A partner in an unregistered firm is entitled to set off his share of loss in the firm against the profits of his individual business under Section 10 of the Income Tax Act, 1922.

( 1 ) IN the calendar year 1957, Ram Swarup Gupta was carrying on business both as an individual and as a partner in an unregistered firm known as M/s. Rashtarya Grab Udyog. According to him, this firm was owned by him till 1st September, 1957, when it became a partnership. He had sufferred a loss up to 31st August, 1957 in this business to the extent of Rs. 13. 041. 00. In his assessment for the year 1958-59, he claimed that this loss of Rs. 13,041. 00 which was incurred by him before 1st September, 1957, should be deducted from his other business income. The Income Tax Officer disallowed this amount on the ground that the partnership had taken over the assets and liabilities of the business on 1st September, 1957, and the loss was not sufferred by the assessee as a proprietor of the firm.

( 2 ) ON appeal to the Appellate Assistant Commissioner, it was held that the assessee had not been able to show that the firm came into existence on 1st September, 1957, or that he was the proprietor of the business before that date. It was observed in the order that the firm and the assessee were separate for the purposes of assessment of the loss of the firm, which besides being not quantified, could not be set off against the profits of the assessee. The assessee appealed to the Income Tax Tribunal. On the basis of the decision of the Bombay High Court in Commissioner of Income Tax, Bombay South, Poona V. Jagannafh Narsingdas Umri^) the Tribunal accepted the appeal and held that the assessee was entitled to adjust the loss claimed While computing his profits and gains from business under Section 10 of the Income Tax Act, 1922. It was also held that the second Proviso to Section 24 (1) of the Act did not apply. The Tribunal directed that the loss allowable in the assessee s hands should be verified. by the Income Tax Officer and should be allowed to the extent of the actual loss incurred after verification.

( 3 ) A reference was sought by the Commissioner of Income Tax, Delhi, and a direction was issued by this Court in Income Tax Case No. l4-D of 1966 calling for a statement of the case on the following question:-

"whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to set-off his share of loss in a business carried on by an un-registered firm against the profits of his personal business?"

( 4 ) A statement of the case has been submitted in this Court in furtherance of the said direction and the facts set out above are stated in that case. The assessee had asked for a modification in the question which was disallowed by the Tribunal on the ground that it was not material. The amended question sought to be REFERRED TO by the assessee is substantially the same as the one actually REFERRED TO and need not be reproduced here.

( 5 ) THE question REFERRED TO to us appears to have arisen in a large number of reported cases and there appears to be a difference between the High Courts as to whether a partner can adjust his share in the loss of an un-registered firm of which he is a member in his personal assessment against the profits of his individual business.

( 6 ) IN Commissioner of Income-Tax, Bombay South V. Jagannath Narsingdas, (1965) 55,i. T. R. 128 relied upon by the Tribunal, it was held that Section 24 of the Income-Tax Act, 1922 was not applicable to such an adjustment as the same could be made under Section 10 of the Act. The Gujarat High Court took the same view in Commissioner of Income-Tax, Gujarat V. Jethalal Zaverchand Patalia (1966) 61, I. T. R. 3 57 (2 ). There was a previous decision of the Andhra Pradesh High Court which was reported as Commissioner of Income-Tax, Andhra Pradesh V. Vakati Sanjeeva Setty, (1962) 46, I. T. R. 755. In which the same view was taken. The Calcutta High Court had to deal with the same question in Ranjit Kr. Banerjee V. Commissioner of Incometax, (1968) 69, I. T. R. 32, where the assessee sought to set-off his s