SETHURAMAN J.

.The assessee was the sole proprietor of a business called M/s. Madras Pictures. In the said business he had sustained losses as follows Rs

1954-55 1, 08, 660

1957-58 2, 86, 171

Total ------------------ 3, 94, 831 ------------------ These losses could, not be absorbed by or set off against any other income. Therefore, it was brought forward for consideration in the assessment year 1958-59. We are concerned in the present reference with the assessment years 1958-59, 1959-60 and 1960-61

The assessee along with his wife was partner in a firm called A.L.S. Productions. In the said firm, he had a half share. The other half share belonged to his wife. For the assessment year 1958-59, the share income from the said partnership business allocated to him comes to Rs. 2, 16, 299 and a similar amount was allocated to his wife. That amount was liable to be taxed in his hands under the provisions of section 16(3)(a)(i). In making the assessment for 1958-59, the Income-tax Officer determined the income liable to be taxed in his hands as follows

Rs

Business income in Madras Pictures (own business) 7, 397

Share of profit from the registered firm of

A.L.S. Productions 2, 16, 299

Total ----------------- 2, 23, 696

Losses brought forward

Rs

1954-55 1, 08, 660

1957-58 2, 86, 171

3, 94, 831

Balance loss 1, 71, 135

Share of profit earned by Smt. Alagammal (wife)

from the Registered firm of A.L.S. Productions 2, 16, 298

Total income 2, 16, 298

While the assessee claimed that the balance of loss of Rs. 1, 71, 135 which was carried forward by the Income-tax Officer should be adjusted against the wifes income brought to tax in his bands under section 16(3) of the Act, the Income-tax Officer rejected this claim. From the assessment for 1959-60 and 1960-61, it appears that this sum of Rs. 1, 71, 135 has been set off against his share of profit or other income earned by him. The Income-tax Officer justified the disallowance of the assessees claim on a reference to section 24(2)(ii) of the Indian Income-tax Act, 1922, which applied to the relevant years. The Appellate Assistant Commissioner, on appeal, took the view that the wifes share income from the firm, assessed in the hands of the husband under section 16(3)(a)(i) of the Act, became part and parcel of his own total income for all purposes including for the purpose of set-off in computing the aggregate income contemplated by section 24(2)(ii) and the assessee was, therefore, entitled under section 24(2)(ii) of the Act to set off the unabsorbed loss of the proprietary business against his wifes share income from the partnership. The loss having thus been allowed by the Appellate Assistant Commissioner for the assessment year 1958-59, there was a positive income for the assessment year 1958-59 to the extent of approximately Rs. 45, 000. There was, therefore, no loss to be carried forward for setting off in the assessment years 1959-60 and 1960-61The department appealed against the order of the Appellate Assistant Commissioner for these years. The Tribunal held that the activity of carrying on the business of a firm cannot be split into the exact profit sharing ratio of the partners and that each partner carried on the business for the whole firm so that the share income from the firm including the wifes share income clubbed under section 16(3) in his hands, could be said to be profits of a business carried on by the assessee. In the view of the Tribunal, the expression "profits" under section 24(2)(ii) can mean "profits assessable" in the hands of the assessee and not the profits of the partnership of which he was the owner. The view taken by the Appellate Assistant Commissioner was thus confirmed

At the instance of the revenue the following question has been referred

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the unabsorbed loss from the assessees proprietary business should be set off against the share income of the assessees wife from the firm of M/s. A.L.S. Productions " *

The learned counsel for the revenue submitted that section 16(3)(a)(i) while providing for the assessment of the income of the wife in the hands of the husband has not converted the income of the wife into the income of the husband. In this submission, section 24(2)(ii) would permit allowance only on a loss sustained by him against the income earned by him. The assessee is not either represented by any counsel nor was he present before US

Section 16(3)(a), in so far as it is relevant, runs as follows

"In computing the total income of any individual for the purpose of assessment, there shall be included--

(a) so much of the income of a wife .................. of such individual as arises directly or indirectly--(i) from the membership of the wife in a firm of which her husband is a partner." *

The rest of the provisions need not be extracted as it is not relevant for our purpose. The language of the provision shows that the income earned by the wife retains its character as the income of the wife and is not converted into the income of the husband for all purposes. The inclusion of the income of the wife is only for the purpose of taxing it in the hands of the husband. The identity of the income of the wife is thus not lost. Section 24(1) provides for the set-off of losses against the assessees income under any head. Section 24(2)(ii), to the extent material, runs as follows

"Where any assessee sustains a loss of profits or gains...... in any business.................. and the loss cannot be wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no other head of income, shall be carried forward to the following year, and

(ii) where the loss was sustained by him in any other business, profession or vocation, it shall be set off against the profits and gains, if any, of any business, profession or vocation carried on by him in that year provided that the business, profession or vocation in which the loss was originally sustained continued to be carried on by him in that year." *

The idea behind this provision is to restrict the set-off only to business income of the year to which it is carried forward. The requirement of this provision is that the loss must have been sustained by him in any other business, profession or vocation and that, if so, it could be set off against the income from any business, profession or vocation carried on by him in that year. The Tribunal has taken the view that notwithstanding that the wife is also a partner in the firm, the business carried on by the firm could be treated as the business carried on by the assessee in that year. Though for certain purposes, when the business carried on by the firm is treated as the business carried on by the partner, still for applying section 24(1) the statute requires that the income against which the set-off is claimed belongs to the assessee. This requirement is not set aside in section 24(2). In the context of section 24(2)(ii) of the Act, it is difficult to hold that the business in this case was wholly carried on by the husband or the assessee here or that the income wholly belonged to himIn Dayalbhai Madhavji Vadera v. Commissioner of Income-tax the Gujarat High Court has held that

"section 16(3) provides only for inclusions in the total income of an individual of the income of the wife or any other person and does not create a legal fiction whereby the income of another is deemed to be the income of the individual" *

We agree, with respect, on this point. That was a case where the share of the wife in which the assessee was a partner disclosed a loss. The question was whether the loss could be included in the total income of the assessee, i.e., the husband. We are not concerned with the question as to whether the loss sustained by the wife could be adjusted against the income earned by the husband. We do not, therefore, think it necessary to go further into this decision. We may, however, point out that in Kanga and Palkhivala on Income-tax, 6th edition, volume I, at page 526, the view expressed by the Gujarat High Court is said to be not correct. It is pointed out that the right to carry forward such a loss in a running business would be completely lost if the individual is vicariously liable when there is a profit and the loss is to remain a dead loss in the assessment of the spouse or minor child. As we have said earlier, we are not concerned with this question. We may on an appropriate occasion go into it in more detail. As far as the present reference is concerned, on the language of section 16(3) read with section 24, we are unable to sustain the view of the Tribunal. The provision appears to be somewhat harsh. But we cannot help it. The question is answered in the negative and in favour of the revenue. The revenue will have its costs. Counsels fee Rs. 250.