Partners of unregistered firms cannot claim to set off their share of the firm's loss against their own income or their share of profits of registered firms for the same year under the same head.

Govinda Bhat, J.—The common question of law raised in these writ petitions is :

"Whether an individual partner has the right to set off his share of the unregistered firm's loss against his share of income of registered firms of the same year under the same head ?"

2. It arises in this way. The petitioners in Writ Petitions Nos. 3417 and 3419 of 1968 were partners in four firms during the accounting period relevant to the assessment year 1961-62. The petitioner in Writ petition No. 3418 of 1968 was a partner during the said year in three firms. They were assessed by the assessment by the assessment orders made on February 27, 1962, on the basis of the returns furnished and also on the basis that the firms in which they were partners were all registered firms. At the time of the assessment of the petitioners in Writ Petitions Nos. 3417 and 3419 of 1968, an application for registration of one of the firms in which the said petitioners were partners, viz., Messrs. Srinivasa Textiles, was pending. Similarly, the application for registration of Messrs. Lalitha Silk Throwing Factory in which the petitioner in Writ Petition No. 3418 of 1968 was a partner was also pending. The applications for registration of the said firms, however, were ultimately rejected. In the assessment order passed on February 27, 1962, the assessee's share income of the firms was provisionally accepted subject to subsequent rectifications. Subsequently, the Income Tax Officer (respondent) made separate orders on August 13, 1968, in the case of each of these petitioners under section 35 of the Indian Income Tax Act, 1922, hereinafter called "the Act". Under the said orders the share of loss of the petitioners in Writ petitions Nos. 3417 and 3419 of 1968 from Messrs. Srinivasa Textiles which was an unregistered firm was not set off against the share of profits from the registered firms and they were assessed accordingly disregarding the share of loss of the unregistered firm. Similarly, in the case of the petitioner in Writ petition No. 3418 of 1968, his share of loss from the unregistered firm, Messrs. Lalitha Silk Throwing Factory, was disregarded while computing his total income.

3. Aggrieved by the said orders the petitioners have preferred the above writ petitions. In the said writ petitions, the petitioners raised two grounds : firstly, that section 35(5) of the Act is not applicable to the case of the petitioners, and, secondly, that the share of loss from an unregistered firm must be set off against the share income from the registered firms for the purpose of arriving at the rate at which the total income of the assessee has to be assessed. When the matters came up for final hearing, the petitioners' learned abandoned the said grounds and sought leave to raise an altogether new ground. The leave sought for was granted and in the supplementary affidavits filed, the petitioners have urged the following one ground : that the respondent ought to have set off the share of loss from the unregistered firms against the share of profits from the registered firms and then arrived at the net taxable income under section 35(2) of the Act. In support of the said contention, Sri K. Srinivasan, learned counsel for the petitioners, argued that sub-section (1) of section 24 of the Act provides for set-off losses under one head against profits under any other head of the same assessee in the same year, that the second proviso to the said sub-section provides for set-off of share of loss of an unregistered firm and that the second proviso will operate in the same field in which section 24(1) operates. In other words, the second proviso to section 24(1) cannot be construed as an independent provision and its operation must be limited to section 24(1). The learned counsel argued that, in the instant case, the share of loss of the petitioners from the unregistered firms and their shares of profits from the registered firms arise under the head, viz., business, and a