Partner's share of loss in foreign partnerships may be set off against the partner's business income in India, subject to statutory provisos.

Whether a partner's share of loss in foreign or non-resident partnerships can be netted against the partner's Indian business income is answered affirmatively: the partner's share of profits or losses is treated as business income for computation under the head Business, and parity requires that share-losses be available for set-off against the partner's other business income. The clarification applies notwithstanding the partnership's non-resident status, subject to applicable statutory provisos governing set-off and carry forward of losses; thus foreign partnership losses may reduce assessable business income in India.

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Issues: Whether the share of loss sustained by an assessee as partner in firms outside the taxable territory (foreign or non-resident partnerships) can be set off against the assessee's income from business in India in computing total income under the Income-tax Act.

Analysis: The Court examined the character of a partner's share of profits or losses and the statutory scheme governing heads of income and computation. It considered whether a partner's share is brought to charge under the head 'business' so that profits and losses of the business carried on by the assessee (including partnership business carried on with others) are to be aggregated under section 10 for computation of total income. The Court analysed the unity of ownership and control principle: income or loss from all operations carried on by the assessee in the accounting year must be netted to determine assessable business income. The Court reviewed relevant provisions including section 3 (units of assessment), section 6 (heads of income), section 10 (business income), section 16(1)(b) (treatment of partner's share and proviso permitting set-off if partner's share is a loss), section 23(5) and section 24(1), and prior authorities holding that a partner carries on the partnership business for purposes of section 10. The Court rejected the Department's contention that the firm as a separate assessable unit prevents recognition of a partner's share-loss for set-off where the firm itself is non-resident or not assessed; it held that if a partner's share of profit is includible as business income when profitable, parity requires that a partner's share of loss is likewise available for set-off against the partner's other business income under section 10, subject to applicable provisos permitting set-off or carry forward under section 24 where relevant. Applying this legal framework to the facts, the Court held that the share-losses from the foreign partnerships were properly adjustable against the assessee's business income in India.

Conclusion: The share of loss sustained by the assessee as partner in the foreign/non-resident firms can be set off against the assessee's income from business in India; the references are answered in the affirmative and in favour of the assessee.

Ratio Decidendi: A partner's share of profits or losses from partnership business is income from business within section 10 and, where includible in the partner's total income, such share-loss may be set off against the partner's other business income in computing assessable income, irrespective of the partnership's non-resident status, subject to the statutory provisos governing set-off and assessment.

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