LexCOMMISSIONER OF INCOME-TAX, U.P. versus J. P. KANODIA & CO
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
418
COMMISSIONER OF INCOME-TAX, U.P.
v.
J, P. KANODIA & CO;
.April 28, 1970
[J. c. SHAH, K. s. HEODli AND A. N. GROVER, JJ.j
lncomo-tax Act (11 of 1922), ss. 25(5) and 24--R•gfaten'<I /11·111--
furtnus and minors entitled ro benefits of partnership--Respective >hares
, In profits-Directions to be assessed as the lncom1 of thtir
re.1p<'cliv•
. jamJ/ies-Va/idity
Loss in speculative transactions-Set off against orofits /rolil urlier bus/.
ness acrivities--lf permissible.
The respo,;dent is a roistered firm of two partners.
Three minors
were admitted to the benefits di the partnership. For the assessment year
!957-58, the Income-tax Officer rejected the claim of the firm to set off
under s. 24( I) the loss from
certain speculative transactions _against
profits from other business and held that since the capital contributed by
the partners and minors was out of the capital of their respective Hindu
undivided families to which they belonged, the profits allocate<!. to thenl
should be O,ssessed as the income of their respective. families. The order
was confirmed by the Commissioner. In a petition under Art. 226, the
High Court set aside the direction to assess the shares of the partners and
minors to their respective families,
and,
following
the
dedsion
in
Jagannath Mahadto Prasad v. Co'11missloner of Income-tax, 55
l.T.R.
·SOI held that· lhe speculation losses were liable to be set off against the
profits in other business in the year of assessment.
In appeal to this Court,
A
B
c
D
E
HELD: (I) Once the lncome~tax Officer grants registration of a firnl
he cannot proceed to inquire whether the share· allocated to a partner is
beneficially held by some other person or entity, that is, whether the
I
partners represented other persons. He must allocate the profits in accord-
·ancc with deed of partnership.
Therefore, the order of the Income-tax
F
Officer, in the present case, directing that the income of the putners and
·minors shaTI be assessed in the hands of their respective families was with-
··<>ut jurisdiction,· [420 F-Hl
-
(2) The decision relied upon by the High Court was reversed by this
Court in Commissioner of Income-tax v. Jagannath Mahadeo Prasad. 71
I.T.R.·296 (S.C.), and therefore, the assessee was not entitled· to set off
speculation losses against profits from other business activities. [321 A-Bl
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 193 of
. 1967.
Appeal from the judgment and order dated March 29, 1965
of the Allahabad High .Court in S.A. No. 972 of 1964.
Jagadish Swarup, Solici«Jr-General, G. C. Sharma and B. D.
Sharma, for the appellants.
·
M.· V. Goswami, for the respondent.
G
H
0
E
F
G
H
C.l.T. v. J, P. ltANODIA & CO. (Shah, J.1
4U
The Judgment of the Court was delivered by
Shah, J. Mis J .. P.
Kanodia and Company is a firm regis-
tered under the Indian Income-tax Act, 1922.
The partners of
the firm were Smt.
Shanti Devi
and Badri Prasad.
Three
minors-Pradeep Kumar, Anand Prakash and Rajendra Prasad
were admitted to th~ benefits of the partnership.
Jn proceedings for assessment of tax for the assessment year
1957-58, the Income-tax Officer rejected the claim of the firm
to set off loss from certain speculative transactions aggregating
to Rs. 22,234/- and computed the
income of the firm · at
RS. 26,~65/-. The Income-tax Officer was of the opinion that
since the capital contributed by the partners and the minors who
were admitted to the benefits of the partnership was out of the
capital cif the respective Hindu Undivided Families to which they
belonged, the profits allocated to the partners and to the minors
\••ere liable to be assessed in the hands of the respective Hindu
Undivided Families io which they belonged.
\
The order passed by the Income-tax Officer was co11Jirmed in
a qivision application by the Commissioner. The firm
then
moVed a petition under Art. 226 of the Constitution before the
High Court of Allahabad.
Two contentions were
raised in
support of the petition : {i) that the Income-tax Officer erred
in directing that the profits allocated to the shares of the partners
and to the minors be assessed as the income of the respective
Hindu Undivided Familie.!i to which they. belonged; and (ii) that
the loss· in speculation business should have been set off under
s. 24 ( 1) of the Income-tax Act against profits from other busi-
ness.
Manchanda, J., accepted the first contention, observiExcerpt shown. Read the full judgment & AI analysis in Lexace.