Business income retained its character under clubbed income rules, allowing carried forward loss set-off against family share income.

Income included in an assessee's total income under section 16(3) of the Indian Income-tax Act, 1922, retains its original business character for set-off purposes. Where the included income is share income of a wife or minor children arising from business, it is treated as business income attributable to the assessee for assessment under section 10. On that basis, carried forward business losses could be set off under section 24(2) against such income, because the statutory fiction preserves the business character of the amount for the limited purpose of the set-off.

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Issues: Whether the assessee was entitled, under section 24(2) of the Indian Income-tax Act, 1922, to carry forward and set off business losses against the share income of his wife and minor children included in his assessment under section 16(3).

Analysis: The statutory scheme treats income included under section 16(3) as retaining its original character. Where such income is business income, it is assessed under the head of business income under section 10, and the fiction created by section 16(3) operates so that the income of the wife or minor children is regarded, for assessment purposes, as the assessee's business income derived from a business carried on by him. The right to set off carried forward business loss under section 24(2) depends on the loss having been sustained in business and the income against which set-off is claimed being business income carried on by the assessee. On that footing, the share income brought into the assessee's total income under section 16(3) was available for set-off.

Conclusion: The assessee was entitled to carry forward and set off the losses against the share income of his wife and minor children.

Final Conclusion: The reference was answered in favour of the assessee by holding that income included under section 16(3) retains its business character for the purpose of section 24(2) set-off.

Ratio Decidendi: Income included in the assessee's total income under section 16(3) of the Indian Income-tax Act, 1922, retains its original business character and may be treated as business income derived from a business carried on by the assessee for the purpose of section 24(2) set-off.

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