Partner's share of unregistered firm loss can be set off against personal business profits in individual assessment.

Where an unregistered firm was not assessed in its own hands, a partner's share of its business loss was required to enter the partner's individual computation of business income under section 10 of the Indian Income-tax Act, 1922. The Delhi HC held that the same principle applicable to a partner's share of profits also applied to losses, so the loss could be set off against the profits of the partner's personal business. It further held that the second proviso to section 24(1) barred set-off only where the unregistered firm itself claimed the adjustment, and did not prevent the partner from claiming it in his individual assessment.

---

---

Issues: Whether a partner of an unregistered firm, whose loss was not assessed in the firm's hands, could set off his share of that loss against the profits of his personal business in computing income under the Indian Income-tax Act, 1922.

Analysis: The loss in question arose in business carried on by the assessee partly as an individual and partly through an unregistered firm that had not been assessed. The Court compared the scheme of section 10, which requires computation of the aggregate profits and gains of the assessee's businesses, with section 24(1), which governs set-off across different heads of income. It held that a partner's share in the profits or losses of an unregistered firm enters his individual computation when the firm itself is not assessed, and that the second proviso to section 24(1) is attracted only where a set-off under that provision is claimed by an unregistered firm as such. The Court preferred the view that the same principle applies to losses as to profits, and rejected the contention that allowing the partner's set-off would create an impermissible double advantage.

Conclusion: The assessee was entitled to set off his share of the loss from the unregistered firm against the profits of his personal business.

Final Conclusion: The reference was answered in the affirmative, affirming the assessee's right to claim the adjustment in his individual assessment.

Ratio Decidendi: Where an unregistered firm is not assessed, a partner's share of its business loss is to be taken into account in the partner's individual computation of business income under section 10, and the second proviso to section 24(1) does not bar such adjustment unless a set-off is claimed by the unregistered firm as the assessee.

---