1. The assessee in this case is an association of persons consisting of two members, Abida Khatoon and Salima Khatoon. The relevant assessment year is 1969-70. The assessee's total income was computed at Rs. 75,880 for the assessment year 1969-70. In respect of the earlier assessment years, the ITO computed the loss at Rs. 3,25,075. At the end of assessment year 1968-69, the total loss carried forward was Rs. 3,25,075. The assessee claimed that the profit of Rs. 75,880 should be set off against the loss carried forward. The ITO by his order dated February 28, 1972, rejected the claim. He observed that the High Court in Reference Nos. 38/69 and 29/70 dated 12-12-1971 (since reported as Smt. Abida Khatoon v. CIT ), in which both the members of the association sought for the allowance of their share of loss in the computation of their individual income from other sources held that both the members were entitled to set off their share of loss in the association of persons against their income from other sources. He held that it is a settled proposition of law that the same income or loss should not be taxed twice and since the loss carried forward had already been apportioned and set off against the other income of the members, the assessee was not entitled for the set-off of the aggregate loss of the earlier years against the income assessed for the years 1969-70. The assessee preferred an appeal before the AAC of Income-tax who allowed the appeal and held that the losses carried forward ought to be set off against the income for the year 1969-70 under s. 72 of the i.t. act as there was no specific bar for so doing. Being aggrieved by the order of the AAC, the department filed and appeal before the Income-tax Appellate Tribunal and the Tribunal agreed with the ITO and allowed the appeal. On an application made by the assessee under s. 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the Tribunal has referred to this court the following two questions of law for decision :

"(1) Whether the assessee cannot claim the set-off of the carry forward loss under sections 70 and 71 of the Income-tax Act ?

(2) Whether the Income-tax Officer who has already determined the carry forward loss to be set off against the income of the assessment year 1966-67 is competent to deny the right of the assessee for the set-off under the provisions of the Act ?"

2. The learned counsel for the assessee submits that the income or loss of an association of persons which is a separate assessee does not cease to be its income or loss merely because it was taken into consideration in computing the tax payable by the individual members of the association as provided in s. 66 read with ss. 86 and 110 of the Act. He argues that unless there is an express provision to the effect that such income or loss shall be allocated amongst the members and it shall thereafter cease to be that of the association of persons and does not continue to be that of the association of persons the assessee is entitled to set off the loss. It is his argument that while the Act makes express provision for the allocation of loss among its partners and its carry forward and set off in the case of registered and unregistered firms, no such provision is enacted in respect of association of persons. It is true, s. 75 of the Act expressly provides that the losses of a registered firm shall be apportioned between the partners of the firm and they alone shall be entitled to have the loss set off and carried forward for set off under ss. 70, 71, 72, 73, 74 and 74A of the Act. Section 77 deals with losses of unregistered firms or its partners. It provides that any loss of the firm shall be set off or carried forward and set off only against the income of the firm. It further provides that the partner of an unregistered firm shall not be entitled to set off the loss against his own income. But there is no provision, as argued by the learned counsel, in the Act for the apportionment of losses of an association of persons which is not a registered firm or an unregistered firm assessed like a registered firm. Therefore, in the absence of any such prohibition, it is submitted that the general rule of set-off and carry forward of unabsorbed loss for set off will be available to an association of persons since the loss is that of the association of persons which is a distinct assessee and the proportionate share of loss which is taken into consideration only for the purpose of tax computation of individual members as provided in s. 66 read with s. 86(v) and s. 110 is no bar for the set-off of the carried forward losses. The learned counsel invited our attention to a passage in the Law of Income Tax in India by V. S. Sundaram, Vol. I, at page 804, 10th edition, under the Chapter "Losses of unregistered firms or their partners". Under synopsis 4 of s. 77, the author states :

"Association of persons : There is no provision in the Act for the apportionment of loss of an association of persons which is not a registered firm or unregistered firm assessed like a registered firm. But under section 80 as in the case of an unregistered firm, the members are not again taxed if the association has been taxed, and the share is included in total income. The inclusion in total income may involve the reduction of total income if the member had other loss, but his other loss cannot be reduced for the purpose of carry forward."

3. He also relied upon a passage in the Law of Income Tax by A. C. Sampath Iyengar. In his commentary on s. 76 of the Act, at page 1247 (6th edition) the learned author observed :

"Assessee being a partner in both a registered firm and an unregistered firm : Where the assessee is a partner in a registered firm as well as in an unregistered firm, and his share in the registered firm is a loss, while his share in the unregistered firm is a profit, the carry forward of the loss will not be diminished by the profit in the unregistered firm, since the latter is income-tax free, though for the purpose of ascertaining the total income of the assessee and the rate applicable to him for the year, the loss would have to be diminished by the profit in the unregistered firm. The provisions of the Act (under discussion) relating to carry forward of business loss till the loss is absorbed in profit or till it cannot be carried forward any further, has little to do with the manner in which the total income of an assessee has to be determined for the purpose of finding out the rate applicable to his income taxable in the year of assessment. They provide for a different situation altogether."

4. The learned counsel submits that this court in the reference in R.C. No. 38 of 1969 in Smt. Abida Khatoon v. CIT was only concerned with the rate of income-tax applicable in the year of assessment and, therefore, that decision does not prohibit the set-off of the carried forward business loss by the assessee.

5. The learned counsel for the revenue, on the other hand, seeking strong support from the very same decision of this court, submits that in accordance with that decision of this court [Smt. Abida Khatoon's case ] the entire loss has been ordered to be allowed in the hands of the individual members of the association of persons and the assessee-association of persons cannot now claim that the very loss should again be allowed in the hands of the association of persons.

6. It is, therefore, necessary to look at and ascertain as to what was decided by this court in Smt. Abida Khatoon's case. In that case, the assessee, Abida Khatoon, owned a share in the Hyderabad Deccan Cigarette Factory (the assessee herein) which was assessed to income-tax as an association of persons during the relevant assessment year 1966-67. The said factory incurred a loss. The assessee claimed to set off her share of loss against income derived from other sources. Her claim for a set-off was rejected by the ITO, the AAC and the Appellate Tribunal. On a reference made to the High Court, at the instance of the assessee, it was contended on behalf of the revenue that an association of persons and a member of an association of persons were distinct entities for purposes of taxation and, therefore, a member of an association of a persons was not entitled to claim a share of his loss in the association of persons against his other income. Repelling that contention, this court invoked the general rule of set-off enacted in ss. 70 and 71 of the Act and held (headnote) :

"Since the charge of tax is on the total income, a natural corollary of the principle that income-tax is a single tax and not a collection of taxes is that a loss from any source in a year may be set off against income from any other source in that year and so also a loss under any head in a year may be set off against the income under any other head in that year. That general rule of set-off is enacted by section 70(1) and 71(1) of the Income-tax Act, 1961.

There was, therefore, no prohibition preventing a member of an association of persons from setting off his share of the loss in the association of persons against his other income and that the assessee was entitled to set off her share of the loss in the association of persons against her income under other heads."

7. It is thus clear from the decision that the loss suffered by the association of persons was allowed to be allocated between individual members of the association of persons. It is clear from the order of the ITO that the aggregate loss carried forward was accordingly apportioned and set off against the other income of the individual members. Where then is the loss left to be set off ? The same loss claimed for set off allowed in the hands of the members of the association of persons cannot once again be claimed and allowed in the hands of the association of persons. The Appellate Tribunal observed :

"... It cannot be doubted that the loss up to the assessment year 1968-69 has already been allocated to the individual members in view of the decision of their Lordships of the Andhra Pradesh High Court in 87 I.T.R. at page 627 as mentioned above and so no loss remains to be carried forward and set off against the assessee-association of persons in the assessment year 1969-70."

8. The Gujarat High Court in CIT v. Garden Silk Wvg. Factory [1975] 101 ITR 659, 663, observed :

"Once an allocation is made, there remains nothing with the firm which is to be carried forward on account of either there being no income or income being insufficient to absorb depreciation allowance."

9. The learned counsel for the assessee, Sri D. Venkatappaiah Sastry, submits that there is no statutory prohibition from carrying forward its loss by the association of persons, nor is there a provision for apportionment and the loss ceasing thereafter to be that of the association of persons as there is in respect of registered firms or unregistered firms. It is true s. 75 expressly provides in respect of registered firms that the loss shall be apportioned between the partners of the firm and they alone shall be entitled to have the amount of the loss set off and carried forward for set off under ss. 70, 71, 72, 73, 74 and 74A of the Act. A similar provision is enacted by s. 77 of the Act for unregistered firms. Section 77 enacts that any loss of the firm shall be set off or carried forward and set off only against the income of the firm. It specifically provides that the partner of an unregistered firm shall not be entitled to set off the loss against his own income. Therefore, it is the contention of the learned counsel that in view of the above two provisions which clearly lay down restrictions on set-off and carry forward of losses in respect of registered and unregistered firms alone, the general right of set-off and carry forward of unabsorbed loss will be available to the association of persons under ss. 70 and 71 of the Act. Invoking only the general right of set-off provided by ss. 70 and 71 of the Act, this court allowed in Abida Khatoon's case to the individual members of the association of persons their claim to set off the aggregate carried forward loss to be apportioned and set off against their income from other sources. Otherwise, there is admittedly no other specific provision in the Act for the apportionment of the loss between the individual members of the association of persons and set off of their share of loss against income from other sources. It could never be the intention of the law makers to provide for set-off of the same loss twice over, once by the individual members of the association of persons and again by the association of persons. The benefit conferred by ss. 70 to 80 in Chap. VI of the I.T. Act which deal with carry forward and set off of loss, can be invoked and allowed only once as provided therein. The contention of the learned counsel, if accepted, would lead to illogical and inequitable results. There are fewer surer tests in statutory construction than to observe whether the interpretation contended for exposes the statute itself to ridicule.

10. The learned counsel also invited our attention to the decision of the Supreme Court in Seth Jamnadas Daga v. CIT [1961] 41 ITR 630. There also, the question was : what is the manner in which the total income of an assessee has to be determined for the purpose of finding out the rate applicable to his income taxable in the year of assessment ? In that case, the facts were these : The assessee was a partner in two registered firms an an unregistered firm. During the relevant period the registered firms incurred losses and the unregistered firm showed profit which was taxed on the other firm in accordance with s. 23(5)(b) of the Indian I.T. Act, 1922. The share of the assessee in the profit of the unregistered firm amounted to Rs. 26,110 and his share of the losses in the registered firms amounted to Rs. 13,167. The assessee had a small income of Rs. 262 which had to be taxed at the rate applicable to his total income. It was contended on behalf of the assessee that the share of the profit in the unregistered firm should be ignored entirely in ascertaining his total income and that he was entitled to carry forward the loss of Rs. 13,167 to the succeeding year under s. 24(2) of the Act. The Supreme Court ruled (headnote) :

"(i) That although the assessee's share of the profit of the unregistered firm was exempt from tax in his hands, it had to be included to ascertain his total income in order to determine the rate applicable to his other income. All that section 14(2) did was to save the profits of an unregistered firm from liability to tax in the hands of the partners. It did not affect the computation of the total income of the partners to determine the rate applicable under section 3, in the light of section 16(1)(a). The assessee's share of losses in the unregistered firms had to be set off against his share of the profits in the unregistered firm to ascertain his total income.

(ii) That, however, the assessee was also entitled to carry forward his share of the loss in the registered firms to the succeeding year under section 24(2).

Section 24 of the Income-tax Act, which provides for the carrying forward a loss in business to the subsequent year or years till the loss is absorbed in profits or till it cannot be carried forward any further, has little to do with the manner in which the total income of an assessee has to be determined for the purpose of finding out the rate applicable to his income taxable in the year of assessment. It provides for a different situation altogether."

11. We are unable to see how this decision is of any relevance to the facts of this case. In this case, an assessee, which is an association of persons, claims a set-off of carry forward loss, which had already been apportioned amongst its individual members, once again against the income in the subsequent year when actually there is no carried forward loss. When no loss carried forward remains, no set-off can be allowed to the association of persons in the assessment year 1969-70. The loss carried forward had already been apportioned among the individual members of the association of persons.

12. We, accordingly, answer the questions referred to us in favour of the revenue and against the assessee. The department will get its costs from the assessee. Advocate's fee Rs. 250.