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TMI Blog1957 (9) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... Estate, Nagpur. In the relevant accounting year the two registered firms incurred losses. The firm at Hinganghat incurred a loss of ₹ 11,902. The firm at Kamptee incurred a loss of ₹ 1,265 the total loss in the two registered firms being ₹ 13,167. In the unregistered firm there was a profit of ₹ 26,110. These figures for all the three firms relate to the share of the assessee only and are not the figures of loss and profit for the firm. Now, it appears that there was a small British Indian income of ₹ 262 which arose under the head salaries, securities, house property and other sources . It was the case of the Income-tax authorities that this amount had to be taxed at the rate applicable to the total income of the assessee and for the purpose of ascertaining his total income his share of profits from the unregistered firm should be set off against his share of loss from the two registered firms. It was the contention of the assessee that the income from the unregistered firm had been taxed in the hands of the unregistered firm and it must be completely ignored and cannot be set off against the assessee's share of loss from the registered firms. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate only. Now, the question that we have been called upon to determine is whether in arriving at the profits under the head business of the assessee, the share of the assessee in the losses made by the two registered firms is to be set off against the share of the assessee in the income of the unregistered firm. The Tribunal appears to have decided this question mainly relying upon proviso 2 to section 24(1). That proviso is in these terms: Provided further that where the assessee is an unregistered firm which has not been assessed under the provisions of clause (b) of sub-section (5) of section 23 in the manner applicable to a registered firm, any such loss shall be set off only against the income, profits and gains of the firm and not against the income, profits and gains of any of the partners of the firm; and where the assessee is a registered firm, any loss which cannot be set off against other income, profits and gains of the firm shall be apportioned between the partners of the firm and they alone shall be entitled to have the amount of the loss set off under this section. The first part of the proviso deals with losses made by an unregistered firm; and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd it did not relate to setting off the loss in one business against the profits of another business both of which businesses came under the single head business under section 10 of the Indian Income-tax Act. Therefore, the general principle is that the profits under the head business can only be ascertained as the aggregate of profits and/or losses made by the assessee in different businesses. It follows that the income under the head business can be arrived at in the present case by setting off the share of profits in the unregistered firm against the assessee's share of loss in the registered firms, unless there is some section in the Income-tax Act which constitutes an exception to the general principle that we have just enunciated. Now, Mr. Thakar for the assessee contends in the first instance that upon a correct interpretation of section 14, sub-section (2), and section 16, sub-section (1), the assessee's share in the profits of the unregistered firm is not to be included in his total income at all; but if the total income without such inclusion attracts tax, then his share in the profits of the unregistered firm is to be included in the total income for rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that the income which an assessee receives from an Hindu undivided family and which is exempt from tax under section 14 is not to be included in the total income, because the Legislature thought that it should not figure for rate purposes either. We cannot, therefore, uphold the submission of Mr. Thakar that income which is exempt from tax under section 14 does not form part in the income of the assessee at all and it is artificially to be added to his income in computing his total income merely for the purpose of determining the rate of tax if tax is attracted by the income as computed after exclusion of the income exempted under section 14. We next turn to the second contention advanced on behalf of the assessee that proviso 2 to section 24(1) which we have already set out above should be read as a substantive enactment and not as a proviso to section 24(1), which is in these terms: 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. This sub-section is clear and unambig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different heads; and, therefore, in our opinion, the proviso should be restricted to the normal function of a proviso, namely, to exclude from the operative part of section 24(1) something which might otherwise have been included it. But even assuming for a moment that this proviso was a substantive enactment, in so far as it deals with the loss of a registered firm, it provides that such loss shall be set off only against the income, profits and gains of the firm and not against the income, profits and gains of any of the partners of the firm. It does not deal with the question that we have to determine, namely, what is to be done with the profits of an unregistered firm; and the proviso, in our opinion, does not render any assistance in determining the question that we have been called upon to determine on this reference. It is next contended that the effect of holding that the assessee's share of the profits of the unregistered firm can be set off against his share of the loss of the registered firms is to deprive the assessee of the right which he would have had of carrying forward the loss. This is an argument which appears to have weighed with the Tribunal as well. Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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