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Issues Involved:
1. Whether a partner of an unregistered firm can adjust his share of the firm's loss against his profits from other businesses under section 10 of the Income-tax Act, 1922. Detailed Analysis: 1. Legal Question and Background: An essential question of law is whether a partner of an unregistered firm can adjust his share of the firm's loss against his profits from other businesses under section 10 of the Income-tax Act, 1922. The assessee, a partner in two firms (one unregistered), claimed to adjust his share of the loss from the unregistered firm against his profits from other businesses. The Income-tax Officer and Appellate Assistant Commissioner rejected this claim, but the Tribunal upheld it, following the Bombay High Court's decision in Commissioner of Income-tax v. Jagannath Narsingdas. 2. Income-tax Act Provisions: The term "total income" is defined in section 2(15) and is crucial as the tax charge is levied on the total income of the previous year of an assessee. Section 10 outlines the rules for computing income under the head "Profits and gains of business, profession or vocation." It is established that all businesses constitute one head under section 10, allowing an assessee to adjust losses from one business against profits from other businesses (Commissioner of Income-tax v. Muralidhar Mathurawalla Mahajan Association and Anglo-French Textile Co. Ltd. v. Commissioner of Income-tax). 3. Business Carried on by a Firm: It is well-settled that a business carried on by a firm is considered a business carried on by its partners (Sitaram Motiram Jain v. Commissioner of Income-tax). Therefore, a partner's share in the firm's profit or loss is included in computing his income under section 10, regardless of whether the firm is registered or unregistered. 4. Section 14(2)(a) and Double Taxation: Section 14(2)(a) avoids double taxation by exempting a partner's share of profits from an unregistered firm, indicating that a partner's share in the firm's loss should also be included in computing his total income. 5. Privy Council Decision: The Privy Council in Arunachalam Chettiar v. Commissioner of Income-tax held that a partner's share in the loss of a firm can be set off against his individual profits, regardless of the firm's registration status. The amendments to the Income-tax Act in 1939 did not change this position concerning set-off under the same head. 6. Section 16(1)(b) and Proviso: Section 16(1)(b) affirms the right to include a partner's share in the firm's profit or loss in computing his total income. The proviso to section 16(1)(b) and section 24 relate to set-off between different heads and carry-forward of losses, not to adjustment under the same head. 7. Section 24(1) and Second Proviso: Section 24(1) deals with set-off between different heads, and the second proviso restricts set-off of an unregistered firm's loss against the firm's income only, not against the partners' income. This proviso does not apply to adjustment under the same head. 8. Section 24(2) and Proviso (c): Section 24(2) pertains to the carry-forward of losses, and proviso (c) restricts partners in an unregistered firm from carrying forward the firm's loss to set off against their own income in subsequent years. This proviso does not affect the adjustment of losses under the same head in the same year. 9. Supreme Court Decision: The Supreme Court in Commissioner of Income-tax v. Jadavji Narsidas & Co. held that a firm cannot set off its partners' individual losses. However, the decision did not address the adjustment of a partner's share of the loss against his profits from other businesses under section 10. Conclusion: The court concluded that a partner's share in the profit or loss of an unregistered firm is to be included in computing his income under section 10. Therefore, the assessee was entitled to adjust his share of the firm's loss against his profits from other businesses. The question referred was answered in the affirmative, and the Commissioner was ordered to pay the assessee's costs.
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