Income Tax Appellate Tribunal - Mumbai
Brijlal Ramji Das (Huf) vs Third Income-Tax Officer on 13 March, 1986
Equivalent citations: [1986]18ITD140(MUM)
ORDER
K.S. Viswanathan, Accountant Member
1. This is an appeal by the assessee and the only issue is whether the assessee has the right to carry forward certain losses allocated to it in the earlier assessment years when it was a partner in a firm.
2. The assessee is a HUF. This family was a partner in firm, Mahavir Badridas. This firm was having business in share dealing, speculation, etc. The firm had incurred losses and the assessee's share of loss for the assessment years 1969-70 to 1974-75 are as follows :
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Accounting Assessment Speculative Available up to year year Ready loss loss assessment year --------------------------------------------------------------- Diwali 1968 1969-70 1,65,821 22,662 1977-78 Diwali 1969 1970-71 2,21,318 - 1978-79 Diwali 1970 1971-72 56,948 14,578 1979-80 Diwali 1971 1972-73 1,26,831 5,097 1980-81 Diwali 1972 1973-74 - 1,744 1981-82 Diwali 1973 1974-75 3,44,306 - 1982-83 ---------------------------------------------------------------
This firm was dissolved on Diwali 1973. As per the dissolution deed dated 10-4-1974, the partner Purshotamlal M. Rungta took over all the assets and liabilities of the business along with the goodwill. It clearly provided that the assessee-HUF shall not have any right, title and claim in the goodwill, assets or liabilities of the business carried on by the firm. From the next year onwards, the assessee was doing in a very small scale business in shares. For the year ended Diwali 1974, the accounts showed a profit of Rs.3,144. For the Diwali year 1975, the transaction was so negligible that the profit as per accounts was only Rs.3. For the next year, i.e., Diwali 1976, the assessee had some speculation business which netted a profit of Rs.18,195. For the year ended Diwali 1977, profit in share business was Rs.1,104.
3. We are concerned with the year ended Diwali 1978 in this appeal. For this year, the assessee had shown the following income :
Rs.Profit from spare business 288
Dividend 3,025 Commission from engineering construction 1,71,839 Commission from Amritlal B. Shah 33,985
After adjusting the expenses, the net profit was Rs.2,08,630. The return filed for this year showed a net profit of Rs.2,08,630. The assessment was completed on a figure of Rs.6,36,277.
4. Before the ITO, for the first time after the assessment year 1974-75, the assessee claimed that the losses suffered in the assessment years 1969-70 to 1974-75 should be carried forward and set off against the taxable profits of this year. This claim was rejected by the ITO. She found that the loss claimed is the share of loss allotted from the dissolved firm which was carrying on wholesale business in cloth. Since the dissolution deed showed that the assets and liabilities of the business were taken over by the other partner, the assessee was not continuing that business and so the right to carry forward the losses ceased. She further pointed out that the assessee had not claimed such a carry forward of losses in the earlier assessment years of 1975-76 to 1978-79.
5. On appeal, the Commissioner (Appeals) agreed with the ITO. She first gave a finding that the loss in the years 1971-72 to 1974-75 was incurred in money-lending business done by the firm. The assessee is not doing any money-lending besiness now. Besides, she pointed out that in order to be eligible for carry forward of losses, the same business must have continued. She cited the decision of the Bombay High Court in the case of Hiralal Jeramdas v. CIT [1965] 58 ITR 1 and pointed out that it was necessary that the business should be continued without a break. Since, there was no continuation without a break, the assessee was not entitled to the benefit of carry forward.
6. The assessee is on further appeal before us. Shri Dastur appearing for the assessee submitted that the losses suffered by the assessee in the years 1971-72 to 1974-75 arose in the business of ready shares. This will be clear on a perusal of the assessment orders of the firm, which were placed before us. He submitted that both the ITO and the Commissioner (Appeals) misunderstood the source of the losses. He submitted that the assessee was carrying on business in ready shares during this year also and so the same business had been carried on. He, therefore, submitted that the conditions required by the proviso to Section 72(1) of the Income-tax Act, 1961 ('the Act') were satisfied. He submitted that the business of the firm was one and the same, which has been continued by the assessee. In support of this proposition, he relied on the decision of the Supreme Court in the case of B.R. Ltd. v. V.P. Gupta, CIT [1978] 113 ITR 647. In that case, the assessee-company had incurred a loss in the business of import and" sale of fabrics and this business was closed and the assessee started in the next year exporting of cotton textiles and earned profits therefrom. In view of the fact that there was common management and common control of business, the Supreme Court had held that the assessee was entitled to carry forward the losses. Even if this larger proposition that the business is the same was not acceptable, he submitted that in any case the firm up to the assessment year 1974-75 and the assessee for the year under consideration have been dealing in shares and, therefore, it is the same business.
7. Shri Raju for the department pointed to the finding of the ITO that when the firm was dissolved, the other partner had taken over all the assets, liabilities and goodwill of the firm. Therefore, it is impossible to say that the same business had been carried on and the test of unit of control and interlacing and interlocking would be applied to the facts of the case. He pointed out that what was required is to establish the identity of the business being the same. It is not enough if the assessee was doing business in the same commodity. There may be thousand people dealing in the same commodity, that itself does not mean that those thousand businesses are the same.
8. We have considered the submissions. We will agree with Shri Dastur that the fact that the assessee had not claimed any such carry forward of loss in the assessment years 1975-76 to 1978-79 cannot stand against it. If the conditions of Section 72 are satisfied and the assessee has to its credit losses in the earlier years, it can be carried forward and set off in a subsequent year, although in the intervening years the assessee by oversight or otherwise may not have claimed the deduction. However, what we have to see here is whether the business carried on by the firm has been continued to be carried on by the assessee during the relevant previous year. We have seen the assessment order of the firm for the assessment year 1971-72. Therein a net loss of Rs.1,92,117 had been determined and the loss on account of ready share was Rs.1,68,564. For the assessment year 1972-73, the net loss determined is Rs.3,28,404 which it would appear to be from ready shares. The assessment order for 1973-74 shows a loss of Rs.83,046 which also appears to be from ready shares. The same is the position in respect of the assessment year 1974-75. So a scrutiny of the assessment orders of the firm shows that the loss was in ready shares.
9. Now this business in ready shares should be continued to be carried on by the assessee in order to be eligible for the carry forward of losses. This would require us to scrutinise the assessee's activities for the Diwali year 1974 onwards. We have already referred to the accounts for these years, i.e., Diwali 1974 to Diwali 1978 in the earlier part of this order. The profit in share business for Diwali 1974 was Rs.3,144 and for the Diwali year 1975 it was only Rs.3. There was no profit from share business for 1976-77. Eor 1977-78 it was a negligible amount of Rs.1,104. As far as the year under consideration is concerned, there is no receipt of profit from share business. As already pointed out, the profit is mainly from commissions received from two parties. There is a small amount of Rs.2,155 shown as loss of share business. On these facts we have to give a finding that in the intervening periods, i.e., Diwali 1974 to 1978, whether the assessee has continued the business in ready shares. It would appear to us that the assessee has not. Whether taking the larger view of the narrow view as suggested by Shri Dastur, it is difficult to hold that the assessee had been continuously carrying on business of dealing in shares during this period. Taking the larger view, the decision in the case of B.R. Ltd. (supra) refers to the test of common management and control of the business and interlacing and interlocking. On the admitted facts that the old business was taken over by the other partner and the assessee-HUF walked away from that business without anything, there is no question of unit of control of business. There is no interlacing and interlocking between what was the firm's business and what the assessee is doing now. Taking the narrower view also, we find it very difficult to say that the same business was being continued. In this connection, the Commissioner (Appeals) has rightly relied on the decision of the Bombay High Court in the case of Hiralal Jeramdas (supra). It is necessary that the business should be continued without any break. Having regard to the facts that the activities for Diwali year 1974 onwards in ready share was so negligible that it had yielded trifling profits, it cannot be said that the business, as it was being carried on by the firm, was continued by the assessee during this year. In fact, the balance sheets of the assessee for all these years did not show any such continued activity. Under these circumstances, it is not possible for us to hold that the same business was being continued. The decision relied on by the assessee before the lower authorities, i.e., CIT v. A. Dharma Reddy [1969] 73 ITR 751 (SC) is easily distinguishable. There the assessee was carrying on business in bidi leaves through two or three firms in which he was a partner. At no time was this activity of purchase and sale of bidi leaves discontinued, It is on these facts that the Supreme Court has held that the assessee continued to carry on the business and, therefore, entitled to the carry forward of losses.
10. In the result, we uphold the order of the Commissioner (Appeals) and dismiss the appeal.