Govinda Bhat, J.
1. The common question of law raised in these writ petitions is :
'Whether an individual partner has the right to set off his share of the unregistered firm's loss against his share of income of registered firms of the same year under the same head ?'
2. It arises in this way. The petitioners in Writ Petitions Nos. 3417 and 3419 of 1968 were partners in four firms during the accounting period relevant to the assessment year 1961-62. The petitioner in Writ petition No. 3418 of 1968 was a partner during the said year in three firms. They were assessed by the assessment by the assessment orders made on February 27, 1962, on the basis of the returns furnished and also on the basis that the firms in which they were partners were all registered firms. At the time of the assessment of the petitioners in Writ Petitions Nos. 3417 and 3419 of 1968, an application for registration of one of the firms in which the said petitioners were partners, viz., Messrs. Srinivasa Textiles, was pending. Similarly, the application for registration of Messrs. Lalitha Silk Throwing Factory in which the petitioner in Writ Petition No. 3418 of 1968 was a partner was also pending. The applications for registration of the said firms, however, were ultimately rejected. In the assessment order passed on February 27, 1962, the assessee's share income of the firms was provisionally accepted subject to subsequent rectifications. Subsequently, the Income-tax Officer (respondent) made separate orders on August 13, 1968, in the case of each of these petitioners under section 35 of the Indian Income-tax Act, 1922, hereinafter called 'the Act'. Under the said orders the share of loss of the petitioners in Writ petitions Nos. 3417 and 3419 of 1968 from Messrs. Srinivasa Textiles which was an unregistered firm was not set off against the share of profits from the registered firms and they were assessed accordingly disregarding the share of loss of the unregistered firm. Similarly, in the case of the petitioner in Writ petition No. 3418 of 1968, his share of loss from the unregistered firm, Messrs. Lalitha Silk Throwing Factory, was disregarded while computing his total income.
3. Aggrieved by the said orders the petitioners have preferred the above writ petitions. In the said writ petitions, the petitioners raised two grounds : firstly, that section 35(5) of the Act is not applicable to the case of the petitioners, and, secondly, that the share of loss from an unregistered firm must be set off against the share income from the registered firms for the purpose of arriving at the rate at which the total income of the assessee has to be assessed. When the matters came up for final hearing, the petitioners' learned abandoned the said grounds and sought leave to raise an altogether new ground. The leave sought for was granted and in the supplementary affidavits filed, the petitioners have urged the following one ground : that the respondent ought to have set off the share of loss from the unregistered firms against the share of profits from the registered firms and then arrived at the net taxable income under section 35(2) of the Act. In support of the said contention, Sri K. Srinivasan, learned counsel for the petitioners, argued that sub-section (1) of section 24 of the Act provides for set-off losses under one head against profits under any other head of the same assessee in the same year, that the second proviso to the said sub-section provides for set-off of share of loss of an unregistered firm and that the second proviso will operate in the same field in which section 24(1) operates. In other words, the second proviso to section 24(1) cannot be construed as an independent provision and its operation must be limited to section 24(1). The learned counsel argued that, in the instant case, the share of loss of the petitioners from the unregistered firms and their shares of profits from the registered firms arise under the head, viz., business, and as such section 24(1) does not apply and if section 24(1) does not apply, the second proviso to the said sub-section also does not apply. If section 24(1) does not apply, the total income of the petitioners has to be computed under section 10 of the Act and for that purpose they are entitled to set off the loss from the unregistered firms against the profits from the registered firms.
4. In support of the contention, the learned counsel relied on Commissioner of Income-tax v. Indo-Mercantile Bank Ltd. it was held that territory of a proviso is to carve out an exception to the main enactment and exclude something which otherwise would have been within the section. It has to operate in the same filed and if the language of the main enactment is clear it cannot be used for the purpose of interpreting the main enactment or to exclude by implication what the enactment clearly says unless the words of the proviso are such that is its necessary effect. In the said case, it was held that the assessee was entitled to set off the losses incurred in the State of Cochin against the assessee was a resident in India and carried on his business in India. He was also a partner of a firm carrying on business outside India. It was held that he was entitled to set off loss incurred by him as a partner of the foreign business against the profits and gains of the business carried on in India. The second proviso to section 24(1) was held not applicable to such a case. In our opinion, none of the cases are directly on the point and they do not deal with the question of setting off the share of loss of an unregistered firm against the share of profits of a registered firm. Until the amendment of the Act in 1939, a partner's share of the loss in the firm, whether registered or unregistered, could be set off against the profits and gains made by him in his individual business. After the amendment of the Act in 1939, the position of a partner in an unregistered firm stands on a different footing. The Supreme Court in Muthuraman Chettiar's case has observed that the position of a partner in an unregistered firm may stand on a different footing after the amendment. The total income of registered and unregistered firms is assessed or computed in the same way but, thereafter, there is a difference in the procedure for levying the tax. The tax is levied on the unregistered firm directly as a distinct unit of assessment; in the case of a registered firm, the tax is levied on the firm itself except income-tax at specially low rates, but each partner's share of the firm's profits is included in his total income and taxed in his hands. The procedure of assessing registered and unregistered firms is contained in the proviso to section 16(1) (b), the first proviso to section 23(5) (a), the second proviso to section 24(1) and clauses (c) and (d) of the proviso to section 24(2) which deal with the question of set-off and carry-forward of losses incurred by firms. Any loss incurred by an unregistered firm may be set off by the firm against its profits of the same year under the same head or any other head and further any unabsorbed loss may be carried forward by the firm and set off against its profits in a subsequent year in accordance with the provisions of section 24(2). If the contention of the learned counsel for the petitioners is accepted, partners of unregistered firms stand to gain a double advantage. The firm itself is entitled to carry forward its loss and set off against its profits in a subsequent year in accordance with the provisions of section 24(2). The partners of the unregistered firm at the same time will also be entitled to set off their share of loss against their own income of the same year under the same head notwithstanding the fact that the unregistered firm is entitled to carry forward its loss and set off against its profits in the subsequent year. Such a position can never have been contemplated by the legislature. Even the share of profits of a partner from an unregistered firm is not added to his share of income from registered firms or his own income of the same year for the purpose of computation of his own total income under the Act. His share of profits of an unregistered firm is only taken into account for rate purposes. When the unregistered firm is assessed as an entity and its loss. If any, is carried forward and set off against its profits in a subsequent year in accordance with the provisions of section 24(2), the partner of an unregistered firm cannot claim that he is entitled to set off his share of the firm's loss against his own income or his share of profits of registered firms for the same year under the same head. We have not been shown any authority which directly supports the contention of the learned counsel for the petitioner. It is not disputed that under the Income-tax Act, 1961, a partner is not entitled to claim set off of his share of loss of an unregistered firm against his individual income under the same head : vide section 77 of the 1961 Act. In our view, the law was the same even under the 1922 Act after the amendment of 1939. Therefore, the contention of the petitioners is untenable and has to be rejected.
5. For the above reasons, these writ petitions fail and are dismissed. In the circumstances, no costs.
6. Petitions dismissed.