Andhra Pradesh H.C : The assessee was not entitled to carry forward the share of loss determined in the hands of the firm, Nagarjuna Construction Corporation, for the asst. yr. 1982-83

High Court Of Andhra Pradesh

K.V.K. Raju (HUF) vs. CIT

Sections 67, 80, 139, 182

Asst. Year 1983-84

S.R. Nayak & S. Ananda Reddy, JJ.

Refd. Case No. 260 of 1991

18th October, 2001

Counsel Appeared

S. Ravi, for the Assessee : S.R. Ashok, for the Revenue

JUDGMENT

S. ANANDA REDDY, J.:

At the instance of the assessee, the Tribunal, Hyderabad Bench-A, referred the following question said to arise out of its order in ITA No. 74 of 1988, dt. 18th Jan., 1991, for the asst. yr. 1983-84 under s. 256(1) of the IT Act, 1961 (hereinafter referred to as “the Act”) for the opinion of this Court : “Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee was not entitled to carry forward the share of loss determined in the hands of the firm, Nagarjuna Construction Corporation, for the asst. yr. 1982-83, determined in the hands of the said firm in pursuance of a valid return filed by the said firm and in holding that the assessee is not entitled to carry forward the share of loss in view of the fact that the return was filed outside the time-limit provided under s. 139(4) by the assessee?”

The short but interesting question that arises for consideration is “in order to get the benefit of carry forward the loss of share in a firm by the partner, whether a partner is required to file a return under s. 139 of the Act?”

The brief facts of the case are that the assessee is an Hindu undivided family (HUF) and a partner in the firm, Nagarjuna Construction Corporation. For the asst. yr. 1983-84, the assessee filed a return of income on 3rd May, 1985, claiming a loss of Rs. 5,59,556. This was arrived at after setting off the loss of Rs. 6,93,532 representing the carried forward loss for the asst. yr. 1982-83 against the current year’s income of Rs. 1,33,976. For the asst. yr. 1982-83, the assessee filed the return on 3rd May, 1985, claiming a loss of Rs. 6,93,532, which represents the share of loss from the firm in which the assessee was a partner. As the said return was filed beyond the time limit prescribed under s. 139(4) of the Act, the ITO did not take cognizance of the said return. Therefore, while completing the assessment for the assessment year in question, the AO did not allow the claim of set off of the loss claimed in the return filed by the assessee for the asst. yr. 1982-83. Aggrieved by the said action, the assessee carried the matter in appeal to the CIT(A). The CIT(A) accepted the claim holding that the provisions of s. 182 provide for determination of the share of profit/loss of a partner of a registered firm and the said provision falls under Chapter XVI of the Act and as such the provisions of s. 80, which falls under Chapter VI, would not apply. Further, as the share of loss of the assessee was determined in the hands of the firm in which it is a partner, the assessee is entitled for the benefit of carry forward of the loss and accordingly allowed the appeal. The Revenue carried the matter in further appeal to the Tribunal. The Tribunal accepted the contention of the Revenue holding that in order to get the benefit of the carry forward of the loss, the assessee has to file a return contemplated under s. 139. As no such return was filed by the assessee within the time prescribed under the said provision and no such loss was determined by the AO for the asst. yr. 1982-83, in the hands of the assessee and, therefore, the assessee was not entitled for the benefit of carry forward and set off of the loss and, therefore, allowed the appeal. Hence, the present reference at the instance of the assessee.

4. Learned counsel for the assessee contended that the firm in which the assessee was a partner, filed its return for the asst. yr. 1982-83. The said return was processed and the assessment was framed in the hands of the firm. Learned counsel also referred to the provisions of s. 67 as well as to the provisions of s. 182 and contended that in terms of the above provisions, the share of profit or loss of a partner is to be determined only while framing the assessment in the hands of the firm. The share of profit or loss once determined and apportioned to the partners, there is nothing further to determine the same and, therefore, the partner is entitled to have the benefit of carry forward of loss, as contemplated in s. 182. Learned counsel also contended that the provisions of s. 80 fall under Chapter VI and though the said provision begins with a non obstante clause it only refers to the provisions contained in the said Chapter and no reference was made to any other provisions falling under any other Chapter. Learned counsel also referred to the provisions of s. 139 and contended that when once the loss was determined in the hands of the partner, the said loss has to be carried forward and set off against the income in terms of the provisions of ss. 70 to 75. Therefore, learned counsel contended that the Tribunal was not justified in reversing the order of the first appellate authority. Learned counsel also relied upon a judgment of the apex Court in the case of S. Sankappa vs. ITO (1968) 68 ITR 760 (SC) : TC 33R.683 in support of his contention that the determination of the share of profit or loss in respect of a partner of a firm in the hands of the firm itself is complete and final and no further determination is warranted.

5. Learned standing counsel, on the other hand, contended that the scheme of the Act contemplates that a return has to be filed by each and every assessee. The firm and the partners are different assessable entities. Though a partner may receive a share of profit or loss from the firm, which is apportioned while framing the assessment in the hands of the firm, but still the partner, who is an assessable entity, has to file the return and unless the loss is determined in his hands, the partner is not entitled to the benefit of carry forward of the loss. Admittedly, for the asst. yr. 1982-83, the assessee filed his return beyond the period provided under the provisions of s. 139 and hence it is non est in law. Therefore, the said return cannot be acted upon. When once there is no return, the question of determination of the loss for that year does not arise. When once the loss is not determined in pursuance of a return filed in terms of s. 139(3), the assessee is not entitled to the benefit of carry forward of the loss and set off. Learned counsel also referred to the provisions of s. 80 and contended that the loss of an assessee is to be carried forward and set off only in terms of ss. 70 to 75, which fall under Chapter VI of the Act. Sec. 80 also falls within the same Chapter, which contemplates the filing of a return and determination of the loss to have the benefit of carry forward and set off. As no such return was filed by the assessee and no such determination of the loss was made by the AO, the assessee is not entitled to the benefit of carry forward and set off of the loss.

6. Before considering the rival submissions, it would be proper to refer to the relevant provisions of the Act relied upon by both the sides, which are as under: “67. (1) In computing the total income of an assessee who is a partner of a firm, whether the net result of the computation of total income of the firm is a profit or a loss, his share (whether a net profit or a net loss) shall be computed as follows : (a) any interest, salary, commission or other remuneration paid to any partner in respect of the previous year and, where the firm is a registered firm or an unregistered firm assessed as a registered firm under cl. (b) of s. 183, the income-tax, if any, payable by it in respect of the total income of the previous year, shall be deducted from the total income of the firm and the balance ascertained and apportioned among the partners; (b) where the amount apportioned to the partner under cl. (a) is ‘a profit, any salary, interest, commission or other remuneration paid to the partner by the firm in respect of the previous year shall be added to that amount, and the result shall be treated as the partner’s share in the income of the firm; (c) where the amount apportioned to the partner under cl. (a) is a loss, any salary, interest, commission or other remuneration paid to the partner by the firm in respect of the previous year shall be adjusted against that amount, and the result shall be treated as the partner’s share in the income of the firm. (2) The share of a partner in the income or loss of the firm, as computed under sub-s. (1) shall, for the purposes of assessment, be apportioned under the various heads of income in the same manner in which the income or loss of the firm has been determined under each head of income. (3) Any interest paid by a partner on capital borrowed by him for the purposes of investment in the firm shall, in computing his income chargeable under the head ‘Profits and gains of business or profession’ in respect of his share in the income of the firm, be deducted from the share. (4) If the share of a partner in the income of a registered firm or an unregistered firm assessed as a registered firm under cl. (b) of s. 183, as computed under this section, is a loss, such loss may be set off, or carried forward and set off, in accordance with the provisions of this Chapter. 80. Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed under s. 139, shall be carried forward and set off under sub-s. (1) of s. 72 or sub-s. (2) of s. 73 or sub-s. (1) of s. 74 or sub-s. (3) of s. 74A. 139. (1) Every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed : (a) in the case of every person whose total income, or the total income of any other person in respect of which he is assessable under this Act, includes any income from business or profession, before the expiry of four months from the end of the previous year or where there is more than one previous year, from the end of the previous year which expired last before the commencement of the assessment year, or before the 30th day of June of the assessment year, whichever is later; (b) in the case of every other person, before the 30th day of June of the assessment year : Provided that, on an application made in the prescribed manner, the ITO may, in his discretion, extend the date for furnishing the return, and, notwithstanding that the date is so extended, interest shall be chargeable in accordance with the provisions of sub-s. (8)…. (3) If any person who has not been served with a notice under sub-s. (2), has sustained a loss in any previous year under the head ‘Profits and gains of business or profession’ or under the head ‘Capital gains’ and claims that the loss or any part thereof should be carried forward under sub-s. (1) of s. 72 or sub-s. (2) of s. 73, or sub-s. (1) of s. 74 or sub-s. (3) of s. 74A, he may furnish, within the time allowed under sub-s. (1) or within such further time which, on an application made in the prescribed manner, the ITO may, in his discretion, allow, a return of loss in the prescribed form and verified in the prescribed manner and containing such other particulars as may be prescribed, and all the provisions of this Act shall apply as if it were a return under sub-s. (1). (4)(a) Any person who has not furnished a return within the time allowed to him under sub-s. (1) or sub-s. (2) may, before the assessment is made, furnish the return for any previous year at any time before the end of the period specified in cl. (b), and the provisions of sub-s. (8) shall apply in every such case; (b) the period referred to in cl. (a) shall be— (i) where the return relates to a previous year relevant to any assessment year commencing on or before the 1st April, 1967, four years from the end of such assessment year; (ii) where the return relates to a previous year relevant to the assessment year commencing on the 1st day of April, 1968, three years from the end of the assessment year; (iii) where the return relates to a previous year relevant to any other assessment year, two years from the end of such assessment year. 182. (1) Notwithstanding anything contained in ss. 143 and 144 and subject to the provisions of sub-s. (3), in the case of a registered firm, after assessing the total income of the firm,— (i) the income-tax payable by the firm itself shall be determined; and (ii) the share of each partner in the income of the firm shall be included in his total income and assessed to tax accordingly. (2) If such share of any partner is a loss it shall be set off against his other income or carried forward and set off in accordance with the provisions of ss. 70 to 75. (3) When any of the partners of a registered firm is a non-resident, the tax on his share in the income of the firm shall be assessed on the firm at the rate or rates which would be applicable if it were assessed on him personally, and the tax so assessed shall be paid by the firm. (4) A registered firm may retain out of the share of each partner in the income of the firm a sum not exceeding thirty per cent, thereof until such time as the tax which may be levied on the partner in respect of that share is paid by him; and where the tax so levied cannot be recovered from the partner, whether wholly or in part, the firm shall be liable to pay the tax, to the extent of the amount retained or could have been so retained.”

7. A perusal of the above provisions shows that s. 182 deals with the assessment of a registered firm. According to the said provision, after assessment of the total income of the firm, the tax payable by the firm has to be computed and the share of each partner in the income of the firm shall be included in his total income and assessed to tax accordingly. If such share of any partner is a loss, it shall be set off against his other income or carried forward, according to ss. 70 to 75. The said provision also contemplates the framing of an assessment in respect of a partner, if he is a non-resident, on the firm and tax on his share income as if it was assessed on him personally and the tax so assessed shall be paid by the firm. But with reference to the other partners, i.e., other than non-resident partners, referred to in sub-s. (2) of s. 182, the method of computing the partner’s share in the income of the firm, is provided under s. 67. The said provision also contemplates that the share of a partner in the income or loss of the firm, as computed under subs. (1) of s. 67, for the purpose of assessment, be apportioned under the various heads of income in the same manner in which the income or loss of the firm has been determined under each head of income. A perusal of the above also clearly shows that a regular assessment is contemplated in the hands of the partner also. Apart from this, s. 139 contemplates that every person, if his total income or the total income of any other person in respect of which he is assessable under the Act during the previous year, exceeds the maximum amount, which is not chargeable to income-tax shall furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as prescribed. This clearly shows that the filing of a return by a person, who is assessable, is mandatory. Further under sub-s. (3) of s. 139, if any person, who has not been served with a notice under sub-s. (2) of that section, has sustained a loss in any previous year and claims that the loss or any part thereof should be carried forward under the provisions referred to therein, he may furnish, within the time allowed under sub-s. (1) or within such further time that may be granted by the ITO, a return of loss in the prescribed form. Sub-s. (4) of s. 139 contemplates that any person, who has not furnished a return within the time allowed under sub-ss. (1) or (2) may before the assessment is made, furnish a return for any previous year at any time before the end of two years (for the relevant previous year). Further, s. 80 bars the benefit of carry forward of loss unless such loss has been determined in pursuance of a return filed under s. 139. Therefore, the scheme of the Act itself shows that any person, who would like to have the benefit of carry forward of the loss and set off against the income in the subsequent years, has to file a return as contemplated under the provisions of s. 139 and such loss has to be determined, and, unless such loss is determined the benefit of carry forward and set off would not be available.

In the present case, the contention of the assessee is that as the share of loss of the assessee, who was a partner in the firm, was determined in the hands of the firm and apportioned to the share of the partner, the same amounts to determination of the loss of the partner and therefore, no further determination is required. Therefore, even if a return was filed beyond the period of limitation, the benefit of carry forward of loss is to be made available to the assessee. Learned counsel also referred to the provisions of s. 139(10), which were inserted subsequently, and which declare that a return filed beyond the period of limitation provided under s. 139 shall be deemed to be non est. But such a provision is not there at the relevant point of time. Therefore, the return, which was filed on 3rd May, 1985, by the assessee for the asst. yr. 1982-83, though beyond the period of two years, still it could be treated as return, as there was no express prohibition and if so considered the assessee is entitled to the benefit of carry forward and set off. We are unable to accept the said contention of the assessee, in the light of the specific limitation provided under s. 139(4) fixing the maximum period of time for filing of a return as two years from the end of the relevant previous year. Admittedly, the return filed on 3rd May, 1985, was beyond the said period of two years. Therefore, it is not a return in the eye of law and could not be considered for any purpose even in the absence of a provision like s. 139(10).

Even with reference to the contention of learned counsel that when once the net loss is a known figure, which was determined in the hands of the firm, no further determination is warranted and hence the benefit of carry forward and set off could be allowed. This contention is also devoid of merit. There may be individuals, who are partners in many firms and some of the firms may make profits while some of the firms may suffer losses. If the benefit of carry forward, as claimed by the assessee, is to be allowed, the same would result in multiple assessments in the hands of a partner, who is a partner in many firms and the net result would not be known. With reference to an individual only one assessment is contemplated. Here the loss to be carried forward and set off is in the hands of the partner and not in the hands of the firm. The assessment, which was claimed to have been completed, is only with reference to the firm and not with reference to the partner. The firm’s assessment would come to an end on apportionment of the profit or loss of the firm to the respective partners in a firm. Thereafter, it is only in the hands of the individual partner, which has to be assessed either for levying tax or for the purpose of carry forward and set off in the subsequent years.

This view is also abundantly clear by virtue of the provisions of s. 182(3), which contemplates an assessment in the hands of the firm in respect of the share of a partner who is a non-resident and the assessment has to be framed in the hands of the firm with reference to such non-resident partner and the tax has to be collected from the firm. It is, therefore, clear that with reference to the partners, though the share of profit or loss is determined in the hands of the firm, the same has to be computed in the hands of the partners while framing an assessment in their hands. Learned counsel for the assessee relied upon a judgment of the apex Court in the case of S. Sankappa (supra), the relevant portion referred to and relied upon is as under : “In the case of a registered firm, the ITO, after computin the income, has to determine the tax payable by the firm itself, and provision is made that, thereafter, the share in the income of the firm of each partner is to be included in his total income for purposes of his individual assessment to tax. It is true that the ITO assessing the firm may not be the same officer who may be dealing with the individual assessment of the partners and, in any case, even if he be the same officer, the proceedings for assessment of the partners has to be treated as a separate proceedings; but it is also clear that the proceedings for assessment of the firm under this section do not come to an end merely on computation of the income of the firm and determination of the tax payable by the firm on that income. The ITO, who deals with the assessment of the firm, has also to apportion the income of the firm, in the case of a registered firm, between its partners and the notice of that apportionment has to be given under s. 23(6) by him to the firm.”

10. A perusal of the above judgment also shows that the assessment in the hands of the firm as well as the partner are separate proceedings. In fact, learned standing counsel relied upon a judgment of the apex Court in the case of CIT vs. A.W. Figgies & Co. (1953) 24 ITR 405 (SC) : TC 33R.238, where it was held that the assessments in the hands of the partner and the firm are separate and distinct. In that view of the matter, the claim of the assessee that it is entitled for the benefit of the loss determined in the assessment of the firm to be carried forward and set off without the requirement of a return to be filed and the determination of the loss as provided under s. 139(3) is devoid of merit. As rightly held by the Tribunal, the partner of a firm has to file a return of income in terms of s. 139 and the loss has to be determined to have the benefit of the provisions of ss. 70 to 75. Further, to have the benefit of the provisions of ss. 70 to 75, one has to comply with the provisions of s. 80, which overrides the other provisions of that Chapter, viz., Chapter VI.

Under the above circumstances, we answer the question referred to us in the affirmative, in favour of the Revenue and against the assessee.

[Citation : 252 ITR 724]

Scroll to Top
Malcare WordPress Security