Punjab & Haryana H.C : The assessee is entitled to set off the loss against the income of the firm in the subsequent years in view of the provisions of s. 77(1)

High Court Of Punjab & Haryana

CIT vs. Sunil Theatre

Section 75

Asst. Year 1978-79

Gokal Chand Mital & S.S. Sodhi, JJ.

IT Ref. No. 48 of 1985

2nd February, 1989

Counsel Appeared

L.K. Sood, for the Revenue : R.C. Satia, for the Assesseee

GOKAL CHAND MITAL, J.:

Sunil Theatre, the assessee, was an unregistered firm for the asst. yr. 1978-79. When assessment for the aforesaid year was being made by the ITO, it was found that there was a net loss but he disallowed carry forward of the loss for the asst. yr. 1979-80 in view of the fact that for the asst. yr. 1979-80, the firm had been granted registration and the provisions of s. 77(1) of the IT Act, 1961 (for short “the Act”), could not help the assessee in carrying forward the loss, as it ceased to be an unregistered firm in the year to which the loss was sought to be carried forward. The assessee relied on Addl. CIT vs. B.S. Dall Mills (1981) 24 CTR (Kar) 10: (1981) 131 ITR 111 (Kar), a decision of the Karnataka High Court, but benefit of that case was not given to the assessee, although it was on all fours applicable for the reasons stated in the order of the ITO.

2. On appeal, the AAC applied B.S. Dall Mills’ case (supra), and gave relief to the assessee, stating that it will be entitled to carry forward the loss suffered in the asst. yr. 1978-79 to set off against the income of the firm in the subsequent years and that registration did not make any difference as the firm continued to be the same. The order of the AAC was upheld by the Tribunal, Amritsar, and at the instance of the Revenue, the following question has been referred for the opinion of this Court :

“Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in upholding the finding of the AAC that the assessee is entitled to set off the loss against the income of the firm in the subsequent years in view of the provisions of s. 77(1) of the IT Act, 1961 ?”

3. The decision in B.S. Dall Mills’ case (supra) is on all fours in favour of the assessee, and, therefore, the question that arises is whether it lays down correct law. After considering the provisions of s. 77(1) of the Act and other relevant provisions, we are of the opinion that the Karnataka High Court has come to the correct conclusion on the interpretation of s. 77(1) of the Act, that if an unregistered firm becomes a registered firm in the subsequent years, the loss incurred by the unregistered firm can be carried forward in the subsequent years in spite of the registration. One of the prerequisites for doing this is that the firm should be the same. If there is a change in the constitution of the firm, then, different consequences may flow. Here, there is no change in the constitution of the firm, and, therefore, the word “firm” used at the end of s. 77(1) of the Act would include both a registered as well as an unregistered firm. The registration of the firm does not take away the benefit which would have accrued to it under s. 77(1) of the Act, if it had remained unregistered. Accordingly, we agree with the view taken by the Karnataka High Court and hold that carry forward was rightly allowed and the referred question is decided in favour of the assessee, that is, in the affirmative, with no order as to costs.

[Citation : 177 ITR 558]

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