ORDER
A.M. Sapre, J.
1. This is an income-tax reference made by the Tribunal (Revenue) i.e., CIT in RA No. 192/md/1998, dt. 10th Dec, 1999 which in turn arises out of an order dt. 24th Sept., 1998, passed by Tribunal in ITA No. 519/Ind/1994 to answer following question of law :
'Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the share of loss from joint venture could be set off against other income in the assessment of the member of joint venture/AOP, as assessed in the assessment of joint venture/AOP even though the other income of AOP is above taxable limit ?'
2. Heard Shri R.L. Jain, learned senior counsel, with Ku. V. Mandlik, learned counsel for the Revenue and Shri G.M. Chafekar, learned senior counsel with Shri M. Phadke, learned counsel for the assessee.
3. At the outset, we may consider appropriate to mention as to how and in what manner the question referred supra, was dealt with or we may say decided by three tax authorities, i.e., AO, CIT and Tribunal. It is so necessary to refer because that will show whether it was rightly decided or not ?
4. The AO by his order dt. 27th March, 1992 (Annex. A) had only this to say so far as question involved in the reference is concerned :
'4. Joint Ventures :
Joint ventures losses are being taken as stated in the P&L; a/c of the joint ventures subject to rectification and the same will be taken at the correct figures on receipt of the assessment orders.'
5. The CIT by taking recourse to the provisions of Section 263 of the Act suo motu against the aforesaid order of AO had this to say in his order dt. 30th March, 1994 (Annex. B), on the question :
'Similarly, the joint venture with Fine Spark Electrodes (P) Ltd., and Lotherence Electrodes (India) (P) Ltd., are altogether different entities and are liable to be taxed in the status of AOP. The profit and loss of the AOP are not taxable in the hands of the members, as the assessee is having taxable income. Furthermore, in view of the amendment w.e.f. 1st April, 1989, the AOP is to be charged to tax at maximum marginal rate as the member (assessee) had taxable income and accordingly, the assessee's share from AOP was not to be included in loss. As such the member's share of loss from the AOP was also not to be included in the assessment which is erroneous being done by the AOP.'
6. The Tribunal in an appeal filed by the assessee against the aforesaid order of CIT had this to say by their order dt. 24th Sept., 1998 (Annex. C), on the question :
'Para 11-Regarding the taxability of loss from joint ventures we find that during assessment proceedings, the AO had made pointed queries about the allowability or otherwise of the assessee's share of loss in joint ventures. The assessee brought on record the documents relating thereto; explaining the reasons as to why the assessee entered into joint venture agreements and the factors responsible for incurring loss in joint ventures. Both the joint ventures are assessed to tax as AOP in Bombay. The shares of the members are determinate which is evident from the copies of intimation under Section 143(1)(a) (pp. 57 to 60 of assessee's paper book), wherein the share(s) of loss of the assessee in joint ventures have been allocated by the AO. It was on the basis of appreciation of the evidence/material placed before the AO and after due application of his mind that the AO adopted the share(s) of assessee's loss(es) in the joint ventures subject to rectification. The setting aside of the assessment on this issue is not sustainable. What repercussion the amended law w.e.f. 1st April, 1989, will have to be examined by the authorities assessing the joint venture(s) which are admittedly not assessed under the jurisdiction of the CIT, Bhopal. So far long as the assessment or joint ventures are not disturbed, the share of assessee's profit/loss as a member thereof has to be assessed in the hands of the assessee. This is what has been done by the AO. Erroneous assessment refers to an assessment that deviates from the law or that which is not, in other words, in accordance with law. Nothing convincing has been demonstrated by the Revenue before us to enable us to take a view that adoption of share(s) of assessee's losses in joint ventures in the assessment is contrary to law. On the other hand, the assessment order would go to reveal that the AO was alive to the relevant facts and provisions of law with regard to this issue. It has been held in CIT v. Gabriel (India) Ltd. : [1993]203ITR108(Bom) that Section 263 does not visualise a case of substitution of the judgment of the CIT for that of the AO who passed the order unless the decision is held to be erroneous. As stated earlier, the assessment is not erroneous on this issue, as revision of assessment on the point is liable to be vacated. We do so and order accordingly.'
7. It is with this background now Revenue is before us in reference under Section 256(1) ibid.
8. What we notice from the statement of case drawn by the Tribunal and the aforementioned orders is that how the issue involved in the case was decided by the authorities. The question that arises for consideration in this reference is how to proceed to tax the profit or loss (in this case loss) suffered by AOP in the hands of the assessee who happens to be one of the members of AOP In other words, the question that arises for consideration in this reference is, if an assessee has entered into a joint venture for some business and in that process suffers loss, then whether assessee is entitled to claim set off against his/their other income though AOP is found having more taxable limit ?
9. There are three sections in the IT Act which take care of the issue in question. Depending upon the facts presented by the assessee which may differ from case to case, these provisions can be applied to determine the taxing liability of such assessee. These sections are (i) Section 67A, (ii) Section 86 and lastly Section 167B. So far as Section 86 is concerned, it has undergone several amendments w.e.f. 1st April, 1964 onwards time to time and hence, one has to see depending upon the assessment year, its applicability as to which amendment will apply to the case in hand. Same is also in respect of other two sections referred supra.
10. What we have noticed in aforementioned three orders is that none of the authorities be that AO or CIT while exercising suo motu revisionary powers under Section 263 of the Act against the order of AO and lastly Tribunal took note of any of these three sections and yet proceeded to decide the issue on merits. In other words, the AO made the assessment without examining the case of assessee in the light of any of these three provisions referred supra. When the CIT decided to set aside the order of assessment finding it to be against the interest of Revenue, i.e., erroneous and prejudicial to the interest of Revenue, it did set aside the order of AO but again without taking note of these provisions. Lastly, Tribunal too set aside the order of CIT but again without taking note of and/or without referring to any of the relevant provisions of the aforementioned sections. It is only in statement of case, one Section 86(v) as if it had its application was only referred and that too while taking note of submission of learned counsel for Revenue (see para 4 of statement of case).
11. It is, therefore, a case where the entire issue has been dealt with without taking note of relevant provisions of the Act which governs the case of assessee. In a case of this nature, the first thing that the taxing authorities should have done was to examine as under which section of the Act, the issue has to be considered and then decided. The second thing should have been whether case of assessee satisfies the rigour of that section which according to authority applies and if so, to what extent and lastly, what benefit is the assessee entitled to if the section is applicable
12. When we peruse the sections referred, then it is clear that Section 67A provides for method of computing a member's share in income of AOP. Section 86 (amended from time to time) also provides the manner of computation and lastly Section 167B provides for charge of tax where shares of members in AOP are unknown.
13. In our opinion, the case of assessee in this case has to be examined for determining their tax liability keeping in view the aforementioned three sections to the extent they apply to the facts of assessee. One cannot dispute that assessment or determination of tax liability arising out of such joint venture or AOP has got to be determined only with reference to the statutory requirement contained in aforementioned three sections and none else. Since, none of the authorities have had the occasion to examine the case of assessee in the light of these provisions, we cannot hold on facts in this reference in favour of assessee.
14. We, therefore, answer the reference in-favour of Revenue and against the assessee as follows :
'In the facts and in circumstances of the case, Tribunal was not justified in holding that share of loss from joint venture could be set off against other income in assessment of the member of joint venture/AOP as assessed in the assessment of joint venture/AOP even though the other income of AOP is above taxable limit.'