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TMI Blog1971 (11) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... house property " and " Income from securities ". Her claim for a set-off was rejected by the Income-tax Officer, the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal. The question now is whether she is entitled to the set-off claimed by her. Now, section 4 of the Income-tax Act, 1961, enacts that, subject to the other provisions of the Act, income-tax shall be charged in respect of the total income of the previous year of every person. Total income is defined by section 2(45) as meaning the total amount of income referred to in section 5 and computed in the manner laid down in the Act. Broadly, section 5 includes in the total income of a resident all income from whatever source derived which is received or is deemed to be received by him or which accrues or is deemed to accrue to him, etc. Chapter III of the Income-tax Act deals with incomes which do not form part of total income. It is sufficient to say here that income received by a person as his share from an association of persons is not included in Chapter III and, therefore, it is not to be excluded from the person's total income. Chapter IV deals with computation of total income. For the purposes of ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come includes income on which no tax is payable. It prescribes that an assessee shall be entitled to a deduction from the amount of income-tax chargeable on the total income, of an amount equal to the tax calculated at the average rate on the amount on which no tax is payable. The income-tax Act makes a clear distinction between incomes which cannot be included in the total income (dealt with in Chapter III) and incomes which have to be included in the total income but on which no income-tax is payable (dealt with in Chapter VII). In the one case the incomes go out of the purview of the Act and do not go through the process of assessment while in the other case they are within the purview of the Act and must necessarily go through the process of assessment. In the one case the incomes are not " assessable " at all while in the other the incomes are necessarily " assessable " although tax is not payable, This distinction is important. Earlier we stated that the right to set off a loss from one source or under one head against the income from another source or under another head arose naturally from the principle that income-tax was a single tax and the charge was on the total incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1922, as it stood before 1939, there was no provision corresponding to section 70(1) of the Act of 1961, but there was a provision corresponding to section 71(1) of the 1961 Act. Section 24(1) of the Indian Income-tax Act of 1922, as it stood prior to 1939, was as follows : " Where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in section 6, he shall be entitled to have the amount of the loss set off against his income, profits or gains under any other head in that year. " There was no provision corresponding to section 77(2) of the present Act prohibiting a partner of an unregistered firm from setting off his share of the loss from an unregistered firm where the income of the firm was a loss against his other income. Section 24(2), as it then stood, however, provided that where the assessee was a registered firm and the loss sustained could not be wholly set off under section 24(1), any member of such firm would be entitled to have set off against any income of the year such amount of the loss not already set off as was proportionate to his share in the firm. In Arunachalam Chettiar v. Commissioner of Income-tax the question arose w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e High Court was confirmed by the Supreme Court who stated : It appears that in the High Court the point urged on behalf of the present appellant was that there was no identity between the unit which derived the income and the units which sustained the loss and on this ground it was urged that there could be no set off under section 10 which permitted the loss incurred by the same unit being setoff against the profit derived by it......The High Court repelled this argument and, in our opinion, rightly repelled it in the circumstances of these two cases. A similar argument was considered and repelled by the Privy Council in Arunachalam Chettiar v. Commissioner of Income-tax. It was observed therein that whether a firm was registered or unregistered, a partner's share of the loss in the firm could be set off against the profits and gains made by him in his individual business. That principle applies in the present cases, even though after the amendment of the Income-tax Act in 1939, the position of a partner in an unregistered firm may stand on a different footing, a distinction which is not material for the present cases. " There is one other decision of the Supreme Court to which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14(2) did was to save the profits of an unregistered firm from liability to tax in the hands of the partners. It did not affect the computation of the total income to determine the rate applicable under section 3, in the light of section 16(1)(a). Indeed, section 16(1)(a) clearly provided that any sum exempt under section 14(2) was to be included in computing the total income of an assessee and, in view of this specific provision, the converse of the second proviso to section 24(1), which we have quoted above, hardly applied." Later again while dealing with the question of carrying forward of loss (with which we are not concerned), they observed : " The High Court...pointed out-and, in our view, rightly-that under sections 14(2) and 16(1)(a), the profits and losses had to be set off against each other to find out the total income. " These decisions of the Privy Council and the Supreme Court recognize the existence of a general rule of set off of loss against income, a rule derived from the principle that income-tax is a single tax on total income, a rule expressly enacted by section 24(1) of the 1922 Act in the case of incomes and losses under different heads, a rule recognised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived by an assessee from an association of persons of which he is a member has to be included in the assessee's total income under section 67, though no income-tax is payable on it. It is " assessable " income. The learned counsel relied upon the decision of the Calcutta High Court in Ganga Metal Refining Company v. Commissioner of Income-tax. The facts of the case were that the assessee which was a limited company engaged itself in a joint venture which resulted in a loss of which the assessee's share was Rs. 11,875. The assessee wanted to set off this loss against its other income. The other income was presumably under heads other than " Business " since the claim for set-off was made under section 24(1) of the 1922 Act and not under section 10. The Calcutta High Court held that the set-off was not permissible since the assessee who was claiming the set-off was different from the assessee who had incurred the loss. Thus, according to the learned judges, set-off was not permissible because the company and the association of persons which engaged in the joint venture were different taxable " entities ". To us, the view of the Calcutta High Court appears to be directly in the te ..... 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