The Commissioner of Income Tax, Bombay vs M/s. Jadavji Narsidas and Co

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 545 of 1961

Decision Date: 12 October 1962

Coram: M. Hidayatullah, J.L. Kapur, A.K. Sarkar

The case involved a petition filed by the Commissioner of Income‑Tax, Bombay, against M/s. Jadavji Narsidas and Co. The judgment was delivered on 12 October 1962 by a Bench comprising M. Hidayatullah, J. L. Kapur and A. K. Sarkar. The official citation of the decision is 1963 AIR 1497 and 1963 SCR Supl. (1) 609. The dispute arose under the Indian Income‑Tax Act, 1922 (Act 11 of 1922), particularly sections 24 and 66. The respondent firm consisted of four partners and was duly registered under the Act. For the assessment year 1946‑47 the firm claimed a set‑off of Rs. 1,05,641, representing its share of a loss that it alleged to have incurred in certain transactions carried out in the name of a partner identified only as “D”. Those transactions were said to have been conducted through a separate partnership between the respondent firm and D, which, however, was not registered. The income‑tax authorities rejected the set‑off claim, and the Appellate Tribunal affirmed the rejection. The Tribunal’s reasons were twofold: first, it observed that the transactions were recorded in D’s name and there was no satisfactory evidence that the assessee firm actually conducted business through the joint account; second, it held that the loss could not be set off because it was incurred by an unregistered firm.

The matter was then referred to the Bombay High Court, which held that the Tribunal’s finding that the transactions were not those of the assessee lacked legally admissible evidence, and that the assessee firm could claim a set‑off of its share of the loss provided that the income‑tax authorities did not proceed to assess the losses of the unregistered firm under section 23(5)(b). The Supreme Court, however, found the High Court’s view erroneous. The Court held that a finding of the Appellate Tribunal under section 66 becomes final only when the Tribunal furnishes reasons with sufficient fullness to inform all parties of the basis of the decision. Moreover, the Court concluded that a partnership could not exist between the registered firm and D; if any partnership existed, it would be between D and the four partners individually, not the firm as a legal entity. Consequently, under the provisions of section 24, the loss of Rs. 1,05,641 could not be set off against the profits of the registered firm. Justice Sarkar, referring to the decision in Dulichand Lakshminarayan v. The Commissioner of Income‑Tax, Nagpur [1956] SCR 154, reiterated that a firm, being a legal entity, cannot enter into a partnership with another firm or individuals, and therefore the questions posed by the High Court did not arise in the present case.

The Court observed that a firm, being a distinct legal entity, is not entitled to enter into partnership with another firm or with individuals; consequently, the assessee firm could not lawfully form a partnership with D, and the questions that the High Court had addressed did not truly arise in the present proceedings.

This appeal, numbered Civil Appeal No 545 of 1961, was filed against the judgment and order dated 23 October 1958 of the Bombay High Court in Income‑tax Reference No 23 of 1958. Counsel for the appellant were K N Rajagopal Sastri and R N Sachthey, while counsel for the respondent were Purushottam Trikamdas, S N Andley, Rameshwar Nath and P L Vohra. The judgment was delivered on 12 October 1962, and the opinions of Justices Kapur and Hidayatullah were read by Justice Hidayatullah, with Justice Sarkar delivering a separate opinion.

The present appeal was filed by the Commissioner of Income‑tax, Bombay, challenging the order of the Bombay High Court that had answered two questions referred under section 66(2) of the Income‑tax Act in favour of the respondent, Jadavji Narsidas & Co. The High Court had certified the case as appropriate for appeal to the Supreme Court, thereby giving rise to the present civil appeal.

The factual background was straightforward. The year of account concerned the statutory year 2001, which corresponded to the period from 10 October 1944 to 4 November 1945, and the assessment year was 1946‑47. The respondent was a partnership comprising four partners and was registered under section 26A of the Income‑tax Act for that year. The assessee firm primarily engaged in speculative trading activities.

During the year of account the firm claimed, among other items, a loss of Rs 1,05,641. This loss was said to have arisen from a speculative venture undertaken jointly by the assessee firm and a man named Damji Laxmidas. The joint venture operated in the name of Damji Laxmidas on behalf of an alleged partnership in which Damji held a one‑sixth share and the assessee firm held the remaining five‑sixths. A deed of partnership dated 14 November 1944 was produced before the Income‑tax Officer to substantiate the arrangement. The claimed amount of Rs 1,05,641 represented exactly half of the total loss suffered by the joint venture, the other half being claimed by Damji in his own individual assessment. Both the partnership of Damji Laxmidas and the assessee firm were unregistered for the relevant year.

The Income‑tax Officer, Bombay, disallowed the loss claimed by the assessee firm and added the amount back to income, together with other adjustments, thereby converting a declared loss of Rs 55,931 into a profit of Rs 1,88,575. This profit was then allocated among the partners in accordance with their respective shares and reflected in their individual assessments. In Damji’s assessment, the loss was not permitted on the ground that, having arisen in an unregistered partnership, it could be considered only in the assessment of that unregistered partnership.

In rejecting the evidence of the loss of Rs 1,05,641 in the assessment of the assessee firm, the Income‑tax Officer gave three reasons. The first reason stated that the accounts (“ankdas”) were in the name of Damji Laxmidas and not in the name of the unregistered partnership or the assessee firm.

The Income‑tax Officer had relied on three grounds to refuse the claim of loss. First, the books of account, referred to as “ankdas,” were kept in the name of Damji Laxmidas and not in the name of the unregistered partnership or the assessee firm. Second, the assessee firm asserted that it was entitled to only eighteen rupees and ten paise of the total loss, in proportion to its share in the venture. Third, the Officer found it surprising that a well‑known, extensive business concern such as the assessee firm would have entered into a partnership with a person described as insignificant, namely Damji Laxmidas, for the purpose of carrying on a large‑scale business. From these considerations the Officer concluded that the assessee firm had effectively purchased the losses from Damji Laxmidas in order to set them off against its own profits and thereby avoid tax.

The appeal against this assessment was first dismissed by the Appellate Assistant Commissioner and subsequently confirmed by the Appellate Tribunal. The two members of the Tribunal expressed differing reasons for their decision. The judicial member, identified as Mr A. R. Aggarwal, stated that he was not convinced that the loss of Rs 1,05,641 truly belonged to the assessee. He noted that the assessee itself admitted that the ankdas were in the name of Damji Laxmidas and, in the absence of any evidence that the assessee actually conducted business through the joint account, the claim was disallowed. The accountant member, Mr P. C. Malhotra, concurred with his colleague’s order but added further observations. He pointed out that the assessee’s own case did not allege that the loss of Rs 1,05,641 was suffered by the assessee alone; rather, the assessee claimed that it had engaged in certain joint‑venture transactions with Damji Laxmidas. When Damji Laxmidas appealed to the Tribunal regarding his share of the loss, the Tribunal held that a loss arising to an individual in a joint venture could not be allowed in that individual’s personal assessment because the loss was incurred by an unregistered partnership. Such a loss, the Tribunal reasoned, could only be carried forward in the accounts of the unregistered firm.

Having been dissatisfied with the Tribunal’s outcome, the assessee firm sought to have the matter referred to the High Court. The firm first applied to the Tribunal for a reference to the High Court but that application failed. Consequently, the assessee moved the High Court under section 66(2) of the Income‑tax Act. The High Court, exercising its jurisdiction, directed the Tribunal to state a case on two specific questions. The first question, arising from the observations of the judicial member, asked whether any legally admissible evidence existed to support the Tribunal’s finding that the transaction in question was not a transaction of the assessee. The second question, prompted by the accountant member’s observations, inquired whether, if no such evidence existed, the assessee could still claim a set‑off of the loss even though the loss belonged to an unregistered partnership. The High Court answered both questions in favour of the assessee, holding that there was no admissible evidence to justify the Tribunal’s finding and that the assessee could claim a set‑off of its share of the loss incurred by the unregistered firm, provided that the Income‑tax authorities did not proceed to determine the losses of the unregistered firm or subject it to tax as contemplated by the relevant provision.

The appellate authority stated that the revenue officials should not proceed to assess the losses of the unregistered partnership and should not bring those losses within the charge of tax, as allowed by section 23(5)(b). The appellant contended that the High Court had acted as an appellate court in deciding the matter, a claim that the Court rejected as inaccurate. The Court explained that when the question presented is whether any material exists on which a finding may be based, the discussion may appear to have an appellate flavor, but it does not constitute an appeal. The High Court observed that the Tribunal had relied on only a single reason taken from the order of the Income‑tax Officer, namely that the assessee firm had “purchased losses” from Damji Laxmidas, while it ignored the other reasons that had influenced the Officer. In contrast, the High Court examined every reason set out by the Income‑tax Officer and concluded that there was no evidence to support the Tribunal’s finding in the case.

Before undertaking its own examination of the evidence to determine which conclusion is warranted, the Court made several general observations. It noted that a reference made under section 66 renders a finding of the Tribunal final, and the High Court accepts that finding without re‑examining the material on which it was based. The High Court does not conduct an appeal; rather, it answers specific questions of law in the context of the facts that have been proven. When a finding is final in this manner, it is reasonable to expect that the reasons underlying the finding will be articulated with sufficient detail to inform all parties of their content. Even if the inferior Tribunal’s reasons are not restated in full, the High Court should at least give a general endorsement of those reasons or of the portion that is acceptable. In the present case, the only statement recorded was: “It is admitted by the assessee that the ankdas are in the name of Damji Laxmidas. By no evidence we are satisfied that really the assessee did business in the joint account.” The Court considered this statement insufficient for a fair determination of whether the assessee firm actually conducted business in a joint account with Damji Laxmidas, describing the solitary ground for rejecting the claim as too indefinite to support the conclusion. The appellant argued that the reasons articulated by the Income‑tax Officer, which were before the Tribunal and mentioned in the statement of the case, should also be taken into account. The High Court complied with that request and allowed those reasons to be considered. The Court expressed a preference that the Tribunal’s order in the appeal filed by the assessee firm had at least briefly acknowledged those reasons instead of leaving them to be noted only in the statement of the case. Consequently, the Court framed the remaining issue as whether any evidence existed to justify the Tribunal’s finding that the transactions with Damji Laxmidas were not the transactions of the assessee firm, and indicated that this inquiry would now be undertaken.

The Court explained that the inquiry must focus on the existence of any evidence whatsoever, not merely on whether the evidence is sufficient. Even if the evidence is slight, and the Tribunal was convinced that such minimal evidence could support its conclusion, the answer to the question of existence must be affirmative. However, the Court emphasized that a finding may not be based on conjecture, suspicion, or surmise. When not even a single iota of evidence is present, the finding cannot be sustained because the proven facts would then fail to support the inferred conclusion. In this regard, the Income‑tax Officer had set out three reasons. The first, and most important, reason was that the ankdas were in the name of Damji. According to the partnership deed produced in the case, the four partners of the assessee firm together with Damji entered into a partnership for the purpose of carrying on business, and the deed specified the shares of the partners of the assessee firm. Those shares were proportionate, inter se, to each partner’s interest in the assessee firm. The new partnership was not given any trade name. While this is undoubtedly an unusual feature, the Court noted that when no trade name is adopted, the business must be conducted in the name or names of one or more partners. The selection of Damji’s name, and not any other partner’s name, does not lead to the inference that no business was carried on. If Damji’s name was used, it follows logically that the ankdas would appear in his name, and that is how the matter stood. The second reason advanced by the Officer was that the losses were claimed on a half‑and‑half basis by the assessee firm and by Damji in their respective assessments, which was contrary to the proportions of one‑tenth and six‑tenths set out in the deed. The Court observed that whatever may be said of the losses claimed by Damji, which exceeded his agreed share, the same criticism cannot be directed at the assessee firm, which claimed a share of losses that was actually less than its agreed rate. The Court further noted that a partner may sometimes shoulder additional responsibility because of actions taken without the approval of the other partners, and that shares are often readjusted by agreement. Various reasons may exist for the assessee firm’s claim of a loss that is lower than what it could have claimed, but such circumstances do not lead to the inference that no business was conducted. This fact also does not support the inference drawn from it. The third reason was that it appeared unlikely that the partners of a large firm such as the assessee firm would enter into an agreement with a comparatively small man for conducting such extensive business. It was pointed out that Damji had never paid income tax in excess of Rs 1,300. The accounts of the new partnership, which were exhibited in the case, demonstrated a long course of business, with total business turnover amounting to roughly Rs 9 lakh. As speculative business usually results either in profit or loss, the evidence of this extensive turnover further undermined the conclusion that no business had been undertaken.

In examining the facts, the Court observed that it was necessary to consider not only the losses incurred but also the extent of any profits that had been realized. The records showed that, except for one or two transactions that had failed, the partner identified as Damji would have earned a substantial profit. It was plausible that Damji had been selected as a partner because of his expertise in the relevant matters rather than his capacity to provide financing for the projects. The Court noted that this observation did not imply that the practice of “buying losses” was uncommon, nor that individuals with little substantive involvement were taken on as partners merely to transfer their losses in order to balance profits elsewhere. The High Court had rightly pointed out that losses could be purchased only when they had actually been incurred, and the present case involved a lengthy series of business dealings in which, at certain periods, the operations were profitable even though the overall outcome was a loss. Consequently, it was impossible to conclude that the assessee firm had assumed Damji’s losses without having engaged in business together with him. The Court found no basis, whether the reasons advanced by the Income‑Tax Officer were considered singly or collectively, to infer that the assessee firm had bought Damji’s losses. It was also held that the High Court had not exceeded its jurisdiction in scrutinising the evidence that supported the Income‑Tax Officer’s inference that no joint business had been conducted with Damji and that the assessee firm had merely taken over some of his losses. Accordingly, the High Court’s answer to the first question was affirmed. Turning to the second question, the issue was whether the assessee firm could set off a loss of Rs 1,05,641 against profits derived from its other business activities. The High Court had allowed such set‑off. However, with due respect, the Court concluded that the High Court’s decision on this point was erroneous. Firstly, the assessee firm, being a firm, could not itself enter into a partnership with Damji; Damji could either be admitted as a partner into the assessee firm, or the individual members of the assessee firm could partner with Damji in their personal capacities. The firm as a legal entity could not do so, a principle previously established by this Court in Dulichand v. Commissioner of Income‑Tax. Thus, a partnership existed between Damji and the four individual members of the assessee firm acting personally, as reflected in the deed produced in the case. In the matters of the unregistered firm, the assessee firm had no locus standi. Accordingly, two distinct partnerships were identified: one being the registered assessee firm comprising four partners, and the other being an unregistered firm consisting of those five partners, the fifth being Damji. The relevant statutory provisions are numerous and need not be set out in detail; the essence of the applicable sections will be summarised in the judgment. Under section 24(1)…

An assessee who suffers a loss of profits in any year under any of the heads enumerated in section 6 is entitled to set off the amount of that loss against his income, profits or gains under any other head in the same year. From 1 April 1953 onward, a loss arising from speculative transactions may be set off only against profits that arise from the same kind of speculative business. In the case presently before the Court, both the profits earned by the assessee firm and the loss incurred in the transactions with Damji were derived from speculative activities; consequently no difficulty arose in applying the rule on set‑off. The term “assessee” in the statutory provision denotes the person who is liable to pay tax, and it is essential in each case to determine precisely who that assessee is. Here the assessee was identified as a registered firm consisting of four partners. Those four partners conducted business that generated profits when they acted as members of the registered firm, and they also participated as members of a separate unregistered firm where their activities resulted in a loss. The method of assessing firms differs according to whether the firm is registered or unregistered. Section 23(5) provides that when the assessee is a firm, the total income of the firm must be assessed. However, if the firm is a registered firm, the tax payable by the firm itself is not determined; instead, the total income is transferred to the assessment of the individual partners in proportion to their shareholdings, and the partners’ respective shares of profit or loss are then assessed as part of their other income. Conversely, when the assessee is an unregistered firm, the assessment is normally made on the firm as a whole, unless the Income‑Tax Officer is satisfied that assessing the unregistered firm as a registered firm would result in a higher tax liability. In such a circumstance the assessment remains with the unregistered firm and does not extend to the partners in their separate personal assessments. This principle encapsulates the rule contained in the fifth sub‑section of section 23, and it establishes the baseline for how the profits and losses of the two entities are to be treated.

Additional statutory provisions also bear on the issue. Section 16(1)(b) stipulates that when the assessee is a partner of a firm, the partner’s share – whether it represents a net profit or a net loss – must be computed in the manner prescribed by the statute; if the computed share is a loss, that loss may be set off or carried forward in accordance with the provisions of section 24. Section 24 itself governs both the set‑off of loss and the carrying forward of loss to subsequent years. The second proviso to section 24 addresses the question of loss set‑off with regard to both registered and unregistered firms. It provides that when the assessee is an unregistered firm that has not been assessed as a registered firm, the loss may be set off only against the income, profits and gains of that unregistered firm and not against the income of the individual partners. By contrast, if the assessee is a registered firm, the loss that cannot be set off against the firm’s own income must be apportioned among the partners, and only those partners are entitled to set off the loss under the section.

The Court explained that when a loss cannot be set off against the income, profits or gains of a firm, the loss must be divided among the partners and only those partners are allowed to set off the loss under the statute. In other words, an unregistered firm's losses may be set off only against that firm's own profits, whereas the net losses of a registered firm are allocated to the shareholders, and only those shareholders may set them off. The Court then turned to the rules for carrying forward losses under section 24(2). The same distinction between registered and unregistered firms continued to apply, as reflected in proviso (c) to subsection (1). This proviso treats a registered firm in the same way as the earlier‑mentioned proviso to subsection (1). It states that (a) a registered firm is not permitted to carry forward and set off any loss that has been apportioned among its partners, and (b) partners in unregistered firms that have been assessed as such are likewise not entitled to carry forward and set off against their own income any losses sustained by the firm. An unregistered firm that has been assessed as a registered firm falls within category (a). The Court then examined the specific situation before it. The unregistered firm had not been assessed; only the assessee firm had been assessed, and in that assessment it showed a profit. The assessee firm sought to set off against its profit a loss of rupees one hundred five thousand six hundred forty‑one, which it claimed arose from a partnership with a person named Damji. The Court had already noted that no partnership could exist between the assessee firm and Damji. However, there was a partnership between Damji and the four individual partners of the assessee firm, each acting in his personal capacity. Accordingly, under the second proviso to subsection (1) of section 24, the losses of the unregistered partnership consisting of Damji and those four partners could be set off only against the income, profits and gains of that unregistered partnership, and not against the income of the partners individually. Therefore, the loss of rupees one hundred five thousand six hundred forty‑one could be set off only against any income, profits or gains of the unregistered partnership of the five persons, and, if not fully absorbed, could be carried forward for future set‑off against the same unregistered partnership’s income. The Court concluded that the High Court was wrong in holding that those losses could be set off against the income of the assessee firm. The fact that the tax department had not assessed the unregistered firm or taken action under section 23(5)(b) was irrelevant. The order of the High Court could not be executed because it conflicted with the provisions of section 24. The Court noted that whether the individual partners, in their own assessments, could avail themselves of section 16(1)(b) and the Privy Council decision in Arunachalam Chettiar v. Income‑tax Commissioner (1) was not a question requiring its determination, and that issue was therefore left unanswered.

In this matter the Court held that the issue concerning the admissibility of evidence to support a finding of the Tribunal, which had been raised before the High Court, was not a matter on which a pronouncement was required. Consequently, the Court stated that that particular question did not arise for its consideration. The Court further observed that the answer given by the High Court to the second question, as reported in (1) 1936 L.R. 63 I.A. 233, was set aside and that the question must be answered in the negative. Because both parties were equally successful in their arguments, the Court ordered that each party should bear its own costs both in this proceeding and in the earlier High Court proceedings.

SARKAR, J. noted that the respondent was a firm registered under the Income‑Tax Act, 1922, which in its assessment for the year 1946‑47 claimed a set‑off of Rs 1,05,641 as its share of the loss of another partnership that was alleged to exist between the respondent and an individual named Damji Laxmidas. For convenience, the Court referred to this alleged larger partnership as “the bigger partnership.” The Income‑Tax Officer had refused to allow the set‑off on the ground that the existence of the bigger partnership had not been established. The respondent firm subsequently appealed the officer’s order, first to the Appellate Commissioner and then to the Appellate Tribunal, but both appeals were dismissed. After obtaining a decree from the High Court of Bombay, the Tribunal referred two specific questions to the High Court for resolution. Both questions were answered by the High Court in a manner adverse to the Department, prompting the Commissioner of Income‑Tax to file the present appeal.

The first question referred to the High Court asked: “Whether there was any legally admissible evidence to justify the Tribunal’s finding that the transaction in question was not the transaction of the assessee?” In addressing this question, the Court relied on its earlier decision in Dulichand Lakshminarayan v. The Commissioner of Income‑Tax, Nagpur (1), wherein it was held that a firm, by its very nature, is not entitled to enter into a partnership with another firm or with individuals. Applying that principle, the Court concluded that the respondent firm, being a firm, could not in law have entered into any partnership with Damji Laxmidas. Accordingly, it would be futile to inquire whether any evidence existed to support the existence of such a partnership, or whether an agreement of partnership—an agreement to which the law does not recognise the capacity of a firm—had in fact been made. The Court emphasized that what the law does not recognise cannot be said to exist for the purposes of a court of law. On this basis, the Court held that the first question did not truly arise and therefore required no answer.

The second question that had been posed to the High Court was: “If the partnership does not exist, whether the assessee can claim the set‑off of such loss, although it is the loss of an unregistered partnership?” The Court observed that this question was framed on the premise that the first question would be answered in the negative. Since the Court had determined that the first question did not arise at all, it chose to consider the second question independently of the first. The High Court had answered the second question in favour of the respondent, permitting the firm to claim the set‑off. However, that answer was premised on the assumption that a partnership between a firm and an individual was permissible—a premise which, in light of the decision in Dulichand’s case, was deemed unwarranted. The Court therefore signalled that the High Court’s assumption was incorrect and that, because no partnership could legally exist, the respondent firm could not have suffered a loss as a partner and consequently could not claim a set‑off of that loss under the provisions of the Act.

The Court observed that the assumption that a partnership between the respondent firm and an individual could exist was unwarranted, particularly in view of the decision in Dulichand’s case (1). Accordingly, the Court held that no partnership existed in which the respondent firm was a partner. Because such a partnership did not exist, the respondent firm could not have suffered any loss as a partner, and consequently there was no loss for which the firm could claim a set‑off. The provisions of the Income‑Tax Act that allow set‑off therefore could not be applied in these circumstances. The Court noted that, under section 10, an assessee may set off a loss incurred in one business against profits earned in another business, as illustrated in Anglo French Textile Co. Ltd. v. Commissioner of Income‑Tax (2). It was further explained that, in the case of a single business, profits can be determined only after deducting the losses of that business, and although this may be described as a set‑off, it is permissible only under section 10 when the loss belongs to the assessee himself. In the present matter, however, the assessee—the respondent firm—had no interest in the larger partnership (1) [1956] S. C. R. 154, 163. (2) [1953] S. C. R. 448, 453, and therefore it had no concern with the losses of that partnership. The Court then turned to section 24(1), which permits an assessee to set off a loss suffered under one head of income against profits earned under another head. This provision could not aid the respondent firm for the same reason as section 10, and also because it requires the existence of two distinct heads of income, whereas the present case involved only a single head of income, namely business. The second proviso to sub‑section (1) of section 24 provides certain rights of set‑off in assessments of unregistered and registered firms. The part of the proviso dealing with unregistered firms was clearly inapplicable, as the present assessment concerned a registered firm. The portion relating to registered firms was likewise of no assistance, because it confers the right of set‑off only on the partners of a registered firm, not on the registered firm itself, and the case did not involve a claim by any partners of the respondent firm. No other provision of the Act concerning set‑off was brought to the Court’s attention. Consequently, the Court concluded that the second question must be answered in the negative. In strict terms, the question did not even arise, since the larger partnership did not exist, and therefore any issue of its registration status could not arise. Nevertheless, counsel for the respondent firm argued otherwise.

The Court examined the argument that the larger partnership was, in reality, formed between Damji and the partners of the respondent firm and, for the purpose of its analysis, it presumed that this description was correct. It noted that, if that were the case, the individual partners of the respondent firm might, in their separate assessments, be entitled to set off their respective shares of the loss of the larger partnership; however, the matter of such individual assessments was not the subject of the present proceeding. The central issue before the Court was whether the respondent firm itself could claim a set‑off in its own assessment. The Court ventured that the existence of a right of set‑off for the individual partners did not automatically confer a similar right on the firm, because each partner and the firm were distinct assessees, each possessing an independent right of set‑off. Accordingly, one cannot base a claim for set‑off on the right of another assessor. The Court further rejected the contention that, in the present case, the true assessees were the partners of the respondent firm, finding the submission untenable. Referring to Section 23(5) of the Act, the Court observed that the legislation contemplated a registered firm as an assessee, even though, prior to 1 April 1956, the firm itself was not required to pay tax. All proceedings had been conducted on the basis that the respondent firm was the assessee, and the questions framed before the Court were premised on that assumption. The Court affirmed that it was not called upon to determine whether the partners possessed any right of set‑off. Consequently, the Court held that the assessees in the present case were not the partners of the respondent firm; had they been, the Court would have examined the partners’ incomes from other sources, which it did not do. The Court concluded that it was impossible to argue that the partners were the assessees and therefore allowed the appeal with costs. In its final order, the Court upheld the High Court’s answer to the first question, set aside its answer to the second question, and directed that each party bear its own costs in both the present proceedings and the High Court.