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Issues Involved:
1. Whether the share income of the assessee from the unregistered firm can be set off against their share loss from registered firms. Issue-wise Detailed Analysis: 1. Set-off of Share Income from Unregistered Firm Against Share Loss from Registered Firms: The primary issue in this case is whether the share income of the assessee from an unregistered firm, which is separately taxed, can be set off against their share loss from registered firms. The relevant facts are that the assessee is a partner in two registered firms that incurred losses and one unregistered firm that made a profit. The Income-tax authorities contended that the share of profits from the unregistered firm should be set off against the share of losses from the registered firms to ascertain the total income of the assessee. To address this, the court examined the general scheme of the Income-tax Act before its amendment by the Finance Act of 1956. Section 23(5) outlines the assessment of the total income of a firm, distinguishing between registered and unregistered firms. Section 14(2)(a) exempts the share of profits of a partner from an unregistered firm from being taxed again in the hands of the partner if the firm has already paid the tax. Section 16(1)(a) includes sums exempted under section 14(2) in computing the total income for rate purposes only. The court referred to the case of Commissioner of Income-tax v. Murlidhar Mathurawalla Mahajan Association [1948] 16 ITR 146, which established that all businesses constitute one head under section 10, and profits and losses from different businesses under this head can be aggregated. This principle implies that the income under the head "business" can be determined by setting off the share of profits in the unregistered firm against the share of losses in the registered firms. The Tribunal had relied on proviso 2 to section 24(1) to deny the set-off. However, the court clarified that section 24(1) deals with setting off income from one head against a loss under another head, not within the same head. The proviso to section 24(1) restricts the set-off of losses of an unregistered firm against the income of the partners, but does not address the set-off of profits from an unregistered firm against losses from registered firms. The court also rejected the argument that section 14(2) and section 16(1) imply that the share of profits from an unregistered firm should not be included in the total income for set-off purposes. It emphasized that income exempt from tax under section 14 does not cease to be the income of the assessee and is included in the total income for rate purposes. The court concluded that the assessee's share of profits from the unregistered firm should be set off against the share of losses from the registered firms. The Tribunal's decision was incorrect, and the court answered the question in the affirmative, allowing the set-off.
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