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Issues Involved:
1. Whether the share loss of Rs. 7,226 arising from the Jaipur firm could be set off against the share income from several businesses in British India in computing the income of the assessee under the head 'business'. 2. The jurisdiction and duties of the Appellate Tribunal in referring cases to the High Court under Section 66(1) of the Indian Income-tax Act. 3. Interpretation of Section 24(1) and its provisos regarding set-off of losses. 4. The application of Section 14(2)(a) and Section 14(2)(c) concerning tax exemptions for income from unregistered firms. Issue-wise Detailed Analysis: 1. Set-off of Share Loss Against Share Income: The primary question was whether the share loss of Rs. 7,226 from the Jaipur firm could be set off against the share income from several businesses in British India under the head 'business'. The court held that the assessee, a partner in various registered firms in British India and a firm in Jaipur, suffered a share loss in the Jaipur firm. The Income-tax authorities and the Appellate Tribunal denied the deduction of this loss. However, the court referred to the case Commissioner of Income-tax v. Murlidhar Mathurawalla Mahajan Association [1948] 16 I.T.R. 146, which supported the assessee's claim that loss from business outside British India should be deducted from the profits of business in British India to determine the taxable income under 'business'. The court concluded that the share income from different partnerships is income under one common head 'business', and thus the share loss from the Jaipur firm could be set off against the share income from the firms in British India. 2. Jurisdiction and Duties of the Appellate Tribunal: The court addressed the Tribunal's misconception about its duties in deciding appeals and applications under Section 66(1). The Tribunal believed it was not bound to refer the correct question of law if the assessee did not raise it in a particular form. The court clarified that a litigant has the right to present any question of law arising from the facts found by the Tribunal at any stage. The Tribunal must apply the appropriate law to the facts found, and it is obligated to refer any question of law that arises from its order. The court emphasized that the Tribunal should not express opinions on the correctness of the High Court's order and should state all relevant facts in a restrained language. 3. Interpretation of Section 24(1) and Its Provisos: The court examined the second proviso to Section 24(1), which states that the loss of an unregistered firm should only be set off against the firm's income and not against the partners' income. The court found that this proviso is an exception to the general rule for set-off in Section 24(1), which allows the set-off of losses under one head against income under another head. The court rejected the argument that the proviso should be read independently, stating that the proviso applies only to the set-off of losses under different heads of income, not within the same head 'business'. 4. Application of Section 14(2)(a) and Section 14(2)(c): The court discussed Section 14(2)(a), which exempts tax on income from unregistered firms if tax has already been paid by the firm, and Section 14(2)(c), which exempts income from unregistered firms outside British India unless received or brought into British India. The court noted that both share income from British India and outside are liable to tax, subject to exemptions. The court concluded that the assessee's share loss from the Jaipur firm must be considered in determining the total income, as the assessee was not bringing any loss into British India but rather seeking to have his total income computed correctly. Conclusion: The court answered the question in the affirmative, allowing the assessee to set off his share loss from the Jaipur firm against the share income from several firms in British India. The Commissioner was ordered to pay the costs of the reference, and the judgment emphasized the proper duties of the Appellate Tribunal in referring cases to the High Court. The court also clarified the interpretation of Section 24(1) and its provisos, ensuring the correct application of tax laws concerning set-off of losses.
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