Holding

The share income of the wife and minor children included under Section 16(3) is to be treated as business income derived from a business carried on by the assessee, permitting set‑off of the assessee's carried‑forward loss under Section 24(2).

Summary

The assessee, an oil‑mill owner, gifted part of his machinery to his wife and three minor children and a firm was formed by his wife and another person. The firm leased the mill premises and machinery and the assessee rendered management services, receiving commission. The assessee had large losses carried forward from earlier years and claimed to set off those losses against his own profit and against the share income of his wife and minor children, which had been included in his total income under Section 16(3) of the Income‑Tax Act, 1922. The Income‑Tax Officer rejected the set‑off for the share income, the ITAT upheld that rejection, but the Karnataka High Court held that the share income should be treated as business income of the assessee, allowing the set‑off. The Supreme Court affirmed the High Court, holding that income included under Section 16(3) is to be regarded as profit or loss from a business carried on by the assessee for purposes of Section 24(2), and therefore the loss could be set off.

Issues considered

Whether loss carried forward by an assessee can be set off against share income of his wife and minor children included in his total income under Section 16(3) of the Income‑Tax Act, 1922.
Whether such share income is to be treated as income from a business carried on by the assessee for the purpose of Section 24(2) set‑off provisions.

Legislation cited

Income Tax Act, 1922s. 16(3), s. 24(2)
Income Tax Act, 1961s. 64, s. 70, s. 71, s. 72
Wealth Tax Act, 1957s. 4

Subjects

Income TaxSection 16(3)Section 24(2)loss set‑offclubbing of incometransfer of assets to spouseminor childstatutory interpretationequitable construction

Judgment

711

A
TBI! <XlllISSIONER OF INCOME TAX, BANGALORE
v.
SllI J.H. GOTLA, YADAGIR!

AUGUST 29, 1985
B
(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.
c
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-
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.
H
The assessee had incurred huge losses in his individual
business in the earlier· years which were being carried forward
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.

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
E 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
F 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) the business, profession or
vocation in ..W.ch the loss was originally sustained lllW!t be
continued to be carried on by the assessee in the· year in which
H the carried forward loss is ~ought to be set of; and (iii) the
c.r.T. v. J.H.GOTLA. 713
A
business, profession or vocation against the proflts of which set
off is claimed 1111St be carried on by the assessee in that year,
and relying on the decision of the Karnataka High Court in Dr.
T.P; Kapadia v. C<wmdsatoner of IDCClllll! Tax, 87 I.T.R. 511, held
that the share income of the asses3ee' s total income under
section 16(3) of the Act should be regarded as business income B
derived from business carried en by :he assessee, llD.d the
assessee was entl.tled to set off his loss carriad forward from
the previons year.

In the appeals by .the Revenue to this Court, it WllS
contended relying on the decision of the Gujarat High Cour~ in c
ll!lyalbbai Hadbin-ji Vadera v. r..-lnioner of Income Ta:, Gujant
60 I.T.R. 55t that the loss could not be included in the total
income of the assessee, while on behalf of lhe assesse<o it was
contended that in the first year when the assets are transfered
to the wife or the minor child then the loss has to be taken into
account is computing the profits' and gains arising out of the D
user of assets so transferred in order to compute the result, and
that the object of section 16 (3) (a) was to foil an individusl's
attempt to reduce the incidence of tax by transferring his assets
to his wife or minor child or by admitting his wife as a partner
or his minor child to the benefits of partnership in a firm in
which he is a partner by transferring the assets directly or E
indirectly to them otherwise than for adequate consideration.

Dismissing the Appeals,

HELD: 1. The share income of the wife and minor children
included in the assessef''s total income under section 16(3) of
the Act should be regarded as business income derived from F
b1.1siness carried on by the assessee, and the assessee is entitled
to set off his loss carried forward from the previous years.
(734 CJ
2. ~here section 16(3) of the Act operates, the profits or
loss from a business of the wife or minor child included in the
total income of the assessee should be treated as the prof it or G
loss from, a 'business carried on by him' for the purpose of
carrying forward and set off under section 24(2) of the Act.
[733 H-734 A]
3. (i) Where the plain literal interpretation of a
statutory provision produces a manifestly unjnst result which H
could never have been ·intended by the legislature, the court
might modify the language used by the legislature so as to
achieve the intention of the legislat~re and produce a rational
714 SUPREME COURT REPORTS [1985) SUPP.Z s.c.R.

construction. The task of interpretation of a sta:tutory provision
A
is an attempt to discover the intention of the Legislature frOlll
the l.angusge used. It is necessary to remember that l.angusge is
at best an imperfect instrument for the expression of human
intention. (732 G-733 A)

(ii) Statutes always have some purpose or object to
B
accomplish awl sympathetic awl imaginstive discovery of that
purpose ia the surest guide to their meaning. (733 BJ

4. The Income Tax Act, 1922 was replaced by the Income Tax
Act, 1961. Section 64 of the Income Tax Act, 1961, deals with
inclusion of income of the assessee arising out of the assets
transferred directly or indirectly to the spouse or the minor
c child. The provisions on significant aspects are similar to the
Act except that in section 64 of 1961 Act, the expression
'spouse' has been used unlike 'wife' used in section 16(3) of the
Act. Sections 70 to 72 of 1961 Act contain provisions similar to
section 24 of 1922 Act. Sub-section (l) of section 24, provides
that where any assessee sustains a loss of profits or gains in
any year ·under any of the heads ..,ntioned in section 6, he shall
lJ
be entitled to have the amount of the loss set off against his
income, profits or g&ins under any or.her head in that year.
(723 D-E).

5. Section 4 of the Wealth Tax Act, 1957 which also makes '
assets transferred to the wife or the minor child includible in
E
the net wealth of the assessee uses the expression " in computing
the net wealth of an individual, there shall be included, as
beJongfng to that individual•. Then the different items including
the items of assets transferred have been ..,ntioned. The Income
Tax Act only makes these as includible as such while the Wealth
Tax Act miikes includible as belonging to the asseuee. ( 724 E)
F
6. To set off the carried forward loss of the assessee, two
conditions were required to be fulfilled under section 24(2) of
1922 Act, firstly, business, profession or vocation must be
carried on by him in that year awl secondly, that the business
profession or vocation in which loss was originally sustained
must continue to be carried on by the assessee in the year in
G
question. [724 A-BJ

7. The principle underlying section 24(2)(11) of the Act
was to restrict the set off only to the business income of the
year to which it was carried forward so that the loss sustained
by the assessee in any other business, ·profession or vocation
H
could be set off against the income from any business, profession
or vocation carried on by_ him in that year. [725 DJ
I

c.I.T. v. J.H.GOTLA 715
A

8. Tne object of section 16(3) has to be read in con~
tion with section 24(2). If the purpose of a particular pr->viaion
is easily discernible from the whole scheme of the Act which in
this case is, to counter-act, the ef~ect of the transfer of
assets so far aa computation of inco:ne of the aasessee is B
concerned, then bearing that purpose in mind, the intention
should be fonnd out from the language used by the legislature and
1£ strict literal construction leads to. an absurd result i.e.
result not intended to be subserved by the object of the legisla-
tion, then 1£ other construction is possible apert from strict
literal construction then that construction should be preferred c
to the strict literal construction. Though equity and taxation
are often strSDgP.rs, attempts should be made that these do not
remain so always, and if a construction results in equity rather
than.in in-justice then such construction should be preferred to
the literal construction. [733 C-D)
D
9. It can be accepted without doubt that income would
include loss. If it were a question of inclusion of the income of
the wife or minor child to whom assets have been transferred by
the assessee and with which blisiness was carried on or by which
income waa derived by the wife or the minor child, then in
including that income either of the wife or minor child such E
income should be computed in accordance with section 10 and other
provisions of the Act including section 24(1) and section 24 (2)
of the Act. But the question that arises here is whether against
the inclusion of such income, loss suffered by the aasessee in a
previous year whicb wan carried forward under section 24 (1) of
the Act should be allowed to be set off or not. [731 E-F)
F
Ccmissioner of Income Tu, lfadras-I v. A.L. Srinha881l 108
·r.r.R. 667 distinguished.

c...tBSioner of Income Tax, Bollbay v. Hanflal ll!lanji 44
I;T.R. 876,eo.tasioner of lncoe Tax, Irera1& II v. Sid:o lfary
lgnati11B 141 r.r.R. 954, Comntssioner of 1 - Tax, ·fenla v.
PoL ~ - ' - ntol<e 125 I,T,R, 624, C«wwfssioner of 1 -
Tax V• S.A.So Marfmitba lladar 44 I.T,R. 1, Desh llandlm Gupta and
Co. and others V• ~Stock Ettbange 6ssoc1ation Ltd. (1979] 4
s.c.c. 565 and Jfanfc!ram and Co. v. The State of Taidl lladla 39
s.r.c. 12 at 18 referred.
CIVIL APPELLATE JURISDICTION Civil Appeals Nos, 1596-1598 H
{NT) of 1973.
716 SUPREME COURT REPORTS [1985] SUPP.2 s.c.R.
,
A Appeals under section 66A (2) of the Indian Income Tax Act,
1922 from the Judgment and Order dated 21st March, 1973 of the
Mysore High Court at Bangalore in I.T.R.C. Nos. 33, 34 and 35 of
1970.

s.c. Manchanda, B.B. Ahuja and Miss A. Subhashini for the
B Appellant.

J, Ramachandran and Mrs. J, Ramachandra for the Respondent.

The Judgment of the Court was delivered by

SABYASACHI MIJKHARJI, J. These .appeals arise out of the
c orders of the High Court of Karnataka dated 10th August, 1973 for
the assessment year 1959-60, 1960-61 and 1961-62 by certificate
granted by the High Court under Section 66A(2) of the Indian
Income Tax Act, 1922, hereinafter referred to as the 'Act'.

The assessee is an individual. He was carrying on business
in the relevant assessment years in purchase and sale of
D ground-nut oil and was also running an oil mill. He was also au
abkari contractor. On 1st June, 1957, he had gifted away a part
of the oil mill machinery, viz., a solvent extraction plant, to
his wife and three minor children. A firm was constituted by the
assessee' s wife and another person to the profits of which the
three minor sons of th~ assessee were also admitted. The mill
permises as well as the remaining machinery ~f the assessee were
leased out to this firm which carried on the business of the
manufacture and sale of ground-nut oil. The assessee had also
entered into an agreement with the firm under which certain
services were rendered to the firm by way of management. The
assessee was entitled to get commission at the stipulated rates
F 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 of ground-nut cake and oil on a small scale.
The assessee also continued his business as abkai:'i contractor•

The assessee had incurred huge losses in his individual
G business J.n the earlier years which were being carried forward
from year to year · upto the assessment year 1958-59. The loss
carried forward from the assessment year 1958-59 was Rs.7,88,734.
The assessee's profits from his own business for 1959-00 were Rs:
14,324. The share income of the assessee's wife and minor
children from the firm for the assessment year 1959-60 was Rs.
H 24,592. The said income was included in the computation
c.r.T • .,. J.H.GOTLA [SABYASACHI MUKHARJI, J.J 717
A
of the total income of the assessee under Section 16(3) of the
Act for the assessment year 1959-60. The assessee claimed set off
of the loss carried forward from the assessment year 1958-59
against the profits of his own business as also the share income
of his wife and minor children. The Income tax Officer rejected
the claim for set off in so far as it related to the share income B
of his wife and minor children. Similar claims for set off were
made in the assessment years 1960-61 and 1961-62 but were
rejected.

On the appeals preferred by the assessee, the Appellate
Assistant Commissioner allowed the set off claimed on the ground c
that the assessee himself is deemed to be carrying on the
business from which the share income was derived by his wife and
minor children. The revenue appealed to the Income Tax Appellate
Tribunal, Hyderabad Bench. The. Tribunal held that although the
assessee was not carrying on the business of manufacture and sale
of oil during the years under appeal, he was continuing to carry D
on the business of oil in general; that the firm did carry on the
same business as was hitherto carried on by the assessee but
there was no connection between the assessee and the business
carried on by the firm and they were two different entities and,
as such, the assessee could not be said to be carrying on the
business out of which the share income of the wife and minor E
children arose. Accordingly it held that the assessee was not
entitled under Section 24 (2) of the Act to claim set off of his
losses against the income of his wife and minor children.

The following question of law was referred to the High
Court:
F
''Whether, on the facts and in the circumstances of the
case, an assessee would be entitled to carry forward
and set off the losses against the share income of the
assessee's wife and minor children in resp~ct of the
assessment year 1959-60 under Section 24(2) of the
Income Tax Act, 1922?"
G
The same consequences followed for the assessment years
1960-61 and 1961-62. For all these years, the references under
section 66(1) of the Act were made to the High Court.

The High Court after setting out the facts mentioned herein-
before referred to Section 24(2)(11) of the Act· as it stood in H
~ the relevant year.
718 SUPREME COURT REPORTS [1985] SUPP.2 s.c.R.

A
It appears from the section, as the High Court has held,
that for an assessee to be entitled to carry forward the loss to
the following year and to claim set off, the following conditions
had to be fulfilled:

(1) The loss must be in a business;
B
(2) the business, profession or vocation in which the
loss was originally sustained must be continued to be
carried on by the assessee in the year in which the
carried forward loss is sought to be set off; and

(3) the business, profession or vocation against the
c profits of which set off ·is claimed must be carried on
by the assessee in that year.

There is no dispute that the loss was from business in this
case. The business in which the loss was originally sustained was
continued to be carried forward by the assessee in the year in
which the carried forward loss was sought to be set off and this
D
aspect was found in favour of the assessee by the Tribunal. The
only ground on which the Tribunal has denied the right to set off
was that the assessee could not be said to be carrying on the
business out of which the share income of his wife and minor
children was derived.
E
The High Court noted that the Tribunal had based its
decision on the Gujarat High Court decision in Dayalbhai Kadhavji
Vadera v. Camldssiooer of Income-Tax, Gujarat 60. LT.R. 551, but
a different view was taken by the Karnataka High Court in the
case of Dr. T.p. Kapadia v. CoaDissicmer of Income-Tax, Mysore
87 I.T.R. 5.11.
F
Relying on the said decision in JCapadia's case and on a
consideration of the scheme of the Act and the provisions there-
in referred to, the High Court was of the opinion that the share
incume of the assessee s wife and minor children included in the
assessee's total income under Section 16(3) of the said Act
G
should be regarded as business income derived from business
carried on by the assessee and in that view of the matter the
assessee was entitled to set off his loss carried forward from
the previous year. Accordingly, the question referred to in
respect of these years was answered in the affirmative and iri
favour of the assessee by the High Court.
H
c.I.r. v. J.M.GOTLA tSABYASACHI MIJKllARJI, J.J 719

A
The revenue has come up in these appeals.

Before the several contentions are dealt with, it is
necessary to bear in mind that here what wa• sought to be set off
was the loss suffered by the assessee in his business carried
forward from the previous · year against the income which was
included in view of the provisions of Section 16 (3) of the Act,
the relevant provisions of which are as follows:-

"'16. Exemptions and exclusions in determining the
total income-
c
(3) In computing the total income of any individual
for the purpose of assessment, there shall be
includ?.d -
--· (a) So much of the income of a wife or. minor child of
such indl.vidual as arises directly or indirectly - D

(i) from the membership of the wife in a firm of which
her husband is a partner;

(ii) from the admission of the minor to the benefits
of partnership in a firm of which such individual is a
partner; E

(iii) from assets transferred directly or indirectly
to the wife by the husband otherwise than for adequate
consideration or in connection with an agreement to
live apart;
F
(iv) from assets transferred directly or indirectly to
the minor child, not being a married daughter, by such
individual otherwise than for adequate consideration."

Section 10 of the Act provides for the computation of income
and states, inter-alia, that the tax shall be payable by an G
assessee under the head "profits and gains of business,
profession or vocation"' in respect of the profits or gains of any
business, profession or vocation carried on by him and
sub-section (2) indicates what are the allowances that are allow-
able in making such computation. It is not necessary for the
present purposes to set out in detail the said provisions. H

The relevant provision of sub-section (1) of Section 24 so
far as is material for the purpose of the present case, was as
follows:

•
720 SUPR.EMr; GOURT REPORTS [1985] 5UPP.2 s.c.R.

A "Where any assessee sustains " loss of profits or
gains in any year under any of the heads mentioned in
section 6, he shall be entitled to have the amount of
the loss set off against his income, profits or gains
under any other head in that year."
"
B It' fs not necessary to refer to tne provisions whi.ch deal
with speculative losses and the exceptions indicating the
speculative losses.

The relevant provisions of sub-section (2) of Section 24

c
which are material for the present purpose are:
;!
"Where any assessee •ustains a loss of profits or
..
gains in any year, being a previous year not earlier
than the previous year for the assessment for the year
·.]
ending on the· 31st day of March, 1940, in any
buBin1:i"ss, profession or vocation, 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
D the assessee had no other head of income shall be
carried forward to the following year, and
.. (i)where the loss was sustained by him in a business
consisting of speculative transactions, it shall be
set off only against the profits and gains, if any, of
E any business in speculative transactions carried on by
him in tnat year:

(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
F 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; and

(iii)" if· the loss· in either case cannot be wholly ·so
G set off, the amount of loss not so set off Shall be
carried forward to the following year and so on but no
loss shall be so carried forward for more than eight
years:

Reliance was placed on behalf of the revenue on the decision
H of ·· the Gujarat High Court in the case of Dayalbbai Madhavji
Vadera v. Callldssioner of IDcome-Tax, Gujarat (supra). In that
, C.I.T. v. J.M.GOTLA (SABYASACHI MUKHARJI, J.] 721

decision, .the di vision bench of tne Gujarat High Court observed A
that where the share of the wife or minor child in a firm in
which the assessee was a· partner was a loss, such loss could not
be included in the total income of the assessee. The term
'income' the Gujarat High Court noted, had not been defined in
Section 16 (3) of the said Act. Though 'income' might in certain
cases include negative income namely, loss, but. such a B
construction was not favoured according to the. Gujarat High
Court, by Section 16 (3) of the Ai:t. The Gujarat High Court was
of the view that the section created an artificial liability. The
expression 'includes ' in clause (a) of sub-clause (iii) prima
facie, .carried the concept of adding rather than subtracting,
deducting or setting off. Section 16 (3) provided, according to c
the Gujarat High Court, only for inclusions in the total income
of an individual and did not create.any legal fiction whereby the
income of another was deemed to be the income of the individual.
Therefore loss arising under any one of the sub-clauses of
Section 16 (3) (a) could not be set off against income falling
under the other or the rest of the sub-clauses. If such a set-off D
were to be made, it would .result in a benefit to the father or
the husband of the individual• Such a construction would be
contrary to the provisions of Section 24 of the Act under which
it would be the person to whose share the loss fell, who alone
was entitled to a set-off,

In that case two contentions were urged for the assessee E
before the High Court: (1) that the term "income" as used in
Section.16 (3) (a) would also includ.e negative income i.e., loss,
and (2) that while ascertaining what is to be included in the
total lncome of. an assessee under. Section 16 (3) (a), the
lncome:-Tax Officer had to take . the totality of all the income
under the four sub-clauses of clause (a) of Section 16 (3) and F
arrive at the net result and it was such net result ·that had to
be.included in the total income of the assessee.·His contention,
therefore, was that if there. was income under one head but loss
under another, covered by any of the four sub-clauses of ~lause
(a) of Section 16 (3) such loss had to be set off against the
Lncome or the profits or gains acruing or arising under another
head and it would be the resulting balance which had to be added
to the total income of the assessee. He argued that, while
computing the total income of the assessee, when the Income-Tax
Officer sought . to include therein the income of the assessee 's
irl.f e or the minor child arising from membership of the wife in
the firm in which the assessee was a partner or from the H
admission of the minor son to the benefits of partnership in that
722 SUPREME COURT REPORTS [1985] SUPP.2 S.C.R.

A firm and- the income arising from the assets transferred to the
wife and the minor son, the Income-tax Officer must, in computing
such income of the wife and the son, take into consideration the
loss, if any, that had come to their share in the business. of
that firm or from the transferred assets, and then add only the
balance, if any. The question that fell for consideration before
B the Gujarat High Court as whether this could be accepted as a
true and proper construction of Section 16(3) of the act. The
High Court noted that the section obviously aimed at preventing
an attempt on the part of the assessee to avoid or reduce the
inciden~e of tax either by transferring his assets to his wife or
minor child or by admitting his wife or minor child to the
benefits of partnership in which he is a partner.
c
The scheme of clause (a) in sub-section (3) was not to set
off loss, according to the High Court, arising under any one of
the sub-clauses against income arising from the other or the rest
of the sub-clauses. Such a thing perhaps might have been possible
if, instead of providing for the inclusion of income of wife or
minor child in the total income of an assessee, such income had,
D by a legal fiction, been made the income or the share of the
assassee himself. The High Court noted that that had not been
done. The High Court was of the opinion that while enacting
sub-section (3), the legislature had before it the deeming
fiction in Section 16(l)(c). Sub-section l (c) of Section 16 of
the Arbitration dealt with the income arising to any person by
E virtue of a settlement or disposition whether revocable or not,
and whether effected before or after the commencement of the
Income-tax (Amendment) Act, 1939, from assets remai,Vfng the
property of the settlor or disponer, would be deemed to be income
of the settlor or disponer, and all income arising to any person
by virtue of a revocable transfer of assets should be deemed to
F be income of the transferor. Here this unlike clause (c) of
sub-section (1) and sub-section (3) of Section 16, provides for
inclusion of certain income for the purpose of assessment in
deemii:tg such income to be the income of the asseasee. _The High
Court referred to the decision of the Privy Council in the case
of Lawless v. Sullivan 1881 6 App. Cas.373.
G
On behalf of the revenue, stress was laid on the decision of
the Gujarat High Court, but as would be evident from the facts
narrated before, the facts of the instant case are materially
different. The present case is not a case where the wife or the
child to whom the assets had been transferred had suffered any
H loss in a year subsequent to the year of transfer. Here is a case
' C. I. T. v. J .M.GOTLA [SABYASACHI MUKHARJI, J.]

where the htiSband has suffered loss in a year subsequent to the
723

transfer of certain assets, income arising out of which is sought
to be included in the assessee's income. The question here is in
A

including such an income whether the loss suffered by the
assessee in his own business could be set off. Learned counsel
for the revenue stressed that the Legislature has not, in Section
16(3) of the Act, used the expression 'deemed to be the income' B
in contradistinction to the same expression used in Section 16(1)
(c) of the Act. But in judging the controversy of the present
case, whether the income is deemed to be or actually included
would not, perhaps, in the facts and circumstances of the case,
make any material difference. What has to be found out is what is
to be included. c
Income-tax Act, 1922 was replaced by Income-taic Act, 1961.
Section 64 of the Income-tax Act, 1961, (hereinafter referred to
as '1961 Act') deals with inclusion of income of the assessee
arising out of the assets transferred directl~ or indirecty to
the spouse or the minor child. The provisions of significant D
aspects are similar to the provisions of Section 16(3) of the Act
except that in Section 64 of 1961 Act, the expression 'spouse'
has been used unlike 'wife' used in Section 16(3) of the Act.

Section 70 to 72 of 1961 Act contain provisions similar to
Section 24 of the Act. Sub-section (1) of Section 24, as noticed,
provides that where any assessee sustains a loss of earns profits E
or gains in any year under any of the heads mentioned in Section
6, he shall be entitled to have the amount of the loss set off
against his income, profits or gains under any other head in that
year.

Counsel for the assessee contended, and in our opinion F
rightly, that in the first year when the assets are transferred
to the wife or. the minor child then the loss has to be taken into
account in computing the profits and gains arising out of the
user of assets so transferred in order to compute the result.
This, in our opinion, is the plain meaning of the section. The
difficulty, however, arises in a case where loss is sustained by G
an assessee in any other business, profession or vocation in a
succeeding year. In such a case loss so sustained by him in any
other business, profession or vocation can be carried forward and
set off against the profits or gains, if any, of any business,
profession or vocation carried on by him in that year (emphasis
suppled); provided the business, profession or vocation in which H
the loss was originally sustained continued to be carried on by
724 SUPREME COURT REPORTS [1985] SUPP.2 S.C.R.

A
him in that year. Therefore, to set off the carried forward loss
of the assessee, two conditions were required to be fulfilled
under Section 24(2) of the Act, firstly, the business, profession
or vocation must be carried on by him in that year and secondly,
that the business, profession or vocation in which loss was
originally sustained mJSt continue to be carried on (emphasis
B
added) by the assessee in the year in question. The High Court
has noted that there are three conditions: (1) the loss must be
loss in a business; (2) the business, profession or vocation in
which the loss was originaly sustained must be continued to be
carried 6n by the assessee in the year in which the carried for-
ward loss is sought to be set off; ·and (3) the business,
c profession or vocation against the profits of which set off is
claimed must have been carried on by the assessee in that year.
That the loss is from business is not disputed in this case. From
the facts noted before, it is also evident that the business in
which the loss >fas originally sustained was continued to be
carried ori by the assessee in the year in which the carried for-
ward loss is sought to be set off. But the question is was the
D
assessee carrying on the business from which the share income of
his wife and minor children was derived? This is also a condi-
tion which is required to be fulfilled.

In Section 4 of Wealth Tax Act, 1957, which also makes
assets transferred to the wife or the minor child includible in
the net wealth of the assessee uses the expression "in computing
the net wealth of an individual, there shall be included, as
beloogl.ng to that individual" (emphasis supplied). Then the
different items including the items of assets transferred have
been mentioned.,The Income-tax Act only makes these as includible
as such while the Wealth-Tax Act makes these includible as
F
beloogl.ng to the assessee. It is not necessary to examine whether
in view of Section 2(m) of the Wealth-Tax Act read with Section 3
of the said Act- which is the charging section, such a provision,
was necessary unlike Section 10 and Section 2(6C) read with
Section 3 of the said Act.

G
Reliance was placed on behalf of the revenue on the
decision of the Madras High Court in the case of r-cimn1ssloner of
Income-tax, Madras-I v. A.L. Srinivasan 108 I. T.R. 667. The
assessee in that case had claimed set off of the losses carried
forward by him from prior years in his individual assessment
against the· share income of his wife from a partnership firm in
H
which he was also a partner and which was included in his assess-
ment by reason of Section 16(3)(a). The Tribunal held that the
, C.I.T. v. J.M.GOTLA [SABYASACHI MUKHARJI, J.] 725

business carried on by the firm could be treated as a business A
carried on by the husband though the wife was a partner in the
said firm and hence the carried forward loss was allowable
against her share income from the firm included in the husband's
income. In those circumstances, it was held.that in the context
of Section 24(2)(ii) of the Act, .it was difficult to hold that
the business in that case was wholly carried on by the husband B
assessee or that the inci>me wholly belonged to him and, hence, on
the language of Section 16(3) read with Section 24, the
TribunE.l's view was not justifoed.

There the Division Bench of the Madras High Court held that
the language of Section 16(3)(a) of the Act showed that the C
income earned by the wife retained its . character as her income
and was not converted into the income of the husband for all
purposes. The inclusion of the income of the wife was only for
the purpose of taxing it in the hands of the husband. But the
identity of the income of the wife was not lost. The principle
u;iderlying Section 24(2)(ii) of the Act was to restrict the lJ
set-off· only to the business income 0f the year to which it was
carried forward so that the loss sustained by the assessee in any
other business, profession or vocation could be set off against
the income from ·any business, profession or vocation carried on
by him in that year. Though, for certain purposes, the business
carried on by the firm is treated as the business carried on by
the partner, still fol' applying section 24(1) the statute E
required that the income against which the set off was claimed
should beiong to the assessee and this requirement was not
excluded by Section 24(2). Facts of the case were also different
inasmuch as 'the husband was not a ·partner in the firm in the
pre·sent · case • .
F
Several propositions were canvassed before us on behalf of
the assessee.- the main one being that the court should consider
the purpose of the section for· the proper construction of the
relevant provisions of the Act. It is manifest, as contended for
on behalf of the assessee, that the object of Section 16(3)(a)
was to foil an 1ndiVictual Is attempt to reduce the incidence of G
tax by transferring his assets to his wife or ininor child or by
admitting his wife as a 'partner or his minor child to the
benefits or partnership in a firm in which· he w'as a partner by
transferring the assets·directly or indirectly to them otherwise
than for adequate consideration.
H
This Court in the case -of Coamissiaoer of · Income-t!lx,
Bombay v. ffanilal Dhanji 44 I.T.R. 876, dealing with Section 16
of the Act observed at page 881 of the report thus:
726 SUPREME COURT REPORTS [1985] SUPP.2 s.c.R.

A
"The object of the legislation is clearly designed to
overtake and circumvent a tendency on the part of the
taxpayers to endeavour to avoid or reduce tax liabil-
ity by means of settlements. Sub-section (2) deals
with grossing up of dividend etc. Then we come to
sub-section (3). This sub-section aims at foiling an
B
individual's attempt to avoid or reduce the incidence
of tax by transferring his assets to his wife or minor
child or admitting his wife as a partner or admitting
his minor child or admitting his wife as a partner or
admitting his minor child to the benefits of a
partnership in a firm in which such individual is a
partner. The sub-section creates an artificial liabil-
c ity to tax and 1m1st be strictly construed."

Attention was drawn in this connection to a circular of the
Board of Revenue - C.B.R. Circular No. 20 of 1944, which reads
thus:

"C.B.R. Circular No.20 of 1944. C.No.4(13)-I.T./44,
D
dated the 15th July, 1944.

Subject: Section 16(3)(a) - Loss i.ncurred by wife of
minor child - Right of set off under section 24(1) and
(2).
E
Attention is invited to the Board's Circular No. 35 of
1941, on the above subject. It was laid down therein
what where the wife or minor child of an individual
incurs a loss which if it were income would be
includible in the income of that individual under
section 16(3), such loss should be set off only
F
against the income, if any, of the wife or minor child
and if not wholly set off should. be carried forward,
subject to the provisions of section 24(2). The Board
has reconsidered the question and has decided that,
although this view may be tenable in law, the other
and more-equitable view is at least equally tenable
G
that such loss should be treated as if it were a lnss
sustained by that individual. Thus if the wife, or
minor- child has a personal lncome of Rs. 5, 000 which
is not includible in the individual's income and
sustains a lOss of Rs.10,000 from a source ::he income
of whiCh would be inclu.dible, in the income of thQ
individual, :.:he loss &.hould be set off against the
C.I.T. v. J.M.GOTLA [SABYASACHI MUKllARJI, J.j 727

A
income of the individual under section 24( 1), and if
not wholly set off should be carried forward under
section 24(2). The wife or the minor child would,
therefore, be assessable on the personal income of
J!s.5,000. If in any ·case the wife or minor child
claims a set-off of the loss against the personal
income, it should be brought to the notice of the
Board. Board's Circular No. 35 of 1941 is hereby
cancelled."

It was further submitted that the circular of the Board of
Revenue would be binding on all the officers. Reliance was placed
on the observations of this Court in Navnitlal Javeri v. LL
c
Sen, Appellate Assistant Comniseiooer of Inc.- Tax Bombay, 56
I.T.R. 198 at page 203. It was urged.that though the circular was
no~ binding on the aasessee, i t was binding on the revenue. In
our opinion, it was Uot necessary for the purpose of disposing
of these appeals to refer to this aspect at all. These appeals do
D
not involve the question of set off of loss sustained by the wife
or the minor children of the assessee and brought forward by the
wife or minor children to be set off from the income included
from the partnership firm carried with assets transferred by an
assessee to his wife or min9r children subsequent to the year of
transfer. 'nlerefore, the question ·whether computation of income
involves deduction of loss from gross profits., is not relevant.
The question involved in this case is, whether the income of the
wife and/or minor children of the aasessee from a partnership
firm in which the wife. is a partner and/or minor children have
been admitted to the benefits of partnership carried on with the
assets transferred by the aasessee in any year subsequent to the
year of transfer could be set off against any loss brought
F
forward by the assessee in respect of a business carried on 'by
the assessee. In the instant case, the business of the firm in
which assessee's wife and to the benefits of which his m!nor
children ruid been admitted was a firm· in which the assessee
himself was not a partner and as such that business was not being
carried on by the assessee. Counsel for the assessee contended.
G
that the real object of Section 16(3) of the said Act was to
restore the position which obtained before the· transfer, qua
income. In other words, he urged that it was as if the transfer
nad not taken place. It was his suhnission that if the transfer
had not taken place, the income of the wife and the minor
children from the assets transferred viz., machinery in this
H
case, would be the income of the assessee. In other words, it
would be incoine from his business if the transfer was ignored. In
728 SUPREME COURT REPORTS [1985] SUPP.2 s.c.R.

A that case loss from business could be carried f o.-ward for six to
eight years as the case may be, to be set off against the
business income of the assessee. Counsel urged that the object of
the said section was not to punish the assessee for having trans-
ferred his assets to his wife or mino.r children by denying any
allowance, concession, deduction, etc. to which he or others
l! would otherwise be ·entitled to. There is substance in this
~ontention. In order, however, to obtain set off of carried for-
ward loss, two conditions had to be fulfilled. When the circular
dated 15th July, 1944 as mentioned before, was issued, the
present problem involved in these appeals was not dealt with.
When 1961 Act was enacted, this was . also not clarified. The
requirement of Section 72 which replaced Section 24(2) of the Act
c proceeds substantially on previous basis.

In view of the facts and circumstances of the present case,
it is also not necessary to deal in detail with the Kerala High
Court decision in the case of Camlissioner of lncalle-1"", Kerala
II v. Smt Mary Ignatius 141 I.T.R. 954. Though the inclusion of
the income of one in the income of another arose in that case
D
under Section 16 of the Act and Section 64(1)(11) of 1961 Act,
the question that falls for consideration in the present case did
not fall for consideration in that case.

Dealing with the Madras High Court judgment in Camlissioner
of Income-Tax, Madras-I v. A.L. Srinivasan (supra), Foti, Acting
E CJ observed at page 960 thus:

, • "Section 24(2) (ii) allowed a set-off of the loss
1
•• sustained by. a person in any business against the
gains of any business carried. on by him during that
year. For the purpose of the section, it cannot be
F
said that the income .that he derived as a partner from
the firm, which was doing business, was not income
from business carried on . by him in that year •. The
question· that the court had really to deal with was
whether the wife's income was part of the husband's
income. If it was part of his income it could be set
G
off against the loss of that year whatever be the head
under which the losses are incurred."

It Would be necessary, however, to examine whether in view
of the facts of this case and in the light of the requirement of
Section 24(2) of the Act, whether the losses suffered by the
H
husband in th~ previous year can be carried forward and set off
c.1.r. v. J.M.GOTLA (SABYASACHl MUKHARJI, J.J 729

against the income cf the wife and the minor children included in A
the income of the assessee ~ income which is earned from a firm
in which the assessee was not a partner.

The Madhya Pradesh High Court in the case of Coamissiooer of
Income-Tax, M.P-1 v. Badr1 Prasad Agarwal 142 I.T.JL 353 held
that the addition of Explanation 2 to Section 64 of 1961 Act with B
effect from 1980 was a parliamentary exposition of the true
position in law that was obtaining earlier to the effect that
income in Section 16(3) would .include loss. The Court further
reiterated the position that if two views are possible, then the
one which is favourable to the assessee should be adopted.
'Income' in Section 64 0 f the Act of 1961 includes loss. C
Furthermore Explanation 2 added by Finance Act, 1979 to Section
64 in specific terms says that 'income' would include loss. But
that Explanation even on the assumption that this is a parliamen-
tary exposition of the existing position would not solve the
present problem.
D
The Bombay Hi.gh Court in the case of R.M. l;ocioldas V·•
Coumissioner of Income-Tax, Bombay 151 I.T.R. 67, had to consider
this aspect. CBK's Circular No. 20 in which the Bo~rd had taken
the view that where the wife or the minor child of an individual
incurred a loss which if it were income would be includible in
the income of that individual under Section 16(3) cf the
Income-tax Act, 1922, such loss should be set off against the E
income of the individual, -was withdrawn- on 6th April, 1972.
Subsequently, Section 64 of the 1961 Act was amended by the
Finance Act, 1979 with effect from 1st April, 1980 by insertion
of Explanation 2 after sub-section (2), whereby for the purpose
of this section, income would include loss. The Explanation must
be regarded, according to the Bombay High Court, as being clari - F
ficatory in nature as reflecting the correct legal position. both
under Section 16 of the Act as also .under Section 64 of the 1961
Act and the proper approach to the specified provisions for
aggregation or clubbing. The Explanation added to Section 64(2)
must_ be regarded as a parliamentary exposition, according to the
Bombay High Court, of the meaning of the word '.income 1 . as used in G
the unamended section. Even without the said Explanation, for the
purpose of clubbing, income or profit13 w~uld include negative
income or negative profits, that is, loss also. Tl).~refore, even
during the period between the withdrawal of the Circular in 1972
and the amendment of Section 64 with effect from 1st April, 1980,
the loss incurred by the wife or minor' chil.d was includible in H
the income of the individual. Hence, the loss app9rtioned tO the
730 SUPREME COURT REPORtS [1985] SUPP.: s.c.R.

A wife in a firm in which her husband was also a partner in
includible ir. determining the husband's total income or total
loss.

On behalf of the assessee, it was contended that the only
purpose of the loss incurred by the wife or minor child. being
li included in the total income of the assessee was to enable the
assessee to have a set off under Section 24\1) and Section
24(2). There is good deal of substance in the view. Looked at
from one point of view it is possible to accept the position that
would be the effect, i.e. to enable the assessee to have a set
off under Section 24(2) of the Act. This inclusion of the loss
sustained by the wife or minor children in the total income of
C the assessee is to a certain extent as effective as deeming the
income of the wife or minor child to be the assessee's income. In
view of the definition of 'total income', argued counsel, in
oection 2 (15) the income has to be processed under the relevant
section (e.g. Section 10 in the case of business) and deductions,
allowances and exemptions are to be granted as if that income was
also part of the total income of the assessee etc. i.e. to be
D treated in the same way.

This Court in the case of C.I.T. Kerala V• P.K. Kocbalmu
Allina Perol<e 125 I. T .R. 624, in the context of the obligation of
submission of the return and penalty for failure to include the
income of the wife or the minor child in the return, has held
E that the words "his income" in Section 139 of the 1961 Act and
Section 271 (1) (c) of 1961 Act would include such income to be
included in the assessee's total income.

This Court has also held that the assessee was ~ntitled to
earned income relief in relation to such ixome - see r.oumis-
aioner of Income Tax v. S.A.S. Martmuthu Hadar 44 1.r.R. 1. In
other words, the income was in no way different from assessee 's
income for the purpose of this Ac:.t. Therefore, the provisions of
5ection 16(3) of the Act have the same effect as the words
'deemed to be' used in Section 16(l)(c). S;l.nce both income as
well as loss of the wife or minor child, argued counsel for the
G assessee, has to be included in the assessee's total income and
are to be treated as the assessee 1 s income or loss for the
purpose of the Act, the effect was that there was complete
identity between the assessee and' the minor child as regards
assessee 's income and such income to be included in his total
income.
H
C.I.T. v. J.M.GOTLA [SABYASACHI MUK!lARJI, J.] 731

Counsel stressed on the inequitable result of strict literal A
interpretation of treating the business of the wife or minor
child as being one not carried on by the ·assessee. He posed
before us by way of illustration where the assessee's incom~ in
one year is small - say Rs. 10,000 the business loss of the wife
or minor child to be included in his income in that year is large
- say Rs. 1 lakh, there results a loss for Rs. 90,000 which can- ll
not be dealt with in the assessment of the wife or minor child.
If in the next year, the business of the wife or minor child
yields a large profit - say Rs. l lakh, the entire profit of
Rs.l lakh would become assessable in the. hands of the assessee,
but the unabsorbed loss of the earlier year (Rs.90,000) would not
be allowed to be set off, if on a strict literal interpretation, c
the business of the wife or minor child is treated as one not
carried on by the assessee. The wife or minor child also·would be
denied the set off as the income has to be included in the
assessee's income. This results in an inequitable position which
could not have been intended by the Parliament, i.e. to counter-
act the object of transfer only and not to punish tne assessee or D
to deny him any allowance or deduction which the assessee weuld
have otherwise been entitled to.

The question in the instant case is within a She.rt compass.
It can be accepted without much doubt that income would include
loss. If it were a question of inclusion of the income of the
wife or minor child to whom assets have been transferred by the E
assessee and with which the business was carried on or by which
income was derived by the wife or the minor child, then in
including that income either of the wife or minor child, such
income should be computed in accordance with Section 10 and other
provisions of the Act i.e. including Section 24(1) and Section
24(2) of the Act. But· the question that arises here is whether F
against the inclusion of such income, los.s suffered by the
assess·ee. in a previous year which was carried forward under
Section 24(1) of the Act should be allowed to be set off or not.
The revenue contends that it cannot be. It lays emphasis on the
fact that set off for the carried forward loss is permitted only
by Section 24(2) of the Act and there should be strict literal
construction of Section 24(2) and as such in view of the
provisions of Section 24(2)(ii) which stipulates that loss to
be carried forward must .be 'loss 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 H
business, profession or vocation in which the loss was originally
732 SUPREME COURT REPORTS [1985] SUPP.2 s.c.R.

A sustained continued to be carried on by him in that yesr'.
Therefore, it is required that the business, profession or
vocation against profits of which the set off is claimed must be
carried on by the assessee in that yesr. But the problem here is
that the business out of whose share income of the wife or minor
child is derived is no longer carried on by the assessee himself
B in the subsequent yesr in which set off is being claimed. On
behalf of the revenue it was emphasised that this requirement is
to be strictly followed. Revenue emphasised that the requirement
continues irrespective of the clarification of the Board of
Revenue "by Circular in 1944 and in spite of the additioa of
Explanation 2 to Section 64(2) by Amending Act of 1979 with
effect from 1980. Therefore, it was urged that legislative intent
c was clear and it was not possible to hold otherwise.

On the other hand on behalf of the assessee it was contended
that it would often result in extreme anomaly and hardship, for
instance in the example noticed before. It was further stressed
on behalf of the revenue that equity "has no place in interpreting
fiscal legislation.
D
We need not, for the purpose of the instant case, express
any opinion whether circulars in the instant case should be
construed as contemporaneous exposition of the Legislative
intent". The question was discussed exhaustively in the case of
Deah Bandhu Gupta and Co. and Others. V• Delhi Stock Eycbange
E _Association Ltd. [1979] 4 S.c.c. 565.

Our attention was also drawn to the decision in the case of
Manickam"and eo. v. 'lbe State of Tamil Nadu 39 s.T.c. 12 at page
18 as well as Craies on Statute Law (Sixth Ed.) page 147.

F In ·the case of K.P. Verghese v. Income-Tax Officer,
Ernalmlll!D and Another 131
I.T.R. 597, this Court emphasised that
a statutory provision must be so construed, if possible, that
absurdity and mischief may be avoided.

Where the plain literal interpretation of a statutory provi-
G sion produces a manifestly unjust result which could never have
been intended by the legislature, the Court might modify the
language used by the legislature so as to achieve the intention
of the legislature and produce a rational construction. The task
of interpretation of a statutory p=ovision is an attempt to
discover the intention of the Legislature from the language used.
H It is necessary to remember that language is at best an imperfect
c.I.T. v. J.M.GOTLA {SASYASACHI MlJKHARJl, J.] 733

instrument for the expression of human intention. It is well to A
remember the warning administered by judge Learned Hand that one
should not make fortress out of dictionary but remember that
statutes ·always have some purpose or object to accomplish and
sympathetic and imaginative discovery is the surest guide to
t'ieir meaning.
ll
We· have noted the object of Section 16(3) of the Act which
has to be read in conjunction with Section 24(2) in this case for
the present purpose. In the purpose of a particular provision is
easily discernible f ri>m the whole scheme of the Act which in this
case is, to counteract, the effect of the transfer of assets so
far as computation of income of the assessee is concerrt.ed then C
bearing that purpose in ruind, we should find out the intention
from .the language used by the Legislature and if strict literal
consttuction leads to an absurd result i.e. result not intended
to be subserved by the object of the legislation found out in the
manner indicated before, a..~d if another construction is possible
apart from strict literal construction then that consturction D
should be preferred to the strict literal construction. Though
equity and taxation are often strangers,. attempts should be !Df.de
that these do not remain always so and if a construction results
in equity rather than in in--justice,, then such construction
should be preferred to the literal construction. Furthermore, in
the instant case we are dealing with an artificial liability
created for counteracting the .effect only of attempts by the E
assessee to reduce tax liability by transfer. It has also been
noted how for various pruposes the business from which profit is
included.or loss is set off is treated in various situations as
asses see' s income. The scheme of the Act as worked out has been
noted before.
F
In view of the aforesaid and in view of the attiLude of the
law-makers in dealing with this problem as evidenced by the
amendment and in the circular originally issued prior thereto and
bearing in mind that under the scheme of the Act where the wife
or minor child carries on a running business, the right to carry
forward the loss in the running business ·would be available to G
the wife or minor chilC if they themselves were assessed but the
right would be completely lost if the individual in whose total
income the loss is to be included is not permitted to carry
forward the loss under Sectio'.1 24(2) since that would be the
result of the strict literal construction it is apparent that
that could not have been ·the intent of the Parliament. Therefore, H
where Section 16(3) of the Act operates, the profits or loss from
734 SUPREME COURT REPORTS [1985] SUPP.2 s.c.R.

A a business of the wife or minor child included in the total
income of the assessee should be treated as the profit or loss
from a 'business carried on by him' for the purpose of carrying
forward and set off such loss under Section 24(2) of the Act.

B On a consideration of the scheme of the Act and the
provisions therein as noted before, the share income of the wife
and minor children included in the assessee's total income under
Section 16(3') of the Act should be regarded as business income
derived from business carried on by the assessee and in that view
of the matter, the assessee is entitled to set off his loss
C carried forward from the previous years.

In the premises the question must be answered in the
affirmative and in favour of the asses see. The appeals
accordingly fail and are dismissed. In the facts and
circumstances of the case, we make the parties pay and bear their
D respective costs of these appeals. C.M.P. No. 97 of 1973 for
condonation of delay is allowed.

N.V.K. Appeals dismissed.