Walter Salis Schwabe, K.C., C.J.
1. The question referred is, ' Where a person carries on two different trades one individually and the other as a member of an unregistered firm, is he entitled to set off (that is, for income-tax purposes), the loss incurred by him in respect of the partnership trade against the profits made by him in his individual trade? '
2. The facts are that the assessee has an income from trade profits in two distinct and separate businesses of his own and from other property, has made losses in other businesses of his own, and also has incurred losses in two distinct businesses in which he is a partner and which businesses are not registered.
3. The question for decision is a difficult one, the difficulty arising from the wording of the Income Tax Act. If our decision is not in accordance with the real intention of the legislature, it is for the legislature to make that intention clear hereafter. The relevant sections for consideration are 6, 10 and 24, and the difficulty is to ascertain the proper interpretation of the two latter. Section 6 is merely a division into heads of the different sources of income, one being ' business ' concluding with a general head of ' Other Sources.' Section 10 defines and elaborates the profits and gains covered by the heading ' Business. ' The tax is payable by an assessee under the head ' Business ' in respect of the profits or gains of any business carried on by him. ' Assessee ' is defined in Section 2 as ' a person by whom income-tax is payable '. No mention is made in Section 10 of partnerships registered or unregistered, and, although it is the practice to assess firms as such, 1 can find nothing to justify the argument that each partner in a firm is not an assessee, for he is a person by whom the income-tax is payable; nor can 1 find anything to justify the argument that this assessee, being a partner, is not a person carrying on the business in question. I am, therefore, prepared to hold that the present assessee is an assessee in respect of the profits and gains of the businesses which he carries on in partnership.
4. The next question that arises is, where an assessee carries on two distinct businesses, is he entitled to set off the loss on one against the profits of the other? The. Crown has argued before us to the contrary, but it is to be observed that this is not the view taken by the Commissioner. Indeed, he states that such set off has been allowed in respect of the separate businesses of the assessee which he carried on alone, namely, his money-lending business and his Bell-metal factory, and it would from the reference seem to be his view that, if the partnerships had been registered, such set off would be allowable also in respect of the losses of the partnership businesses.
5. The Crown's argument is based on the words of Section 10 which refers to the profits of any business and would have us construe 'any' as 'each and every.' Counsel points to the English Income Tax Act which under Schedule D makes chargeable to income-tax the profits and gains from any trade, and then by special rule, namely, Rule 15 of the rules applicable to cases I and II, (case I being that in respect of trade), provides that the losses of one business can be set off against the profits of another. This re-enacts Section 101 of the Income Tax Act of 1842. It is argued that, if such a section was necessary in England, it follows that its omission here shows that it was not intended to allow such set off here. I have already pointed out that that is not the view of the Commissioner, and if it were the intention, it would indeed be anomalous; for by Section 24(1) set off is allowed between the different heads of income, so that a trade loss can be set off against a professional gain or interest on securities a privilege not allowed in England, while an adjustment of profit and loss between different businesses incurred by the same person would be allowable in England and not here, although the arguments in favour of such allowance are at least as strong as those in favour of those governed by Section 24. What it is desired to tax is a man's total net income and it would be most unjust to tax him on a profit on one business when, in fact, owing to losses on the other, he has a less or even no income at all. I do not believe that this was the intention of the Act, and I doubt whether Rule 15 in the English Act was necessary, except to make clear the intention of the legislature; and, in my judgment, looking at the Indian Act alone, the words ' any business ' being open to either construction, I must take that construction which, looking at the whole Act, I think, is the more rational and must construe ' any' to mean ' each and every '. It follows that an assessee is entitled to set off profits in one business against losses in another. And for this purpose, I can find no distinction between what an assessee earns alone and what he earns in partnership. It is argued by the Commissioner that a partnership is, for income-tax purposes, an entity, but it is not an entity known to the law it is not a separate entity like a company limited by shares, its name is merely a convenient method of describing its partners, each of whom is jointly and severally liable for its debts, and for income-tax purposes, it is a convenient body to assess, as the partners carry on the trade together and keep books in which the partnership transactions are entered and earn together profits or make losses. It is to be observed that for this purpose no distinction can be made between registered and unregistered firms for whether a firm is a legal entity or not, does not depend on registration.
6. It is then argued that Section 24 shows an intention that such set off is not to be allowed in the case of unregistered firms. But Section 24 (1) is dealing with something quite different, namely, the allowance of set off between different heads mentioned in Section 6 and not the allowance of set off between different businesses coming under one head. Section 24 (2) again dealing with set off between different heads allows the partners of a registered firm, where that firm has made a loss under one head and has not sufficient income under another head, to avail themselves of this set off, to use the loss to set off against their own individual incomes arising under other heads. Whether this must be taken by implication to prevent such set off in the case of partners of an unregistered firm is a different question which does not arise here, as the present assessee desires to set off his partnership loss against a loss of his own under the same head, that is ' Business ' and not under a different head. I do not think that we should be justified in inferring from this section the intention of the legislature to prevent any sort of set off by a partner of an unregistered firm against his own trade losses.
7. It follows that the answer to the question is in the affirmative and the assessee is entitled to his costs.
8. I agree and I have nothing to add.