss in question was not valid in law - Held, yes FACTS The assessee was originally a partner in one firm which was carrying on business at Madurai, one in rice mill and the other in arecanuts. The said firm was dissolved on 12-4-1949. Thereafter, the assessee became the sole proprietor of the two businesses. For the sake of convenience, the assessee maintained separate sets of accounts for the two businesses connected through a current account but these two lines of the assessee's trading activities were inter-related and inter-connected with unity of control and common funds. In relevant assessment year, the assessee claimed a net loss of Rs. 14,059 from his trade in arecanuts, which he had temporarily suspended in the year of account on account of unfavourable market conditions due to increase of import duty on arecanuts. In support of its claim, the assessee filed a profit and loss account showing the details of the loss claimed by him and also produced the account books as well as the unused import licence for arecanuts obtained by him. The ITO after scrutinising the accounts and other evidence produced by the assessee, practically accepted the assessee's claim of loss in arecanuts trade, but for a small disallowance of Rs. 500 paid to the staff, for the reason that there was no profit for the year. The ITO allowed the loss of Rs. 13,559 as against the assessee's claim of Rs. 14,059. On appeal, the AAC, however, held that the arecanuts business was not being carried on either during the accounting year relevant to…

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