S.T Desai, J.:— A question of some importance arises on this Reference and that question is whether an assessee can, as against the profits of his business, claim to set-off his share of the loss of a firm in which he is a partner although the partnership firm is unregistered and is not assessed as a firm. The assessee is a registered firm of four partners. The assessment year is 1946–1947 and the accounting year is S.Y 2001 (October 18, 1944 to November 4, 1945). The assessee firm carries on speculative business in various commodities. In the year of account it claimed a sum of Rs. 1,05,641 as loss arising to it in a joint venture with Damji Laxmidas. In the statement of the case it is mentioned that the assessee firm had done such transactions with Damji Laxmidas in earlier years and also in subsequent years. The profits and losses arising from such transactions of the nature of the joint venture with Damji Laxmidas in the earlier years and the subsequent years have been taken into account while making up the assessment of the assessee firm for those years. The loss arising from the joint venture with Damji Laxmidas in the accounting year has been disallowed. The assessee produced a deed of partnership, dated November 14, 1944, which is on requisite stamp paper and that agreement states that the parties had agreed to do forward business in partnership in various markets. Damji Laxmidas fifed a statement at the instance of the assessee in which he confirmed the case of the assessee that there was such partnership between them. He stated that the procedure followed was that the accounts of the transactions were maintained in the books of the assessee firm and the Ankadas in respect of the speculative business were issued in the name of Damji Laxmidas. In the partnership agreement the shares of the four partners are stated and they aggregate to As. 10 and Damji's share is shown as six annas in a rupee. The loss claimed by the assessee was on the footing of 8 annas share in the partnership with Damji Laxmidas. The Income-tax Officer disallowed the loss and we shall presently examine the data on which he did so and the reasons given by him for the same. The Income-tax Officer has observed in his order:

“To my mind it looks as though the firm has purchased the losses from Damji Laxmidas to escape taxation to that extent.”

2. The Appellate Assistant Commissioner dismissed the assessee's appeal. The matter was carried to the Tribunal and the Tribunal also agreed with the finding given by the Income-tax authorities. The Tribunal, it is mentioned in the statement of the case, took the view that even if the business transactions were genuine, it was the business of Damji Laxmidas. The Accountant Member agreed with the finding recorded by the Judicial Member. But he expressed the view that the loss could not in any case be allowed to the assessee as it was a loss of an unregistered firm. According to the Accountant Member, in the case of an unregistered firm, the loss can only be carried forward in the account of the firm as provided under the Income-tax Act. The assessee had also relied upon an order of the Tribunal made on September 11, 1952, in the matter of the assessment made on Damji Laxmidas for the same preceding year. Damji Laxmidas had claimed his share of the loss in his own assessment. The Tribunal disallowed the loss claimed by Damji Laxmidas on the ground that the loss arising from an unregistered firm could not be taken into account in the individual assessment of the partner. The question, it seems, was decided only on that short issue and the Tribunal did not go into the question of the genuineness of the loss claimed by Damji Laxmidas. One more fact that needs to be stated is that the assessee had entered into joint venture transactions of the same nature also with other persons and in the assessment of the assessee firm the Department has accepted those transactions of the nature of a joint venture with parties other than Damji Laxmidas. The assessee has come before us on this reference directed to be made by this Court under s. 66(2) of the Act. The questions which we have to determine are:

“(1) Whether there was any legal admissible evidence to justify the Tribunal's finding that the transaction in question was not the transaction of the assessee?

(2) If not, whether the assessee can claim the set-off of such loss, although it is the loss of an unregistered partnership?”

3. If has been argued before us by Mr. Kolah, learned counsel for the assessee, that the Tribunal has failed to appreciate the correct position and has decided the matter without there being any evidence to sustain the finding recorded by it on the first question relating to the genuineness of the transactions and the alleged joint venture. The Tribunal had to consider four items, but on this reference we are only concerned with the item of Rs. 1,05,641 which was disallowed by the Income-tax authorities as well as the Tribunal. This is what the Judicial Member has stated in respect of this item:

“We are not satisfied that really the loss of Rs. 1,05,641/- was the loss of the assessee. It is admitted by the assessee that the Ankdas are in the name of Damji Laxmidas. By no evidence we are satisfied that really the assessee did business in the joint account. Consequently, this claim of the assessee is disallowed.”

4. The Accountant Member agreed with the Judicial Member and added:—

“It is not even the assessee's case that loss of Rs. 1,05,641/- was suffered by it. According to the assessee it did some joint venture transactions with Damji Laxmidas. Damji Laxmidas came in appeal to the Tribunal in respect of his share of the loss. It was held that the loss arising to a person in a joint venture cannot be allowed in his personal assessment as the loss is suffered by an unregistered partnership. It can only be carried forward in the account of the unregistered firm.”

5. The argument of counsel is that the mere fact that Ankdas relating to the speculative transactions are in the name of one of the partners in the firm is not evidence on which the conclusion of the Tribunal could be sustained. The further argument of learned counsel is that there is material on the record including the account books of the assessee firm which has not been taken into consideration by the Tribunal. It is true that there is no reference to the account books of the assessee firm in the order passed by the learned members of the Tribunal. Regarding this item of Rs. 1,05,641 the Income-tax Officer has stated that on referring to the case of Damji Laxmidas he found that Damji Laxmidas had not given any idea in the statement filed by him about the extent of his share of loss in the joint venture and had stated that the loss was approximately Rs. 75,000. On being questioned, the partnership deed dated November 14, 1944, had been produced. In his order the Income-tax Officer refers to the factum of the Ankdas being in the name of Damji Laxmidas and stresses that they were “not in the name of the company”. We understand that by “the company” he meant the assessee firm. It will be convenient here to observe that the partnership agreement recites the names of all the four partners in the firm of Messrs. Jadavji Narsidas, the assessee firm before us, and then refers to Damji Laxmidas as the party of the 5th part. There is no firm name given to the partnership brought into existence by that deed between the four partners in the firm of Messrs. Jadavji Narsidas on the one hand and Damji Laxmidas on the other. Therefore, the partnership business could be done either in the name of the group of the four partners or in the name of Damji Laxmidas. We mention this at this stage because the principal argument on behalf of the Revenue on this question has rested on the fact of the Ankdas being in the name of Damji Laxmidas and not in the name of the assessee firm. The Income-tax Officer has also relied upon the fact that the assessee firm had claimed loss on the footing of 8 annas share and not 10 annas share as mentioned in the partnership deed. This is what he has stated:

“It is not also clear in my mind how Messrs. Jadavji Narsidas and Co., one of the biggest brokers in the line, had placed such implicit faith in the ability of Mr. Damji Laxmidas to the extent of losing about four lakhs of rupees.”

6. Then he has observed that the firm had purchased the losses from Damji Laxmidas to escape taxation to that extent. The Income-tax Officer held that the losses claimed by the assessee firm were not losses genuinely incurred in any business and that the transaction as a whole was no more than purchase of losses from Damji Laxmidas. Now, purchase of losses can evidently be after they have been incurred by some party. A statement prepared from the entries in the books of account of the assessee firm showing numerous transactions in various commodities resulting both in profits as well as losses was filed before the Income-tax authorities and is part of the record before us. A cursory perusal of that statement would show that the transactions could not be of the nature of purchase of losses by the assessee firm as found by the Income-tax Officer. We may observe at this stage that learned counsel for the Revenue has not argued before us that this is a case of bogus purchase of losses. We shall presently examine the case as now presented before us on behalf of the Revenue.

7. Mr. Joshi, learned counsel for the Revenue, has laid stress on the fact that the Ankdas were in the name of Damji Laxmidas, but the way learned counsel has put the case before us is that the business was not the business of the assessee firm, but was the business of Damji Laxmidas and half of the loss had been taken over by the assessee. Learned counsel has stated that he is not supporting the conclusion of the Tribunal that this was a case of bogus purchases of losses. To us it seems that there is little difference between the conclusion of the Tribunal and the way in which Mr. Joshi has now tried to support what seems unsupportable. There is no evidence at all nor is there any finding or inference that the books of account of the assessee firm did not reflect the true position. There is no evidence on the record nor any circumstance why the statement of Damji Laxmidas should not have been accepted. Therefore, the sole factor that could weigh and could be stressed before us was the one which the Tribunal has mentioned in its order viz. the fact of the Ankdas being in the name of Damji Laxmidas. We have already observed that in this case the Ankdas could be in the name of either the assessee or Damji Laxmidas. It is not possible to suggest in this case that the Ankdas are not in the name of the partnership firm because no firm name appears to have been given to the partnership of the group of four partners and Damji Laxmidas. On this state of the record, we can only reach the conclusion that there was no legal evidence before the Tribunal to sustain the finding that the transactions in question were not the transactions of the assessee.

8. There remains for consideration the question Avhether a partner in an unregistered firm can claim to set-off his share of the losses of such firm against his other income from business when the unregistered firm has not been assessed. It has been argued before us by Mr. Kolah that there is no provision in the Income-tax Act which lays down that a person who carries on his own business and is also a partner in an unregistered firm cannot in any case claim to set-off his share of the loss of that firm against his other income from business. Learned counsel for the other side has not been able to point out to us any provision which makes it mandatory that an unregistered firm must be assessed before any claim for set-off in respect of its losses can arise though, as we shall point out later on, some reliance has been placed by him on the second proviso to s. 24. The matter has been argued before us by Mr. Kolah on general principles underlying s. 10 and he has also referred to s. 23(5) and s. 24 and relied on two decisions of this Court to which we shall turn a little later in our judgment. The question is res integra and does not appear to have arisen for decision in its present form.

9. Now, the argument of learned counsel for the assessee is that the Act lays down certain provisions as to when the loss of a partner in an unregistered firm cannot be set-off against his other income from business and he has urged that the case of the assessee does not fall under any of those provisions. Reference was made in this context to ss. 10, 23(5) and 24. The principal argument is that there is authority for the proposition that in case of an individual or a registered firm who is an assessee, if he or it enters into partnership with another and the firm so constituted is not registered, it is still competent to the taxing authority to add the share of the profits of such individual or registered firm (which joined in partnership with another person) in the business of the unregistered firm, to his or its other income even though the unregistered firm has not been assessed to tax. The argument has proceeded that there is no reason why the same principle should not apply to the case of set-off if instead of profit the business of the unregistered firm has resulted in loss simply because it has not been assessed to tax.

10. It is necessary to examine the scheme of the Income-tax Act on the question of assessment of an unregistered firm and the position of the partners in the firm vis-a-vis the unregistered firm and the Department in the matter of tax. Section 3 speaks of the charge of Income-tax on the total income of every individual, Hindu undivided family, company and local authority, and of every firm or the partners of the firm individually. Section 4 rules that the total income of any person includes all income, profits and gains from whatever source derived. Section 6 states the heads of income chargeable to income-tax, and the sections immediately following deal with the various heads of income. Section 10 deals with the tax payable by an assessee under the head “Profits and gains of business…” in respect of the profits or gains of any business carried on by him. The word ‘profit’ it is well-established “is to be understood in its natural and proper sense—in a sense which no commercial man would misunderstand” and profits must be ascertained on ordinary principles of commercial trading. It is not necessary that the assessee should personally carry on the business. He may carry on one business or numerous businesses. He is assessable under this section in respect of business carried on by himself as also in respect of his share of the profits of business of a firm registered or unregistered and his profits are to be ascertained in accordance with the relevant special requirements of the Act. It is equally well-established that where a deduction is proper and necessary to be made or any loss is to be allowed to be taken into the computation or to be set-off against his profits in business to ascertain the result or ultimate position, that ought to be allowed provided there is no prohibition against such deduction or allowance or set-off. The levy is on the total income of the assessable entity to be computed in accordance with the provisions of the Act. It is equally firmly established that loss arising from any one source under the head of “business” may be set-off against profits from another source under the same head. This is on general principle—apart from any provision of the Act—since income under each head is to be computed by clubbing or lumping together of the profits of the assessee from various sources under the same head. The levy is on the balance of profits after deducting such losses, and it is not now disputable nor disputed before us that an assessee who carries on a number of businesses is entitled under s. 10 to set-off his losses in one source under the head of ‘business’ against his profits in another source under the same head. The arguments of learned counsel for the parties and particularly on behalf of the Revenue have touched s. 23(5) and mainly s. 24 but we may in passing mention s. 16 since we are reviewing the scheme of the Act in the context of the share of a partner in the losses of an unregistered firm. Section 16(1)(b) relates to the mode or method of computing a partner's share and lays down certain exemptions and exclusions in determining the total income. No argument has been founded on it and no reference has been made to it by counsel but we mention it because the proviso to that sub-section states that the share of an assessee in the loss of a partnership firm may be set-off in accordance with the provisions of s. 24. Section 23(5) deals with and governs “assessment” of a firm. The firm may or may not have been registered under the relevant provisions of the Act. If the firm is registered [s. 23(5)(a)] the levy must be directly on the firm and each partner's share of the firm's profit, is added to his other income and charged as part of his total income; and if such share of the partner is a loss [first proviso to s. 23(5)(a)] it is to be set-off against his other income or to be carried forward in accordance with the provisions of s. 24. Then comes cl. (b) of s. 23(5) which, as has often been said, is an enabling provision. At the relevant time it was as under:

“in the case of an unregistered firm, the Income-tax Officer may instead of determining the sum payable by the firm itself proceed in the manner laid down in clause (a) as applicable to a registered firm if, in his opinion, the aggregate amount of the tax including super-tax, if any, payable by the partners under such procedure would be greater than the aggregate amount which would be payable by the firm and the partners individually if the firm were assessed as an unregistered firm.”

11. Whether registered or not a firm is an assessee within the meaning of that expression as defined in s. 2(2). Its income may be assessed like that of any other unit or entity of assessment regardless of the fact that it is registered or not. One of two positions can arise in the matter of assessment of a partner in an unregistered firm. The position would be simple when the unregistered firm has made profits. The Income-tax Officer may adopt any of the two courses open to him under s. 23(5)(b). Before completing the assessment of the individual partner the Income-tax Officer may exercise his option and proceed to determine the sum payable by the firm itself as if it were a registered firm, though in fact it is not registered, if it appears to him that such procedure would in the aggregate bring a greater amount to the Revenue by way of tax and supertax. No question arises in any such case of setting-off of any losses of the unregistered firm, it having made profits in the relevant accounting period. The other position would arise when the unregistered firm has made a loss and an individual partner seeks to set-off his share of that loss in his individual assessment against his other income from business. Here also the Income-tax Officer may before completing the assessment of the individual partner ascertain the loss incurred by the firm and decide upon the course to be adopted by him. He may decide to treat the unregistered firm as if it were registered and the amount of the share of the loss of the individual partner in such a case would be set-off against his other income from business. Or he may determine the amount of loss incurred by the unregistered firm without treating it as a registered firm and in such a case the latter part of the second proviso to s. 24 would come into play and the position would be what we shall presently point out after referring to s. 24, relevant part of which is as follows:—

“Where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in section 6, he shall be entitled to have the amount of the loss set-off against his income, profits or gains under any other head in that year.”

12. The first proviso to sub-s. (1) of s. 24, which sub-section is set out above, permits the claim for set-off in respect of speculative losses only to the extent of the amount of profits in any other business consisting of speculative transactions. In the present case there is no dispute that the assessee firm's business is in speculative transactions and the loss claimed by the assessee is also in respect of speculative transactions. The second proviso to sub-s. (1) of s. 24 is as under:—

“Provided further that where the assessee is an unregistered firm which has not been assessed under the provisions of clause (b) of sub-section (5) of section 23…, any such loss shall be set-off only against the income, profits and gains of the firm and not against the income, profits and gains of any of the partners of the firm; and where the assessee is a registered firm, any loss which cannot be set-off against other income, profits and gains of the firm shall be apportioned between the partners of the firm and they alone shall be entitled to have the amount of the loss set-off under this section.”

13. In order to avoid any unnecessary complication which can arise from the fact that the assessee in the present case happens to be a registered firm and claims to set-off its share of losses as a partner in another firm which is unregistered, it will be convenient to examine the legal position as stated by us at the very outset of our judgment by considering the question whether an individual assessee, can, as against the profits of his business, claim to set-off his share of the loss of a firm in which he is a partner although that partnership firm is unregistered. As already mentioned by us the Income-tax Officer may in such a case decide to treat the unregistered firm as if it were registered and the amount of the share of the loss of the individual partner would be allowed to be set-off against his other income. Or instead he may, as we have already mentioned, determine the amount of loss incurred by the unregistered firm without treating it as a registered firm. It is in such a case that the second proviso to s. 24(1) would come into play and the loss of the unregistered firm can be set-off only against the income, profits and gains of the unregistered firm and not against the income, profits and gains of the individual partner who seeks to set-off his own share of those losses against his other income from business in his personal assessment. The position so far is quite clear and cannot raise any problem for the assessee partner or the unregistered firm or the Department. But difficulty and complication is likely to arise, as it has in fact arisen in the case before us, if the Income-tax Officer neither proceeds to treat the unregistered firm as if it were registered and assess the loss nor proceeds to assess the loss of the unregistered firm and simply refuses to recognize the factum and existence of the unregistered firm and holds that the assessee who claims to be a partner in the unregistered firm was not a partner at all in the alleged unregistered firm or that the transactions are not the partnership business. Question must arise in such a case if it turns out and is ultimately held that he was in fact a partner in the unregistered firm which had incurred losses or that the transactions are of the partnership. And the contention of Mr. Kolah, learned counsel for the assessee before us, is that since the Income-tax Officer did not choose to adopt any of the two courses open to him and simply declined to grant any set-off on the ground that there was no such partnership transaction as alleged by the assessee, the assessee could claim to set-off its share of those losses against its other income from speculative business. The view taken by the Accountant-Member was that in no circumstance can a set-off be allowed to an individual partner in respect of his share of the loss of an unregistered firm and that it can only be carried forward in the account of the firm as provided by the second proviso to s. 24(1). Therefore, what we have now to consider is what is to happen in a case of this nature. Can it be said that since the unregistered firm has not been assessed and its loss not determined the individual partner is not entitled to claim any set-off? The argument of learned counsel for the assessee, as we have already stated, is that there is authority for the proposition that in case of an individual or a registered firm who is an assessee, if he or it enters into partnership with another and the firm so constituted is not registered, it is still competent to the taxing authority to add the share of the profits of such individual or registered firm (which joined in partnership with another person) in the business of the unregistered firm, to his or its other income even though the unregistered firm has not been assessed to tax. The next step of the argument is that there is no reason why the same principle should not apply to the case of set-off if instead of profit the business of the unregistered firm has resulted in loss simply because it has not been assessed to tax.

14. Mr. Kolah has drawn our attention to two decisions of this Court. In J.C Thakkar v. Comr. I.T . 1955 57 Bom. L.R 464. the question arose whether a partner in an unregistered firm could be taxed in respect of his profits in the unregistered firm when the unregistered firm itself had not been assessed to tax. A contention was urged on behalf of the assessee that the scheme of the Act did not permit the Department to tax a partner in an unregistered firm before assessing the unregistered firm itself in-the manner provided in s. 23(5)(b). That contention was repelled by the Court and it was held that a partner could be assessed in respect of his share of profits in an unregistered firm even though the unregistered firm itself had not been first assessed to tax. The view taken by the Court was that it was not a condition precedent to the bringing of the share of a partner in the profits of an unregistered firm in his total income simply on the ground that the unregistered firm had not been first assessed to tax. It was also pointed out in that case that there is no provision of the Income-tax Act which prohibits the assessment of a partner until the firm in which he is a partner is assessed. At p. 467 of the Report it is observed:

“…Now, as has often been pointed out, the assessable entity under the Income-tax Act is different from a legal entity. The object of the Income-tax Act is to spread its net wide and to include in that net every person and every association of persons, however that association may have been constituted. Therefore, we find that what is subject to tax under s. 3 is the total income of the previous year of every individual, Hindu undivided family, company and local authority, and every firm and other association of persons or the partners of the firm or the members of the association individually. Therefore, an individual can be assessed to tax, a partnership in which the individual is a partner can be assessed to tax, and s. 3 does not provide that when there is a partnership only the firm can be taxed and not the partners of that firm. Far from so providing, the section makes it clear that even where there is a firm which can be assessed to tax, a partner of that firm can also be an assessee for the purposes of the Act… But all that we wish to point out is that in the charging section itself, far from there being a prohibition against a partner of a firm being assessed to tax, there is a legislative fiat as it were in favour of the Income-tax department if they choose to assess a partner and not the firm of which he was a partner.”

15. The other decision to which our attention has been drawn by Mr. Kolah is Jamnadas Daga v. Commr. I.-Tax . 1957 59 Bom. L.R 1216., which was decided by my brother Tendolkar, J. and myself. In that case the assessee was a partner in two registered firms which in the relevant accounting year incurred losses, and in an unregistered firm which in the same year earned a profit which was taxed in the hands of the unregistered firm. The share of the assessee in the profit of the unregistered firm was a larger amount and exceeded the share of losses in the registered firms. The assessee had a small income which had to be taxed at the rate applicable to the total income of the assessee. The assessee contended that his share of the profits in the unregistered firm having been taxed in the hands of that firm, should be entirely ignored and could not be set-off against his share of the losses in the other firms. In that case, reliance was placed on the second proviso to s. 24(1). The view Ave took of the matter was that for the purpose of ascertaining the total income of the assessee, the assessee's share of profit in the unregistered firm which had separately been taxed could not be ignored but should be set-off against his share in the losses of the registered firms.

16. Now a somewhat ingenious argument has been advanced before us by Mr. Joshi, learned counsel for the Revenue, and the argument is that though the applicant is a registered firm, the correct position for the purpose of the present matter is that it is an unregistered firm consisting of four partners. It is urged that a careful scrutiny of the partnership agreement would show that the partnership was not between the assessee firm of Jadavji Narsidas and Damji Laxmidas. It will be convenient to set out the relevant part of that agreement, on which Mr. Joshi has founded the present argument:

“This Indenture…made between Jadavji Narsidas…of the first part; Parmanand Narsidas…of the second part; Nagindas Jadavji…of the third part; Jasvantrai Jadavji…of the fourth part; all partners in the firm of Messrs. Jadavji Narsidas carrying on business at Masjid Bunder Road, Bombay and Damji Lakhmidas of the fifth part…”

17. Learned counsel has also drawn our attention to the fact that the shares in the profits and losses of the business were set out in the names of all the five persons. We do not think there is any scope for the fine distinction which Mr. Joshi has tried to make out from the partnership deed. In effect Mr. Joshi is trying to develop a question which is altogether new. Even so Ave have heard him on that point. We may observe that the Department as well as the Tribunal has proceeded on the footing that the assessee firm and the individual outsider Damji Laxmidas had entered into partnership. But what has been held is that in the transactions in question the assessee firm had no interest as a partner of the unregistered firm. We Have here to consider Arhether in fact there was or was not a partnership between the firm of four persons on the one hand and Damji Laxmidas on the other in respect of the relevant transactions. The present contention must, therefore, be negatived.

18. Learned counsel for the Revenue has drawn our attention to s. 3 of the Act and stressed that the persons who can be units of assessment, or an “entity” are mentioned in that section. It is stated that in the case of an assessee who carries on business, what can be taxed under the head of “business” mentioned in s. 10 can be the profits and gains of the business of that firm as a unit or an entity. The argument has proceeded that if a firm carrying on business happens to be a partner in another firm a which is unregistered, its share in the other firm may be taken into account in ascertaining the profits or losses of the firm to be ascertained under s. 10 and that before that can be done the profits and losses of the other firm must be separately ascertained and assessed. The argument is that the profits or losses of the other firm would first have to be ascertained and it is only after assessment of that unregistered firm that the question of set-off can arise and that in no case set-off for losses would be allowed. It has been stated that if this position is not accepted, it would not be possible to give effect to the various provisions of the Act relating, for instance, to deductions, allowances and exemptions. Therefore, the argument is that an unregistered firm must be assessed as a unit or as an entity and its loss determined before any set-off in respect of his share of such losses can be claimed by a partner against the profits of his other business. We agree that the procedure suggested by Mr. Joshi is a practical method to adopt and would be convenient and would avoid a good deal of delay and difficulties. But what we are concerned with here is as to what is to happen if the Income-tax Officer does not determine the losses of the unregistered firm. The point before us is as to the right of a partner to claim a set-off in respect of his share of losses in an unregistered firm a which has not been assessed and losses of which should have been assessed. It is not difficult to see that if the law requires that under no circumstances any set-off can be claimed by an individual partner unless the unregistered firm was brought to tax, we must give effect to the same. But the question is: Is there any such requirement of the Income-tax? We have already referred to ss. 23 and 24 and may add that there is no provision of law which requires an unregistered firm to have its losses assessed. Of course, if the unregistered firm does not have its losses determined, does not file a return and get its losses determined, it would not have the benefit of carrying forward those losses. But that is a different matter. In the absence of any express provision in the Income-tax law and on general principles we do not see why a partner in an unregistered firm should not be permitted to claim a set-off in respect of his share of loss in an unregistered firm against the profits of his other business simply because the Department does not choose to determine the losses of the unregistered firm. The provisions of s. 23(5)(b) enable the Income-tax Officer to choose one of two alternative methods. In a case of the nature before us when a set-off is claimed in respect of the share of loss in an unregistered firm, it would be necessary for the assessee to satisfy him that the losses were in fact incurred and the Income-tax Officer would be justified and indeed bound to satisfy himself about the true position of the business of the unregistered firm for the year in question. It would also be open to him to take such steps as he may deem proper under the provisions of the Act. He may exercise the option laid down in s. 23(5)(b). In case of profits he may determine the profits of the firm. He may then proceed to assess the firm as a registered firm if there is any taxable profit if he thinks that the aggregate amount of the tax including super-tax payable by the partners would be greater than the aggregate amount which would be payable by the firm and the partners individually if the firm was assessed as a registered firm, or he may assess it as an unregistered firm. In case of losses he would have to determine the losses of the unregistered firm as he would be doing in the case of a registered firm where loss is shown and for which there is ample provision in the Act. But there is neither principle nor any provision of law which bars an assessee, whether an individual or a firm, from claiming a set-off in respect of his or its share of the loss in an unregistered firm simply on the ground that the latter has not been brought to tax. Partnerships between firms and individuals and firms and firms are not uncommon in our country. The Income-tax department often deals with such partnerships.

19. In order to test Mr. Joshi's argument we put an illustration to him.

20. We asked Mr. Joshi as to what would happen where the partners themselves had made large profits in their own business and in the partnership business of the unregistered firm had made a profit which was within the taxable minimum or had made a loss and the illustration we mentioned was of the firm of two partners who had made large profits in their own separate businesses and in the joint venture had earned a profit of only Rs. 1,000. Mr. Joshi had to agree that in such a case it cannot be said that the shares of the individual partners in the profits of the firm would not be added to their profit in the other business before the assessment of the unregistered firm, and that could be the only answer because in such a case there would be no assessment of the profits of the unregistered firm. Therefore, it is not possible to accept the contention that the assessment of the unregistered firm is a sine qua non to the right of a partner to claim a set-off in respect of his share of the losses in an unregistered firm. Moreover, Mr. Joshi's present argument is contrary to the principle laid down in the decisions to which we have already made reference. The fact that the assessee before us is not an individual but a registered firm does not make any difference. Our answer, therefore, to the second question will be that the assessee can claim a set-off in respect of its share of loss in an unregistered firm if the Income-tax authorities do not proceed to determine the loss of the unregistered firm and do not bring it to tax as permitted by s. 23(5)(b).

21. Commissioner to pay the costs.

Solicitors for the applicant: Rustomji & Ginwala.

Solicitor for the respondent: A.S Parikh.