Adhithya (Associate Consultant) (112 Points)
10 September 2010One of our clients is a partnership firm and they have incurred heavy losses over the past few years. The firm is being dissolved. At present they have brought forward losses to the tune of more than Rs. 15 Lakhs.
The query is if this loss can be carried forward by the partners in their individual capacity and if so how long can this be caried forward?
Will be really grateful if someone could answer this?
GURVINDER SINGH
(ACCOUNTS MANAGER)
(231 Points)
Replied 10 September 2010
i think if the firm is being dissolved the losses should be born by the partners and if any liability exists it should be paid from the partners personal properties
Adhithya
(Associate Consultant)
(112 Points)
Replied 10 September 2010
Yeah that sounds to be the logical answer but what does the Act say??? I checked in the act but could not find reference to that. Sec 78 says that losses of deceased or retiring partners cannot be carried forward but not about c/f of loss in case of dissolution.
Thanx for the reply..
CA Shiv
(Business Controller)
(2987 Points)
Replied 10 September 2010
No i dont think so... Partners cannot carry loss individuallly......
Sunshine
(Helping All)
(10575 Points)
Replied 10 September 2010
i agree...they cant carry the losses individually..
Adhithya
(Associate Consultant)
(112 Points)
Replied 10 September 2010
If so which sec prohibits the same... Sec 72 to 78 dont talk anything abt this case... I have to confirm this @ the earliest but I have no idea abt the section... Thanks for the replies....
yashsaxena
(Managing Director)
(71 Points)
Replied 10 September 2010
No i don't think so... Partners cannot carry loss individually
Have some look on Partnership Firms In Indian Tax System
Adhithya
(Associate Consultant)
(112 Points)
Replied 10 September 2010
@ yash saxena sorry but there it talks about carry forward of loss in case of reconstitution and reconstitution particularly excludes dissolution.... What is the treatment in case of dissolution???
CA Arindam Sain
(Practice)
(308 Points)
Replied 11 September 2010
Hi adhithya,
The basic principle which guides Sec.78 & 79 is loss C/F and setoff is available to the person who sufeered the loss. As a firm and it's partners are two diferent legal entity in law, so, b/f loss of a dissolved firm can not be set off by it's erstwhile partner's in their individual tax computation.
Adhithya
(Associate Consultant)
(112 Points)
Replied 11 September 2010
Thanx raju... If so the loss suffered will hold no value and the same is lost for the further years... I was blinded by the fact that a propreitor can claim the loss suffered by him in a discontinued business in the succeeding ay's.. I referred to several books but nothing specifically provided foor the above topic...
CA Arindam Sain
(Practice)
(308 Points)
Replied 11 September 2010
Dear Adhithya,
You can search net...I think u will get reference of your case
Adhithya
(Associate Consultant)
(112 Points)
Replied 11 September 2010
Tried it first but no results......
Kamal Jain
(FCA)
(200 Points)
Replied 13 September 2010
Proviso (i) to section 72(1) lays down that business loss can be carried forward against the profits of business of the following years only if the business in which the loss was suffered continued to be in existence. In case the assessee ceases to carry on the business then the loss suffered in the said business cannot be carried forward in the subsequent assessment years to be set off against the profits earned in some other business.
Kamal Jain
(FCA)
(200 Points)
Replied 13 September 2010
Pls refer to the follwoing case law, as attached.
[1996] 218 ITR 541 (PUNJ. & HAR.)
HIGH COURT OF PUNJAB AND HARYANA
Tara Devi Behl
v.
Commissioner of Income-tax
ASHOK BHAN AND N.K. SODHI, JJ.
IT REFERENCE NOS. 198 AND 199 OF 1980
DECEMBER 8, 1995
CA Mangesh Chitale
(B. Com. A.C.A. DISA (ICAI) DIRM (ICAI))
(245 Points)
Replied 13 October 2010
Loss of Partnership firm is of no use to partners. Partner can not use the 'carried forward loss' of firm. If one partner resigns, then firm loses its proportionate carried forward loss.
For e.g. If firm has loss of Rs. 6 Lacs & there are 3 partners. If one of them resigns, then firm loses Rs. 2 lacs from its loss Rs. 6 lacs & can set off against its profit only Rs.4 Lacs.
CAclubindia
