Wednesday, 19 August 2015

Whether when assessee is a member of JV, business loss of JV can be set off against profit of assessee from other business even before JV files its return - NO: HC

THE issue before the Bench - Whether when assessee is a member of the JV, business loss of the JV can be set off against the profit of assessee from other business even before JV files its return. NO is the answer.
Facts of the case
The assessee firm entered into a joint venture with M/s Unitech Limited as an association of persons (AOP) of which the Assessee’s share was 50% in the profit and loss account for the relevant AY 1989-90. The assessee disclosed a loss of Rs.12,39,271/- being the loss suffered by the AOP. This included Rs.6,19,635/- being the 50% share of the loss of the AOP which was claimed by the Assessee as its business loss. AO computed the loss in the case of the joint venture at Rs. 11,53,886 after making certain adjustments and disallowing certain expenses, and, fixed the Assessee’s share of the loss at Rs. 5,76,943 which was allowed as business loss. The CIT (A) reversed the setting off of the above loss of the joint venture against the profit of the Assessee as a business loss by the AO on the ground that the AO could have computed the loss of the AOP only after the AOP filed its own return. The AO’s action was held to be without jurisdiction and prejudicial to the interest of the Revenue. The ITAT by its order dated 31st October 1996 reversed the order of the CIT (A) and held in favour of the Assessee.
Held that,
++ it may also be noted that u/s 86 it is provided that when the Assessee is a member of the AOP, income tax shall not be payable by the Assessee in respect of his share in the income of the AOP computable in the manner provided in Section 67(A). Clause (b) of the first proviso to the above Section states that unless the AOP is chargeable to tax on its total income at the maximum marginal rate, the share of member computed in terms of Section 67 (A) shall form part of its total income. However, there is no corresponding provision for setting off of a member’s share of the losses of the AOP against his personal income;
++ in that view of the matter in the instant case the CIT (A) was right in reversing the decision of the AO to set off the Assessee's share of the loss of the joint venture against the profit of the Assessee as a business loss. The ITAT's order reversing the CIT (A) was, therefore, erroneous. The question referred is answered by holding that the ITAT erred in holding that the order passed by the AO on 21st December, 1993 was not prejudicial to the interests of the Revenue. The reference is answered accordingly.

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