Set-off of business losses against exempt share income from an unregistered firm is permitted under the Income-tax Act, 1922.

Under the Income-tax Act, 1922, business income under a single head is computed by aggregating profits and losses, so a partner's share income from an unregistered firm, even if separately taxed in the firm's hands and exempt in the partner's hands for tax, remains part of the assessee's income for computation and rate purposes. The proviso dealing with registered and unregistered firms did not create a bar against set-off within the business head. The share income from the unregistered firm was therefore available to be set off against the assessee's share losses from registered firms, and the question was answered in favour of the Revenue.

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Issues: Whether the share income of an assessee from an unregistered firm, though separately taxed in the hands of the firm, can be set off against the assessee's share loss from registered firms in computing income under the head 'business'.

Analysis: Under the scheme of the Income-tax Act, 1922, income from business is computed under section 10 as the aggregate of profits and losses from all businesses under that head. Section 23(5) distinguishes the tax treatment of registered and unregistered firms, while section 14(2)(a) read with section 16(1)(a) shows that share income from an unregistered firm, though exempt from tax in the partner's hands, is still included in total income for rate purposes and does not cease to be income of the assessee. Section 24(1) deals with set-off between different heads of income and the second proviso to section 24(1) does not govern the present question of set-off within the same head. The proviso concerning unregistered and registered firms does not create an exception preventing the profit of an unregistered firm from being adjusted against losses in registered firms.

Conclusion: The assessee's share income from the unregistered firm was liable to be set off against the share losses from the registered firms, and the question was answered in the affirmative in favour of the Revenue.

Final Conclusion: Business income must be computed by aggregating profits and losses under that head, and the exemption applicable to a partner's share in an unregistered firm does not prevent its adjustment against losses from other businesses or firms.

Ratio Decidendi: Income exempt from tax under section 14 of the Income-tax Act, 1922 may still form part of the assessee's income for computation and rate purposes, and losses and profits falling under the single head 'business' are to be netted against one another unless a clear statutory exception applies.

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