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4. At the instance of the assessee the Tribunal referred to this Court under Section 66(1) of the Act the question which according to it arose out of its order. By our order dated January 31, 1950, we held that the assessee was not entitled to set off this loss against the income from property.

5. Under Section 4(1)(a) and (b)(i) and (ii) of the Act, subject to the provisions of the Act, the total income of any previous year of any person who is a resident and an ordinary resident of British India during such year includes all income, profits and gains from what ever source derived which are received or deemed to be received in British India in such year or which accrued or arisen to him in British India during such year or which accrued or arose to him without British India during such year. When the assessee is a partner in a firm, his share income or share loss has to be computed in the manner provided by Section 16(1)(b) and included in his total income; and under the proviso to that section, if the share so computed is a loss such loss may be set off or carried forward and set off in accordance with the provision of Section 24. Under Section 14(2)(a) tax is not payable by an assessee if he is a partner of an unregistered firm in respect of his income computed in the manner laid down in Section 16(1)(b) on which tax has already been paid by the firm. But if such income is from an unregistered firm carrying on business wholly out of British India, it would not be so exempt from taxation in the hands of the partner under this provision. To such income Section 14(2)(c) will apply and the tax shall not be payable in respect of such income unless it is received or deemed to be received in or brought into British India in the previous year by or on behalf of the assessee or is assessable under Section 42; but the income so exempt has to be included in the total income of the assessee under Section 16(1)(a). It is thus clear that the share income from British India and out of British India are both liable to tax subject to certain exemptions.

8. The learned counsel for the Commissioner next submitted that the several businesses are distinct businesses though they have a common partner and the loss in one cannot be set off against the profits in the other. It was also argued that the share loss of an unregistered firm cannot be set off against the individual income of a partner. Either submission is devoid of substance. As already observe, the share income from the different partnerships in income under one common head "business". In the assessment order for the year in question, the share losses have been deducted from the share income of he firms in British India to arrive at the profits from business. As held by their Lordships of the Privy Council in Arunachalam Chettiar v. Commissioner of Income-tax, Madras, "Whether a firm is registered or unregistered partnership does not obstruct or defeat the right of a partner to an adjustment on account of his share of loss in the firm, whether the set-off be against other profits under the same head of income within the meaning of Section 6 of he Act or under a different head (in which case only need recourse be had to Section 24(1))."

Their Lordships approved of the decision in Commissioner of Income-tax v. Arunachalam Chettiar and affirmed the decision in Commissioner of Income-tax v. Arunachalam. That assessee was carrying on money-lending business and other businesses. He was a partner with one Pillai in cotton business. There was no contribution of capital as such, but the assessee was the financing partner and these finances carried interest. The cotton business was running at a loss and in the first year the assessee claimed to deduct his share of loss from his profits of money-lending and other businesses. This deduction was not allowed by the Income-tax authorities on the ground that the share loss of an unregistered firm cannot be set off against the individual income under the same head. This view was not accepted in Commissioner of Income-tax v. Arunachalam Chettiar. In a subsequent year the amount of loss due by the other partner Pillai to the firm was transferred to the account of the assessees money-lending business and debited against the personal account of Pillai. Subsequent interest was added to this account on September 29, 1930, bringing the total debit to Rs. 36,638. On this date Pillai gave the appellant a promissory note for this amount. The previous debit account in the books of the money-lending business was closed and a fresh folio was opened in those books and was styled "Pillai promissory note account". On March 28, 1931, the appellant took from Pillai a mortgage of certain house property for Rs. 500 and at the close of the account year on March, 31, 1931, the assessee wrote off Rs. 36,138 as a bad debt. The question was whether the assessee was entitled to claim this as a bad debt. In affirming the decision of the High Court the Privy Council held that he could not as Pillai never become a debtor of the money-lending business at all.

As stated by their Lordships of the Privy Council in M. and S. M. Railway v. Bezwada Municipality :-

"The proper function of a proviso is to except and deal with a case which would otherwise fall within the general language of the main enactment, and its effect is confined to that case."

Section 24(1) of the Act refers to the set-off of loss under one head against the income of the assessee under another head under Section 6. To this general rule the second proviso provides an exception that in the case of an unregistered firm any loss of that firm under one head must be set off against its income, profits and gains under another head and not against the income, profits and gains of any of its partners. If the unregistered firm still returns a loss, that loss can be carried forward under sub-section (2).