Adjustment within business head: partner may set off his share of unregistered partnership loss against his individual business profits.

An individual partner may adjust his share of loss from an unregistered partnership against his own business profits because adjustments between profits and losses falling under the same head (profits and gains of business) are governed by section 10, while section 24 addresses set-off across different heads. The second proviso to section 24(1) operates as an exception limiting cross head set off where an unregistered firm is the assessee, and does not bar an individual partner from making an intra head adjustment; accordingly the assessee's claim to set off the partnership loss against his business profits succeeds.

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Issues: Whether an individual assessee can set off his share of loss (Rs. 13,831) arising from an unregistered partnership against the profits of his individual business in computing income under section 10 of the Income-tax Act.

Analysis: The Court examined section 16(1)(b), section 24(1) (including the second proviso) and section 24(2)(c) and (d) in the context of prior decisions (including Arunachalam Chettiar v. Commissioner of Income Tax) and authorities on the distinction between set-off under section 24 and adjustment under section 10. The Court observed that section 24 governs set-off of losses across different heads of income whereas adjustment of profits and losses falling under the same head of income (business) is governed by section 10. The second proviso to section 24(1) operates as an exception to the main rule of section 24 and applies where an unregistered firm is the assessee for purposes of set-off under different heads; it does not operate to preclude an individual partner from adjusting his share of partnership loss against his own business profits under the same head. The Court also considered authorities holding that a partner's share of income or loss falls under the head 'profits and gains of business' and that prior Privy Council and High Court decisions permitting such adjustments remain applicable where the adjustment is within the same head.

Conclusion: The assessee is entitled to set off his share of the loss from the unregistered partnership against the profits of his individual business in computing income under section 10 of the Income-tax Act; the second proviso to section 24(1) does not preclude such an adjustment. The question is answered in the affirmative in favour of the assessee.

Ratio Decidendi: Where profits and losses arise under the same head of income (business), adjustment between them is governed by section 10 and an individual partner may set off his share of partnership loss against his individual business profits; the second proviso to section 24(1) restricts set-off across heads and applies to an unregistered firm as assessee, not to an individual partner seeking adjustment within the same head.

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