1. The question referred to us by the Income-tax Appellate Tribunal, Cochin Bench is "Whether on the facts and in the circumstances of the case, Rs. 42,632 being the assessee's share of loss from M/s. Tyre A Rubber Industries, is to be set off against Rs. 50,284 being the share income of the minor children of the assessee from the firm, M/s. Ignatius Mill Stores for the assessment year 1976-77?"

2. That arises on the following facts. During the accounting year relevant to the assessment year 1976-77 the assessee, an individual, was a partner in M/s. Tyre & Rubber Industries and also M/s. Natius Latex Industries. Her two minor children were admitted to the benefits of a partnership, M/s. Ignatius Mill Stores. During the relevant accounting year the assessee's share of loss from M/s. Tyre & Rubber Industries was Rs. 42,636/- and her share of income from M/s. Natius Latex Industries was Rs. 3,764/-. The share income of each of the minor children of the assessee from the firm M/s. Ignatius Mills was Rs. 25,142/-. The assessee filed a return disclosing an income of Rs. 4,200/-. The loss incurred by her in the firm of M/s Tyre & Rubber Industries was set off by her against the share income of her minor children included in her total income under S.64 of the Income-tax Act. This return was not accepted by the Income-tax Officer who held that the share income of the minor children from the firm assessable in the hands of the assessee under S.64(1)(iii) of the Act could not be taken into account for the purpose of adjustment against her loss, under S.70 of the Act. Accordingly he determined the total income as Rs. 48,620/-. The assessee preferred an appeal to the Appellate Assistant Commissioner who accepted the assessee's case and allowed set off of the loss against the share income of the minors in the firm. The department took up the matter to the Appellate Tribunal. The Tribunal agreed with the view of the Appellate Assistant Commissioner and held that the share income of the minor children should be treated as the business income of the assessee and that S.70(1) of the Act warranted the view that the income included in the total income of the assessee by applying S.64 of the Act should be considered as assessee's income for the purpose of adjustment of the loss. It is from these facts that the question referred to us has arisen.

3. "Total income" is defined in S.3(45) of the Income-tax Act as meaning the total amount of income referred to in S.S, computed in the manner laid down in the Act. S.5 de tines the total income of any previous year of a person who is a resident as including all income from whatever sources derived (a) which is received or is deemed to be received in India in such year by or on behalf of such person (b) which accrues or arises or is deemed to accrue or arise to him in India during such year and (c) which accrues or arises to him outside India during such year. We are not concerned with the proviso or sub-section (2) in this case. S.14 defines the heads of income as (a) salaries (b) interest on securities (c) income from house property (d) profits and gains of business or profession (e) capital gains and (f) income from other sources. S.64(1) (iii) of the Income tax Act, 1961 is relevant for our purpose and we quote the sub-section here:

"64. Income of individual to include income of spouse, minor child etc.

(1) In computing the total income of any individual, there shall be included all such income as arises directly or indirectly

(i)

(ii)

(iii) to a minor child of such individual from the admission of the minor to the benefits of partnership in a firm".

S. 64(1) (iii) in terms refers only to the inclusion of the income that arises directly or indirectly to a minor child. Whether the Section would take within its scope loss arising to such minor child was a matter on which opinion was once divided. Now the doubt has been resolved by Explanation.2 to S.64(2) which reads:

"Explanation 2 For the purpose