1. In this appeal, the revenue is challenging the action of the AAC allowing the assessee's application to adjust a loss of Rs. 11,896 against his other income.
2. The assessee is an individual. The assessment year is 1977-78 and the relevant previous year ended on 31-3-1977.
3. Prior to 24-6-1972, the assessee was a partner in three firms, namely : Sidh Gopal Amar Nath, Shree Sidh Co. and Onkar Bros., in his individual capacity. On 8-7-1971, the assessee made a declaration that with effect from 24-6-1972 his share of income and capital in the said three firms would belong to the family consisting of himself, his wife, two major sons and two major daughters. This fact was accepted by the ITO and in the assessment year 1973-74 as the ITO included half share of the HUF in the said three firms in the total income of the assessee by invoking the provisions of Section 64(2) of the Income-tax Act, 1961 ('the Act')- Similarly, in respect of the assessment years 1974-75 and 1975-76, the ITO included half share of the HUF in the said three firms in the total income of the assessee. In the assessment year 1976-77, the ITO included the full share of the HUF in the said three firms in the total income of the assessee as there was an amendment in Section 64. It may be mentioned that there was a loss of Rs. 1,153 from Sidh Gopal Amar Nath, while the share of profit from Shree Sidh Co. and Onkar Bros., was Rs. 9,130 and Rs. 11,666, respectively. The ITO included Rs. 19,643 in the total income of the assessee after adjusting the loss of Rs. 1,153 against the share of profits from the other two firms.
4. In the year under consideration, the HUF's share of profit was Rs. 6,526 and Rs. 5,370 from Shree Sidh Co. and from Onkar Bros., respectively, while there was a loss of Rs. 17,420 from Sidh Gopal Amar Nath. In his return of income as well as during the course of the assessment proceedings, the assessee claimed that the loss of Rs. 17,420 should be set off against other income. The ITO, however, ignored the claim with the remarks 'the share of loss is not to be included under Section 64...'.
5. In appeal, the assessee submitted that since the share of profit from the other two firms was clubbed with his other income under Section 64(2), the share of loss from Sidh Gopal Amar Nath could not be ignored. Alternatively, it was submitted that at least the loss to the extent of the share of profits from the other two firms should have been allowed. Accepting the alternative submission of the assessee, the AAC allowed the loss to the extent of Rs. 11,896 (Rs. 6,526 plus Rs. 5,370).
6. Being aggrieved by the order of the AAC, the revenue has come up in appeal before the Tribunal. Inviting our attention to the provisions of Section 64(jj) as they stood at the relevant time, the learned representative for the department submitted that under that provision only the positive income is to be clubbed with the other income of the assessee and not a share of loss. In support of his submission, the learned representative for the department invited our attention to Explanation 2 to Section 64(2) which was inserted with effect from 1-4-1980 by the Finance Act, 1979. The said Explanation states that 'for the purposes of this section, 'income' includes 'loss'. The learned representative for the department, therefore, submitted that since we are dealing with the assessment year 1977-78, the assessee is not entitled to get the benefit of the said Explanation. In this view of the matter, he urged for the reversal of the order of the AAC. The learned counsel for the assessee, on the other hand, supported the order of the AAC by stating that the loss is nothing but a negative income. According to him the amendment made by the Finance Act was by way of clarification only.
7. We have considered the rival submissions of the parties and we find considerable force in the stand taken on behalf of the assessee. Long before the said amendment, the Hon'ble Supreme Court in the case of CIT v. Harprasad & Co. (P.) Ltd.  99 ITR 118, has made the following observation, which clearly supports the assessee's case : From the charging provisions of the Act, it is discernible that the words 'income' or 'profits and gains' should be understood as including losses also, so that, in one sense 'profits and gains' represent 'plus income' whereas losses represent 'minus income'. In other words, loss is negative profit. Both positive and negative profits are of a revenue character. Both must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee. Although Section 6 classifies income under six heads, the main charging provision is Section 3 which levies income-tax, as only one tax, on the 'total income' of the assessee as defined in Section 2(15). An income in order to come within the purview of that definition must satisfy two conditions.
Firstly, it must comprise the 'total amount of income, profits and gains referred to in Section 4(1)'. Secondly, it must be 'computed in the manner laid down in the Act'. If either of these conditions fails, the income will not be a part of the total income that can be brought to charge. (pp. 124-25) In this view of the matter, in our opinion, the amendment made with effect from 1-4-1980 simply incorporates the law laid down by the highest Court of the land. Again, it is pertinent to note that the ITO had, in fact, allowed such set off in respect of the assessment year 1976-77 as mentioned above. We, therefore, do not find any infirmity in the order of the AAC.8. Before we part with this appeal, we may mention that the AAC has not allowed the entire loss of Rs. 17,420 claimed by the assessee but has restricted such allowance to the extent of the share of profit from the other two firms. Since the assessee has not come up in cross-objection appeal, we would confirm the order of the AAC under appeal.