Satyanarayana Rao, J.- An interesting question has been referred to us for decision under section 66(1) of the Indian Income-tax Act by the Income-tax Appellate Tribunal. The question for decision is:

“Whether on the facts and in the circumstances of the case,the taxed share income of Rs. 22,440 from the unregistered firm of Messrs. Dharmashi Brothers, could be set off against the loss of Rs. 52,569 sustained by the respondent Hindu undivided family in speculation business for the purpose of determining the loss to be carried forward under section 24 (2).”

The assessee is the kartha of a Hindu undivided family. The kartha was also a partner in an unregistered firm known as Messrs. Dharmashi Brothers. During the assessment year, the assessee received as his share of the profit of the unregistered firm a sum of Rs. 22,440 on which tax was collected from the unregistered firm. His account of the total income of the loss as compiled by the Income-tax Officer is as follows: It would be seen from this statement that the family incurred a loss of Rs. 52,569 in speculation. This loss was set off by the Income-tax Officer-which was affirmed by the Appellate Assistant Commissioner-against the profits not only of the joint family but also against the taxed share income of the kartha from Messrs. Dharmashi Brothers which was a sum of Rs. 22,440. The balance of Rs. 26,927 was allowed to be carried forward under section 24(2) of the Act. The Appellate Tribunal reversed the decision of the revenue department and held that the loss could not be set off against the taxed share income from the unregistered firm received by the assessee during the year. At the instance of the Income-tax Commissioner this reference was made to this Court. The question is whether the view taken by the Appellate Tribunal was right or whether the view of the department should prevail.

The set off allowed under section 24(1) of the Act is in respect of the loss sustained under one head against the profits or gains under one or more heads earned during the accounting year. In the case of unregistered firms, under section 14, if tax has already been paid by a partner of such firm in respect of any portion of his share in the profits and gains computed in the manner laid down in clause (b) of sub-section 1 to section 16, it shall not be a gain liable to be assessed to tax again, the reason being, as the income had already suffered tax it could not be subjected to double taxation. But under section 16 the amount so exempted from further taxation is not excluded in computing the total income of the assessee. The result is in fixing the tax payable by the assessee and in order to determine the rate, the income exempted from taxation under section 14 should also be taken into computation. Under section 17(2), after arriving at the total amount of the income-tax excluding the super-tax which should have been payable on the total income, if no part of it is exempted from taxation, the department has to work out the proportion which the unexempted portion of the total income bears to the total income, and bearing that fraction in mind arrive at the total amount of tax payable by the assessee. In other words, if the total income is Rs. 10,000 and the exempted portion of the income is Rs. 3,000, in order to arrive at the tax payable the total amount of the income-tax should be 7/10ths. It is only for this purpose and for this purpose alone the exempted portion of the income of the assessee enters into consideration in the process of assessing the income of the assessee for the purpose of tax under the Act. The language of section 24(1) when it speaks of “set off against his income, profits or gains” can only apply to income which has not already suffered tax but income in respect of which tax could be levied and collected. It is against such an income, profits or gains that set off is allowed. The word used is not “total income” but only “income” and that is important to bear in mi

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