Commissioner of Income Tax vs Sri K. Rangaswamy Naidu and Sri K. Damodaraswamy Naidu

P.D. Dinakaran, J.—At the instance of the Revenue, the Income Tax Appellate Tribunal has stated a case and referred the following

question of law, which is common in both tax cases:

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in upholding the order of the Commissioner of

Income Tax (Appeals) directing that the assessee''s share of loss from the firm be set off against other income, when in fact the return filed in the

case of the firm has been treated as non-est, having been filed beyond the time limit prescribed u/s 139(1) of the Act?

2.1. The assessment year with which we are concerned is 1987-88. The assessee in each case is a partner in the firm, M/s. Visalakshi Combines,

Coimbatore. The claim of the assessee before the assessing officer was that the share of loss from the firm, Visalakshmi Combines was to be set

off against his other income.

2.2. The assessing officer noticed that the due date for filing the return of income by the firm for the assessment year 1987-88 was 31.7.1987, but

the return was filed only 9n 29.7.1988, beyond the time limit prescribed u/s 139(1) of the Income Tax Act. Therefore, treating the return filed by

the firm as non-est, the assessing officer held that there was no assessment made on the firm, nor the share of loss to be allocated to the partners

was determined.

2.3. Accordingly, in the assessment of the assessee in each case, as a partner of the firm, no adjustment for the share of loss was made by the

assessing officer, though there was claim by the assessee. The assessing officer made the assessment on the assessee taking the share of loss from

the firm as ''Nil''. The Commissioner of Income Tax (Appeals), however, accepted the assessee''s claim.

2.4. Before the Appellate Tribunal, the Revenue contended that there was no apportionment of loss u/s 67 of the Income Tax Act in the case of

the firm as the return filed by the firm for the assessment year 1987-88 was treated as non-est. But, the Appellate Tribunal held that the assessment

of the individual partner was independent of the assessment of the firm and though the share income of the individual partner might ultimately be

determined by the assessing officer on completion of the assessment of the firm, the assessability of the share income would not depend on such

allocation. The Appellate Tribunal felt that it was open to the assessing officer to make assessment u/s 155 of the Income Tax Act on the

completion of assessment of the firm, but such adjustment would not be possible in the present case since the firm itself had filed its return beyond

the time limit and the same was accepted and regular assessment order was passed and thus, dismissed the appeal preferred by the Revenue.

2.5. The Appellate Tribunal, at the instance of the Revenue, has stated a case and referred the above mentioned question of law.

As evident from the records, it is not in dispute that the assessing officer has not ignored the return filed by the firm, but acted on the return and

made a regular assessment u/s 143(3) of the Income Tax Act and the loss, as submitted by the firm in the return, was also accepted. Since the loss

of the firm had been accepted and the assessing officer was directed to set off the share of loss of the assessee in each case, we fail to understand

how the return filed by the firm has been treated as non-est as raised in the question of law. Therefore, finding it difficult to hold that the return filed

by the firm was treated as non-est, the question of law referred to us in both the tax cases is answered in favour of the assessees. No costs.