J.M. Shelat, C.J.
1. This reference involves a short question as to the construction of section 16(3)(a) of the Income-tax Act, 1922. The question arises out of the assessment of the assessee, Dayalbhai Madhavji Vadera, a non-resident individual, for the assessment year 1958-59, the corresponding previous year being the year ending March 31, 1958. The assessee income arose from property, interest, dividends and a share in registered firm carrying on business in the name of the Terrance Nilgiri Tea Estate Co., Naduvatam, Ootacamund. The income of his wife, Prabhakunvarbai, and his minor son, Rasikchand Dayalbuhai, who were also non-resident, form interest and share in the aforesaid firm used to be included in the assessee's total income under the provisions of section 16(3). The assessee had other partners along with him in the said firm and all those partners like the assessee were also non-residents. The assessee and his wife and each a 10/100 share, while his minor son, the said Rasikchandra, had 20/100 share and two other major sons had together between them 30/100 share. The said firm was being assessed by the Income-tax Officer, Ootacamund. The firm's income consisted of income form property, business and other source. For the assessment year 1958-59, there was a net loss computed at Rs. 11,322 and the Income-tax Officer, who made the firm's assessment for that year, held that as the firm was registered, the loss would be apportioned amongst the partners and would be considered in their individual assessments. So far as the assessee was concerned, the share of loss which was allocated to him came to Rs. 1,132. The same amount was also allocated to his wife the said Prabhakunvarbai. As regards the minor son, Rasikchandra, a sum of Rs. 2,266 was the amount apportioned to him form out of the aforesaid net loss of Rs. 11,322. Apart from the aforesaid share that the assessee's wife and minor son had in the aforesaid firm, they had also certain deposits in the Bank of India Limited, Bombay. From the deposit standing in the wife's name, a sum of Rs. 9,583 was earned as interest. A similar deposit in the name of the said Rasikchandra earned interest of Rs. 9,890. In the assessment of the assessee, these two sums were included in his total income under the provisions of section 16(3). For the assessment year 1958-59, the income of the assessee wife, the said Prabhakunvarbai, was calculated as follows :
Rs.Income from interest ..... 9.583Share in the said firm ..... 1,132Loss of --------8,451--------
The income of the minor son, Rasikchandra for the year 1958-59 was assessed as follows :
Rs.Income from interest .... 9,890His interest in the said firm .... 2,266Loss of ---------7,624---------
2. The Income-tax Officer, while assassing Dayalbhai included in his total income the incomes from interest derived by the said Prabhakunvarbai and the said minor, Rasikchandra, but refused to take into account the respective amounted losses allocated to them. In doing so, the Income-tax Officer observed that the share of loss of the wife and the minor son could not be taken to the assessee assessment for such a loss could not be considered to be income. Aggrieved by this order, the assessee preferred an appeal before the Appellate Assistant Commissioner. It was contended in that appeal that the Income-tax Officer was in error in holding that the share income of the wife and the minor son arising out of their respective share in the said firm in which the assessee was a partner, though assessed at a loss was not to be taken into account, while computing the total income of the assessee The appellate Assistant Commissioner rejected that contention observing that section 16(3) was enacted to prevent evasion of tax, that it did not come into operation unless there was income of a wife or a minor child and that if there was no positive income of the wife or the minor child, clause (a) of the section 16(3) would not apply. He held that the word 'income' used in section 16(3)(a) would only mean positive income and not a negative income, that is to say, loss. In this view, he confirmed the order passed by the Income-tax officer. In a further appeal before the Tribunal, the assessee urged again that the share of the loss apportioned to the wife and the minor son ought to have been taken into account in computing the total income of the assessee. But the Tribunal repelled that contention and held that the term 'income' used in section 16(3) did not mean or include loss and, therefore, the Income-tax Officer view of the disregarding the share of loss of the wife and the minor son in computing the total income of the assessee was correct. On an application made by the assessee for a reference under section 66(1) of the Act, the Tribunal framed the following two question for our answer :
'(1) Whether, on the facts and circumstances of the case, and on a proper interpretation of section 16(3) of the Income-tax Act, 1922, the loss share of the wife and the minor son of the assessee in the registered firm in which the assessee is also a partner should be included in the total income of the assessee or not
(2) Whether, on the facts and circumstances do the case, the loss share of the wife and minor son of the assessee should be set off against their income includible under section 16(3) of the Income-tax Act, 1922, before including the same in the total income of the assessee or not ?'
3. We may observe that, though two questions have been framed for our anwer, they are really two facets of the same question, both depending, as already pointed out, upon the construction of section 16(3)(a) of the Act.
4. The contentions of Mr.B. R. Shah for the assessee were : (1) that the term 'income' as used in section 16(3)(a) would also include negative income i.e., loss and (2) that while ascertaining what is to be included in the total income of the assessee under section 16(3)(a), the Income-tax Officer has to be take the totality of all the incomes under the four sub-clauses of clause (a) of section 16(3) and arrive at the net result and it is such net result that has to be included in the total income of the assessee. His contention therefore was that if there was income under one head but loss under another, under any of the four sub-clause of clause (a) of section 16(3), such loss has to be set off against the income or the profit or gains accuruing or arising under another head, and it would be the resulting balance which has to be added to the total income of the assessee. He argued that, while computing the total income of the assessee, when Income-tax Officer seeks to include therein the income of the assessee's wife or the minor child arising from membership of the wife in the firm which the assessee is a partner and from the admission of the minor son to the benefit of partnership in that firm and the income form assets transferred to the wife and the minor son, the Income-tax officer must in computing such income of the wife and the son, taken into consideration the loss, if any that has come to their share in the business of that firm or from the transferred assets, and then add only the balance, if any. The question is whether this contention can be upheld on a true and proper constructions of section 16(3).
5. Sub-section (3) of the sector provides as follows :
'16. (3) In computing the total income of any individual for the purpose of assessment, there shall be included -
(a) so much of the income of a wife or minor child of such individual as arises directly or indirectly -
(i) from the membership of the wife in a firm of which her husband is a partner;
(ii) from the admission of the minor to the benefits of the partnership in a firm of which such individual is a partner;
(iii) from assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live part; or
(iv) from assets transferred directly or indireclty to the minor child, not being a married daughter, by such individual otherwise than for adequate consideration.'
6. The sub-section provides that for the inclusion, while computing the total income of an assessee, of certain income of wife or a minor child in the total income of such an assessee. The section obviously aims at preventing an attempt on the part of the assessee to avoid or to reduce the incidence of tax either by transferring his assets to his wife or minor child, or by admitting his wife as a partner or admitting his minor child to the benefits of partnerships in the firm in which he is a partner. The sub-section creates artificial liability to tax. Sub-clauses (i) and (ii) of clause (a) in sub-section (3) provide that, in computing the total income of the individual, there should be included the income arising to the assessee's wife from her share as a partner or to his minor child from admission to the benefit of partnership in the firm in which the assessee is a partner. Thus, the two clauses are absolutely and unqualified in term and not subject to any exception. What is therefore, to be included in the total income of an individual is the income of a wife or a minor child arising directly or indirectly form membership of the wife in the firm or from the admission of the minor to the benefits of partnership in the firm of which the assessee is a partner. The clause covers the share of profit of the firm received by the wife in her capacity as a partner or by the minor child as one admitted to the benefit of partnership. Under clauses (iii) and (iv), the income arising from assets transferred by an individual to his wife or to his minor child would be included in the assessee total income. In its plain meaning sub-section (3)(a) seeks to include, i.e., add to the total income of the assessee, certain income of his wife or minor child. Prima facie, there is no concept of any set-off in the sub-section and the reason is clear, for the mischief that the sub-section seeks to avoid is preventing any assessee avoiding tax by admitting his wife in the partnership as a partner or admitting his minor child to the benefit of partnership in the firm of which he is a partner, or by trasferring assets to his wife or to his minor child. As already stated, it is an artifical liability to tax and the object clearly is to add to his total income the income of his wife and miner child arising from the two circumstances set out in clause (a) of sub-section (3).
7. It will, however be seen that section 16(3) nowhere defines 'income'. The question, therefor, is does the term 'income' as used in section 16(3), i.e, income of the wife and the minor child, include his or her share in the loss of the business in respect of which the wife is a partner and the minor child has been admitted to the benefits of partnership Looking to the sub-section, it is plain that no such idea is expressed or occurs therein, and what is simply provided in sub-section (3) is that while computing the total income of such an assessee, the income of his wife and minor child form the two sources set out therein is to be included. Prima facie, what the sub-section requires is that if there is income of the wife or the minor child from the partnership or from transferred assets, such income is to be included in the total income of the assessee. It there is no such income but the business has resulted in a loss, as in the present case, there is nothing which can be added under sub-clause (i) or (ii) of clause (a) in sub-section (3). Clause (a) of the sub-section (3) has four sub-clauses and provides that if there is income under any one or more of them, that income is to be included in the total income of the assessee. The scheme of clause (a) in sub-section (3) thus is not to set off loss arising under any one of the sub-clauses aginst income arising from the other or the rest of the sub-clauses. Such a thing perhaps might have been possible if, instead of providing for the inclusion of income of a wife or a minor child in the total income of an assessee such income had, by a legal fiction, been made the income or the share of the assessee himself. That however, has not been done in this sub-section though such a deeming fiction is to be found in section 16(1)(c). While enacting therefore, sub-section (3), the legislature had before it such deeming fiction in section 16(1)(c). Yet the legislature did not follow that method, but followed a different method as set out in sub-section (3). It is true that income may in certain cases include a negative income, namely, loss, but that concept prevails in the case of computation of income of the assessee. Such a thing does not appear to be so so far as sub-section (3) of section 16 is concerned where the legislature is merely concerned with including in the total income of an assessee income coming to the share of a wife or a minor child from out of partnership in which the wife has a share and the minor has a benefit or from income arising from assets transferred by the assessee. Apart from these considerations, the expression 'includes' in clause (a) of sub-section (3) prima facie carries the concept of adding rather than of subtracting or deduction or a set-off.
8. The word 'income' as we have already pointed out, is not defined in section 16(3). Section 2(6)(c) provides, however, the definition of 'income' but that again is only an inclusive definition and by that clause what is done is to include over and above the income under its ordinary meaning, seven artificial items. Therefore, income includes not only these seven items, all of which are positive items, but also thing signified by the expression 'income' on its ordinary and well-understood meaning. Clause (15) of section 2 defines 'total income' but that clause also only provides that the expression means total amount of income, profit and gains refereed to in sub-section (1) of section 4 computed in the manner laid down in the Act. It will be noticed that the total income the define is the total income chargeable under the Act and as provided under section 4(1).
9. What the Income-tax Officer, therefore, has to do under section 16(3), wherever it applies to find out whether there is not income coming to the wife or the minor child of an assessee under any one or more of the sub-clauses in clause (a), and if the finds that the is, he has to include it in the total income of the assessee. It is not as if he is called upon to work out the totality of all the sub-clauses (i) to (iv) and then add to the total income of the husband or father, as the case may be, the balance as a result of the working out of the totality. But if the wife has income other than the one falling under this sub-section, she would be assessed in respect of the such income and if he has been admitted as a partner in the firm in which the assessee is a partner and the business of that firm has in a particular year resulted in a loss and part of that loss is allotted to her, then the wife undoubtely would be entitled to set off her share of such loss as against her other income not failing within the purview of the sub-section. If the construction suggested by Mr. Shah were to be accepted and such share of loss were to be set off against income which is to be included in the total income of the husband or the father, as the case may be, it would, in effect and in substance, be setting off such a share of loss for the benefit of the husband or the father, as the case may be. Such a construction would be contrary to the provisions of section 24 under which it would be the person to whose share the loss has come who alone is entitled to such a set-off. In the absence of a deemed fiction, such as the one to be found in section 16(1)(c), in the present sub-section, the construction suggested by Mr. Shah would be not only not in consonance with but contrary to the provisions of section 24.
10. In support, however, of the construction suggested by him, Mr. Shah relied upon Harakchand Makanjio & Co., v. Commissioner of Income-tax where the High Court of Bombay was concerned with the construction of section 42(3) of the Act, and where, in construing that provision, Cahgal C.J. and Tendolkar J. held that 'profit and gains' as used in section 42(3) meant not only the profits made by the business, but also the total result of the particular business, so that if in place of profits and gains there were losses, they were as much to be apportioned as the profit of the business. Mr. Shah relied upon these observations in support of his contention that the term 'income' used in section 16(3) d carries with it the concept of profits and gains and, therefore, would include negative income. i.e., a loss, and that, therefore, in computing the income of particular individual, if there is a loss under another head of income such loss has to be deducted and set off against the other income in arriving at the true income of such an individual. He contended that that process has to be followed for the purpose of computing the amount which has to be included under section 16(3) in the total income of the assessee. In our view, this decision can have no appication to the fact before us, for the decision dealt with the construction of section 42(3). What sub-section (3) of section 42 does is to make provison for allocation of profits in respect of the different operations of a single business. It provides that in the case of a business which some of the operations are carried out within and some outside the taxable territories, the profit and gains of the business should be apportioned and only that portion of profits which can be attributable to the operations carried out in the taxable territories should be deemed to accrue in the taxable territories. What this decision, therefore, lays down is that while computing profits arising from operations which are carried out in taxable territories, the Income-tax officer must find out the actual and overall result of such operations and in computing profit and gains of such operation he must take into account the losses which have actually occurred and then work out the final result of such operations. It is difficult to see how the construction of section 42(3) placed by the learned judges in that decision, of which the scheme and purpose are different from those of section 16(3), can possibly assist Mr. Shah. The next decision which he relied upon was Lawless v. Sullivan, where the privy Council had to construe section 4 of the Act, 31 Vict, Chapter 36. That section provided that :
'The 15th section of the St.John City Assessment Act of 1859 is hereby repealed, and in lieu therof the agent or manager of any joint stock company or corporation established aboroad or out of the limits of this province, or of any person or persons, whether incorporated or not, doing business abroad, or out of the limits of this province, who shall carry on business within the City of St. John for, or who shall have an office or place of business in the said city of St. John for any such company, corporation, person or persons, shall be rated and assess assessed, in like manner as any inhabitant, upon the amount of income received by him for the same, as such agent, etc.'
11. Construing this section the privy Council held that the tax imposed by the section upon income was leviable in respect of the balance of gain over loss made in the fiscal year and where no such balance and gain had been made there was no income or fund capable of being assessed. The privy Council also held that there was nothing in section or in the context which should induce a construction of the word 'income' when applied to the income of a commercial business for a year otherwise than its natural and commercially accepted sense as the balance of gain over loss. it is clear from this decision that stress was laid on the provisions of section 4 which imposed a tax on the income received during the fiscal, year, i.e., the income for the entire year. What was clearly chargeable, therefore, under the section was the income resulting form the working out of the income resulting from the working of the commercial business throughout the year, in other words, profit or gains of the commercial business in that year. The decision was really based on the principle that income-tax is only one tax and not as many taxes as there are heads of income. It follows from that principle that while computing the total income of an assessees, the loss sustained in any one year under any one of the heads has to be set off against income under any other head in that year and that is how one arrives at the true income of the assessee. But that principal applies to the computation of the total income of an assessee. It obviously cannot apply to a provision, such as section 16(3), which as we have already pointed out, creates an artificial liability and provides for the inclusion or addition of the income of a person than the assessee. It is not provision for computation of the total income of such other person where such set-off is to be made for a loss under one head against profit under another head. In our view, neither of these two decision can further the construction suggested by Mr.Shah and, therefore, the view taken by the Tribunal was, in our opinion, a correct view. If as suggested by Mr. Shah, income arising under the different sub-clauses in clause (a) of section 16(3) were to be adopted and loss in one were to be set off against income from the other, it would as already pointed out earlier, be not only contrary to the scheme of section 16(3) but also might work contrary to the provisions of section 24 in cases such as the one referred to earlier.
12. In the view that we take of the words and the scheme of section 16(3)(a), our answers to the questions are as follows :
Question No. 1 : in the negative.
Question No. 2 also in the negative.
13. The assessee will pay to the respondents the costs of this reference.
14. Question answered in the negative.