SMT. SAROJ AGGARWAL vs. COMMISSIONER OF INCOME TAX,U.P.

CIVIL APPEAL No. 542/1974Supreme Court1985 INSC 21730 September 1985Bench: 2 JudgesAuthor: V.D. TULZAPURKAR, SABYASACHI MUKHERJI SMT. SAROJ AGGARWAL16 pages
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What were the facts?

The assessee, Smt. Saroj Aggarwal, is the widow of a deceased partner in three partnership firms. Her husband died on July 24, 1959. A new partnership deed was executed on August 12, 1959, with the assessee and the wife of another original partner. The deceased husband had unabsorbed speculation losses from assessment years 1958-59, 1959-60, and 1960-61. For assessment year 1962-63, the assessee claimed to set off her husband's speculation losses against her share of speculation profits. The Income Tax Officer and Appellate Assistant Commissioner rejected this claim, holding that there was no succession or inheritance of partnership membership. The Income Tax Appellate Tribunal allowed the assessee's appeal, finding she had succeeded by inheritance. The Revenue's reference to the High Court resulted in a decision against the assessee, which was then appealed to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court allowed the appeal, holding that the assessee succeeded to her husband's capacity as a partner by inheritance. The Court reasoned that while Section 78(2) of the Income Tax Act, 1961, requires succession by inheritance for the right to carry forward and set off losses, such succession can be inferred from the conduct of the parties and the circumstances, even without an express provision in the partnership deed. Viewing the facts in a natural perspective and considering the social milieu, the Court found that the partnership was a family concern, and the formation of the new partnership with the widow and adopted son within days of the husband's death, during a period of mourning, indicated a quasi-legal obligation and a right for the heirs to join. The Court emphasized a benevolent and justice-oriented inference, avoiding a hyper-technical approach. Therefore, the assessee was entitled to set off her husband's speculation losses. The question was answered in the affirmative in favour of the assessee.

What were the issues?

1. Whether the assessee, as the widow of a deceased partner, succeeded to her husband's capacity as a partner by inheritance, thereby entitling her to set off his brought-forward speculation losses against her speculation profits for assessment year 1962-63, under Section 78(2) of the Income Tax Act, 1961? Assessee's contentions: The assessee argued that she succeeded to her husband's partnership by inheritance, as inferred from the conduct of the parties and the family nature of the business, and that the Tribunal correctly allowed her appeal. She relied on the principle of equitable interpretation and justice-oriented inference, viewing facts in the social milieu of the country, and cited the case of C.I.T. v. Bai Maniben. Revenue's contentions: The Revenue contended that succession to a partnership membership is not by inheritance but through a fresh agreement, and that the right to carry forward and set off losses is available only to the person who suffered the loss, unless succession is by inheritance as per Section 78(2). They argued that the High Court correctly held the assessee was not entitled to the set-off.

Which sections of the Income-tax Act were involved?

Section 72,Section 73,Section 74,Section 78,Section 256(2)

AI-generated summary — verify with the full judgment below

209 SMT. SAROJ AGGARWAL v. COMMISSIONER OF INCOME TAX, u.p. SEPTEMllER 30, 1985 [V .D. TULZAPURKAR AND SAl!YASACHl MUKHARJI, JJ.] Income Tax Act 1961 Sections 72, 73, 74 and 78. Speculation rosiness - Loss - Set off of plilrtner' s share - Death of partner - Widow joining as partner in new partnership - A B Set off of loss of deceased partner against profits earned by C widow - Whether permissible.

Interpretation of Deeds & Statutes Partnership firm - Partner - Death of - Succession - Whether could be inferred - Whether succession could be by D inheritance - Facts , being viewed in natural perspective and social milieu of country - Necessity for - Indicated.

The appellant is the assessee. Her husband was a partner in three partnership firms. A partnership deed dated 30th July 1957 was executed by him alongwith two other partners. He died on 24th E July 1959 leaving behind the appellant. After his death another deed of partnership dated 12th August 1959 was executed by the assessee with the wife of the second partner in the first deed and also the first partner. This deed indicated the shares of the parties in the partnership firm and alao recorded the d

The order continues below.

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