LexTHE COMMISSIONER OF INCOME TAX, BANGALORE versus SRI J.H. GOTLA, YADAGIRI
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- 711 TBI! <XlllISSIONER OF INCOME TAX, BANGALORE v. SllI J.H. GOTLA, YADAGIR! AUGUST 29, 1985 (V .D. TULZAPIJRKAR, SABYASACHI MUKHARJI AND RANGANATH MISRA, JJ • l Income Tax Act, 1922 Sections 16(3) and 24(2) (ii). Income Tax Act, 1961 Section 64. Asses see an Individual - Running oil mill and carrying on purchase and sale of groundnut oil - Oil mill and machinery gifted away to wife and minor children - Firm constituted by wife and another person - Assessee entering into agreement to render services to this firm - Losses incurred by assessee .in his indi- A B c vidual business in previous years - Whether set off can be D claimed against profits in his business and share income of minor children. Statutory Interpretation. Taxing Statutes - Interpretation of - Strict literal construction leading to absurd result - Duty of court - Construc- tion resulting in equity whether to be preferred. The respondent-assessee wss an individual, carrying on business in purchase and sale of groundnut oil and h"' was also running an oil mill, besides being an abkari contractor. On 1st June, 1957 he had gifted away a part of the oil mill machinery, F ,to his wife and three . minor children. A firm wss constituted by the asseasee's wife and another person to the profits of which the three minor sons of the assessee were also admitted. The mill premises as)iell as the machinery of the assessee were leased out to this firm which carried on the business of manufacture aiid sale of groundnut oil. The assessee also entered into an agree- ment with the firm under which certain services were rendered to G I the firm by way of management. The asseasee was entitled to get commission at the stipulated rates on the purchase of oil cake and sale of decoiled cake made by the firm. The assessee himself continued to carry on business in purchase and sale oi ground-nut cake and oil on a slilall scale, and also as an akbari contractor. The assessee had incurred huge losses in his individual business in the earlier· years which were being carried forward H 712 SUPREME COURT REPORTS [1985] SUPP.2 s.c.R. A frOID year to year upto the assessment year 1958-59, and the loas carried forward fraa the assessment year 1958-59 was over Rs. 7 lskhs. The assess"e's profits frOl!I his own business from 1959-60 were about Rs. 14,000. The share incO!ll! of the assessee's wife and minor children frOID the firm for the assessment year 1959-60 was over Rs• 24, 000. This income was included in the computation B of the total iDcome of the assesse.e Wider section 16 (3) of the Income Tax Act, 1922 for the assessment year 1959-60. The assesaee claimed aet""1lff of the loss carried forward from the assessment year 1958-59 against the profit of his own business as also the share illCOllle of his wife and minor children. The iru:Ollle Tax Officer rejected the claim for set off c l.llSOfar as it related to the share income of his wife and minor children. Similar claims for set off were made in the asseaoment years 1960-61 and 1961-62 but were rejected. On the appeals preferred by the assessee, the Appellate Assistant Commissioner allowed the set off clsimed, on the grouwl that the assessee himself is deemed to be carrying on the D business from which the share income was derived by his wife and minor children. E F The revemie appealed to the Income Tax Appellate Tribunal, wb:1ch held that although the assessee was not carrying on the lnµJiness of manufacture and sale of oil during the years under appeal, he was continuing to carry on the business of oil in general, that the firm did carry on the same business as was hitlierto being carried on by the assesaee but there waa no connection between the assessee and the business carried on by the firm and they were two different entities and, aa euch, the assessee could not be said to be carrying on the business out of which the shru:e incoe of the wife and minor children arose. It accordingly held that the aasessee was not entitled under section 24 (2) of the Income Tax Act 1922 to cl.aim set off of his losses against the income of hia wife and minor children. The High Court on " reference by the Tribunal held that for G an aasessee to be entitled to carry forward the loss to the following year and to claim a set off under section 24 (2) (ii) ot the Act the following conditions should be fulfilled: (i) the loss DISC be in a business; (ii) th
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