D.C. AGRAWAL, A.M. ORDER In all four appeals common question is involved as to whether assessee is entitled to claim interest payment on borrowed capital invested in partnership firm, in which he was partner in relevant period, even though share of profits from partnership is exempt under s. 10 (2A). 2. facts for first three assessment years are identical. return of income was filed late. They were regularised by issuing notice under s. 148(1). Relevant data is as under : 1994-95 1995-96 1996-97 Date of 13/11/1996 13/11/1996 23/4/1997 return Income/loss (+) (-) 320570 (-) 13320 returned 176200 Date of notice under s. 17/2/2000 16/2/2000 16/2/2000 148(1) Date of letter issued by assessee to 18/2/2000 18/2/2000 18/2/2000 regularise return Income (+) 5717 (+) 217006 (+) 433520 assessed 10 Interest payment 537771 479045 3955 10 disallowed 3. For asst. yr. 1997-98, return of income was filed on 30th Nov., 1998 on total income of Rs. 2,84,075. It was processed under s. 143(1) on 28th Dec., 1999 accepting returned income. case was picked up for scrutiny. Notice under s. 143(2) was issued. Interest payment of Rs. 3,01,788 was disallowed and income was assessed at Rs. 5,87,75. 4. Though assessee had initially challenged issue of notice under s. 148(1) for all these assessment years but during course of hearing before us, same was not pressed. Hence ground relating thereto is treated as rejected. During course of assessment proceedings, it was claimed before AO that assessee has borrowed money from M/s Greater Bombay Co-op. Bank Ltd. and invested in partnership firm M/s Baldota Brothers, wherein assessee was partner. Since firm was making loss, there was debit balance in account of partners and to square up debit balance, capital was invested by taking loan of Rs. 25 lacs from M/s Greater Bombay Co-op. Bank Ltd. It was claimed that such payment of interest should have been legitimately deducted under head income from profits and gains of business/profession . But it was erroneously deducted under head other sources by assessee in return. But it is allowable under head business . He relied on decision of Hon ble Supreme Court in Rajasthan State Warehousing Corporation vs. CIT (2000) 159 CTR (SC) 132 : (2000) 242 ITR 450 (SC) for proposition that assessee is entitled to claim deduction under head irrespective of fact whether there is positive income or not under that head. AO, however, disallowed payment of interest on grounds that : (i) Interest payment cannot be allowed under s. 57 because it was not related to earning any interest. loan taken from M/s Greater Bombay Co-op. Bank Ltd. was utilised to reduce debit balance in partnership firm. (ii) CIT(A) has also disallowed claim for asst. yr. 1997-98 by holding that share income from firm is exempt under s. 10 (2A) and hence expenditure relating thereto will also not be allowed. (iii) question of allowability of whole of interest or part thereof against other business income would arise when loan borrowed is utilised in personal business, and income of one business is exempt. In present case, entire capital borrowed is utilised in partnership firm where share income in hands of partner is exempt under s. 10 (2A). 5. Before CIT(A), same arguments as taken before AO were taken. He confirmed order of AO for asst. yrs. 1994-95, 1995-96 and 1996- 97 on basis of order of CIT for asst. yr. 1997-98, wherein reliance was placed on s. 10 (2A) to confirm disallowance. In asst. yr. 1997-98, learned CIT(A) had observed as under : "I have carefully considered submissions, but they are besides point. In contending that interest should be allowed against business income, learned counsel seems to have lost sight of fact that there could be no assessable business income of appellant, firstly on account of firm s recurring losses and secondly in view of exemption of share income under s. 10 (2A) of IT Act. Therefore, argument that interest should be allowed against business income does not carry conviction it being without force. Therefore, claim of interest payment against income from business is totally misconceived and so is reliance on case of Smt. Archana R. Dhanwatay (supra). There can be no dispute with proposition that jurisdiction of AO comprises in computing total income liable to charge in accordance with law. Going by aforesaid ratio it cannot be said that AO has either supported short of exercising his jurisdiction or exceeded it in present case. In rejecting claim of interest payment against income from other source, AO has only fulfilled his duty in bringing correct amount to tax. Hence, I find no infirmity in impugned order on this account. In circumstances, disallowance is confirmed, (no adjustment being required as regards quantum of interest) and appeal dismissed." 6 . Before us, learned Authorised Representative of assessee submitted that principles laid down by Hon ble Supreme Court in Rajasthan State Warehousing Corporation case (supra) would be squarely applicable. For allowing claim of interest under head business , it is not necessary that there should be any income. Only requirement is that assessee should engage himself in business. In present case, assessee is partner in firm, income therefrom is assessable under head business . Therefore, capital borrowed is utilised for purposes of earning business income . From partnership, there are three types of income namely share of profits, interest and remuneration. It is only share of profits which will fall under s. 10 (2A). Other two items fall under head business . learned counsel for assessee relied on decision in Santosh Kumar Agrawal vs. Asstt. CIT (2001) 72 TTJ (Mumbai) 453 : (2001) 78 ITD 394 (Mumbai) for proposition that where partner is receiving remuneration and interest from firm then interest paid on borrowed capital invested in firm will be allowable deduction under head business , where remuneration and interest received from firm are assessed. He also relied on decision of Hon ble Supreme Court in CIT vs. Rajendra Prasad Moody 1978 CTR (SC) 141 : (1978) 115 ITR 519 (SC) for proposition that to allow claim of interest under s. 57(iii), it is not necessary that there should be income. All that s. 57(iii) speaks is that expenditure must have been laid out solely for purposes of earning dividend income. Extending analogy on this principle, learned counsel for assessee submitted that there may not be any income under any other head, what is required for allowing claim is that expenditure should have been incurred solely for purposes of earning that income. learned Authorised Representative further submitted that CIT(A) did not invoke s. 14A hence it could not be invoked now. 7. In addition to above, learned counsel for assessee submitted that s. 10 (2A) can be invoked only when there is income which falls under that sub-section. When there is no income, i.e., when there is loss from partnership firm, s. 10 (2A) could not be invoked. In other words, when there is loss from partnership firm, it is assessable as normal business loss under head business and it cannot be picked up to say that it is exempt under s. 10 (2A). Thus, for purposes of s. 10 (2A) income means only positive income and does not include loss . Thus, once loss is assessable under head business , then interest paid on borrowed capital utilised in that business should be allowed as deduction. learned counsel for assessee relied on decision reported in ITO vs. Expo Packaging (1995) 51 TTJ (Ahd) 174 in support of his proposition that under s. 10 (2A), it is only income which is covered and not loss derived from partnership firm. learned counsel for assessee also submitted that capital gains on transfer of share of certain companies is exempt by virtue of s. 10 (36) but long-term capital loss on account of transfer of shares of company would be eligible for adjustment against other long-term capital gains under s. 74. From this point of view, it is only positive income received as share from partnership firm will be exempt under s. 10 (2A) and not loss, which is liable to be adjusted against other income under head business . 8. On other hand, learned Departmental Representative submitted that it is incorrect to presume that assessee should have only positive income from partnership, which alone would be exempt under s. 10 (2A). Whatever loss he received from firm would also be out of computation by virtue of s. 10 (2A). Income includes loss as has been held in several decisions. 9 . Learned Departmental Representative submitted that decision of Tribunal in Santosh Kumar Agrawal s case (supra) was delivered in year 2000, when provisions of s. 14A were not in statute. orders were passed by AO much before day when that section was made effective. AO did not have benefit of examining issue by applying s. 14A. Tribunal i n Santosh Kumar Agrawal s case relied by learned counsel for assessee was delivered without considering effect of s. 14A. Further, on facts of that case, that assessee had income from interest and remuneration from firm, which could be safely said to be assessable under head business as share from partnership firm. But same is not case with present assessee. He does not have any other income from firm except loss. Therefore, nothing is assessable under head business , as loss has also to be taken out from computation by virtue of s. 10 (2A). interest was paid to earn exempted income. Therefore, same has to be disallowed. He also submitted that s. 14A was introduced in statute by Finance Act, 2001, w.r.e.f. 1st April, 1962 making it possible for AO to disallow claim of expenditure incurred in earning exempted income. Further, according to learned Departmental Representative it is incorrect to say that provisions of s. 14A cannot be invoked at this stage, if AO/CIT(A) have not considered it. In fact, AO could not consider it as it was not in statute book and CIT(A) thought it fit to confirm order on basis of order of his predecessor for asst. yr. 1997-98. In any case, provisions of s. 14A could be invoked even at this stage. learned Departmental Representative also relied on decision of Ahmedabad, Tribunal in 92 ITD 1 (sic) for proposition that interest paid on borrowed capital utilised to earn exempted dividend income will not be allowed as deduction against dividend income. learned Departmental Representative stressed that provision of s. 14A are substantive in nature and have to be followed. 1 0 . In his rejoinder, learned Authorised Representative took another line of argument that it is not that share of income from firm is always exempt. firm has to pay tax and, therefore, income of partner from firm has suffered taxation. Taxes have been shifted from partner to firm. As firm is composition of partners, taxes paid by this firm is in fact taxes paid by partners. 11. We have considered rival submissions and perused material on record, including authorities relied on by parties. First issue in controversy is as to whether is it necessary to have some income before expenditure can be allowed. It has been answered by Hon ble Supreme Court in Rajendra Prasad Moody s case (supra) as under : "The plain natural construction of language of s. 57(iii) of IT Act, 1961, irresistibly leads to conclusion that to bring case within that section it is not necessary that any income should in fact have been earned as result of expenditure. What s. 57(iii) requires is that expenditure must be laid out or expended wholly and exclusively for purpose of making or earning income. section does not require that this purpose must be fulfilled in order to qualify expenditure for deduction: it does not say that expenditure shall be deductible only if any income is made or earned. Where assessee borrowed monies for purpose of making investment in certain shares and paid interest thereon during accounting period relevant to assessment year but did not receive any dividend on shares purchased with those monies : Held, accordingly, that interest on monies borrowed for investment in shares which had not yielded any dividend was admissible as deduction under s. 57(iii) of IT Act, 1961, in computing its income from dividend under head income from other sources ." 1 2 . From above ratio, it is clear that it is not necessary that there should be income assessable under s. 57 for expenditure to be allowed. only requirement is that expenditure should have been incurred wholly and exclusively for purpose of earning that income. Thus, incurring of expenditure and allowability thereof under Act does not depend upon any income actually earned. Thus, in present case also, it is not in dispute that investment in firm was made to earn share of profit, which is assessable under head business but which is now exempt by virtue of s. 10 (2A). This share of income is no longer part of total income of assessee. Various provisions of Act from s. 15 to s. 59 prescribe how expenditure is to be allowed. These expenditure have to be allowed with reference to income, in earning of which such expenditure has been wholly and solely incurred. Rajendra Prasad Moody s case (supra) does not lay down principle that expenditure incurred to earn income assessable under one head enumerated under s. 14 can be allowed under any other head. Thus, there is no transgression of head for allowing expenditure. In other words, if expenditure is incurred to earn income under head house property then it cannot be allowed under head other sources or business . Even expenditure incurred to earn income from one source cannot be considered for allowability under other source under same head. Thus, expenditure incurred to earn share of profit from firm can only be considered for allowability under head business and also under same source, i.e., share profit from firm . Sec. 14 amply clarifies scheme n d intention of legislature. There could be no such intention of legislature to allow expenditure relating to income not forming part of total income. Hon ble Supreme Court in Tuticorin Alkali Chemicals & Fertilisers Ltd. vs. CIT (1997) 141 CTR (SC) 387 : (1997) 227 ITR 172 (SC), wherein it is held that interest expenditure in business not commenced cannot be allowed as expenditure. claim of expenditure can only be made in accordance with provisions of Act. headnotes from that decision are : "Under IT Act, 1961, total income of company is chargeable to tax under s. 4. total income has to be computed in accordance with provisions of Act. Sec. 14 lays down that for purpose of computation, income of assessee has to be classified under six heads. It is possible for company to have six different sources of income, each one of which will be chargeable to income-tax. Profits and gains of business of profession is only one of heads under which company s income is liable to be assessed to tax. If company has not commenced business, there cannot be any question of assessment of its profits and gains of business. That does not mean that until and unless company commences its business, its income from any other source will not be taxed. company may keep surplus funds in short-term deposits in order to earn interest. Such interests will be chargeable under s. 56. Any set off or deduction of any expenditure can only be made in accordance with provisions of Act." 13. Intention of legislature by inserting s. 14A was to make statutory what was so far obvious by virtue of s. 4. expenditure can be allowed if it is spent to earn income. Memorandum explaining introduction of s. 14A shows intention of legislature. Such intention has been clarified in provisions of newly inserted s. 14A by Finance Act, 2001, with retrospective effect from 1st April, 1962 and as well as in memorandum explaining Provisions, Notes on Clauses relating to Finance Bill, 2001 and in Board s Circular No. 14 of 2001, dt. 22nd Nov., 2001 [(2002) 172 CTR (St) 13] and Circular No. 8 of 2002, dt. 27th Aug., 2002 [(2002) 178 CTR (St) 9] in following way : "Certain incomes are not includible while computing total income as these are exempt under various provisions of Act. There have been cases where deductions have been claimed in respect of such exempt income. This in effect means that tax incentive given by way of exemptions to certain categories of income is being used to reduce also tax payable on non- exempt income by debiting expenses incurred to earn exempt income against taxable income. This is against basic principles of taxation whereby only net income, i.e., gross income minus expenditure, is taxed. On same analogy, exemption is also in respect of net income. Expenses incurred can be allowed only to extent they are relatable to earning of taxable income. It is proposed to insert new s. 14A so as to clarify intention of legislature since inception of IT Act, 1961 that no deduction shall be made in respect of any expenditure incurred by assessee in relation to income which does not form part of total income under IT Act." Sec. 14A provides for disallowance of expenditure in relation to income which does not form part of total income. It is assessee s own total income that is to be seen for applying provisions of s. 14A and not that of somebody else. Admittedly by virtue of s. 10 (2A) share income is not includible/included in total income of assessee partner. In other words by virtue of s. 10 (2A) it does not form part of total income of partner and, therefore, expenditure incurred by partner in earning that income would not be allowable. 14. share income is now exempt under s. 10 (2A); therefore as consequence thereof, interest paid on borrowed capital invested in firm to earn such share income could not be allowed. It cannot be allowed against any other income because borrowed capital was not utilised for earning any other income. This is what is Scheme of Act even without s. 14A. argument of learned counsel for assessee that firm is taxed and therefore income coming into hands of partner is also claimed to have been taxed is not tenable because charge of tax is not on income but on person. firm and partners are two distinct entities on which tax is charged as per s. 2(31). Even otherwise, provision of s. 10 (2A) is applicable only on partner. provision of this section cannot be made redundant by giving such interpretation. fact that legislature has thought it fit to consider taxability of share in hands of partner separately and independently clearly shows that assessability of income in hands of firm and in hands of partners have to be viewed independently. Earlier to s. 10 (2A), tax had to be levied on firm as well as on partners. Merely because tax has been levied on firm, taxability of share of income in hands of partner could not be ignored as it is legislative intent, which has to prevail. Earlier it wanted to tax same income once in hands of firm and then as share in hands of partner. Subsequently, s. 10 (2A) has laid down different legislative intent. Share of profits taxed in hands of firm would not be taxable in hands of partner. Therefore, contention of assessee that by virtue of firm having been taxed and hence partner is also taxed is rejected. 15. Now issues arising for consideration is whether provisions of s. 10 (2A) would be applicable only when there is positive share income from partnership firm and not where there is share of loss. It has been held in several cases that income includes loss In CIT vs. Harprasad & Co. (P) Ltd. 1975 CTR (SC) 65 : (1975) 99 ITR 118 (SC), it was held by Hon ble Supreme Court that in year when capital gains was not subjected to tax as it did not form part of total income , it was not required to be computed. And if loss is from source or head of income not liable to tax or congenitally exempt under Act, AO is not required to compute loss and allow it to carry forward. concept of set off of loss and carry forward does not go into vacuum. Thus, where loss arises from source/head not chargeable to tax, it could not be set off. Hon ble Supreme Court observed as under : "During accounting period ending 30th April, 1954, relevant to asst. yr. 1955-56, assessee sold certain shares at loss of Rs. 28,662, which it claimed as revenue loss. Both ITO and AAC rejected claim on ground that loss was capital loss. On appeal, Tribunal accepted contention of respondent raised for first time that capital loss of Rs. 28,662 should be carried forward and set off against capital gains, if any, in future, even though tax was not chargeable under s. 12B of Indian IT Act, 1922, on capital gains derived during 1st April, 1948, to 31st March, 1956. On reference, High Court held that if capital loss was incurred in year in which capital gains did not attract tax under s. 12B such loss would still be loss under head capital gains and it could be carried forward and set off against capital gains in subsequent year. On appeal to Supreme Court by CIT : Held, reversing decision of High Court that capital loss could not be determined and respondent was not entitled to carry forward of loss of Rs. 28,662. In relevant previous year and assessment year or even in subsequent year, capital gains did not form part of total income of respondent which could be brought to charge and were therefore not required to be computed under Act. If loss is from source or head of income not liable to tax or congenitally exempt from income-tax, neither assessee is required to show same in return, nor is ITO under any obligation to compute or assess it, much less for purpose of carry forward . During period s. 12B did not make income under head capital gains chargeable, assessee was neither required to show income under that head in his return, nor entitled to file return showing capital losses merely for purpose of getting same computed and carried forward. Sub-s. (2A) of s. 22 would not give him such right because operation of that sub-section is, in terms, confined to (i) loss which is sustained "under head profits and gains of business, profession or vocation " and would ordinarily have been carried forward under sub-s. (2) of s. 24, and (ii) to income which falls within definition of total income . concept of carry forward of loss does not stand in vacuo. It involves notion of set off. Its sole purpose is to set off loss against profits of subsequent year. It presupposes permissibility and possibility of carried forward loss being absorbed or set off against profits and gains, if any, of subsequent year. Set off implies that tax is exigible and assessee wants to adjust loss against profit to reduce tax demand. It follows that if such set off is not permissible or possible owing to income or profits of subsequent year being from non-taxable source, there would be no point in allowing loss to be carried forward . Conversely, if loss arising in previous year was under head not chargeable to tax, it could not be allowed to be carried forward and absorbed against income in subsequent year, from taxable source." 1 6 . In Aryasthan Corporation Ltd. vs. CIT (2002) 172 CTR (Cal) 640 : 1 6 . In Aryasthan Corporation Ltd. vs. CIT (2002) 172 CTR (Cal) 640 : (2002) 253 ITR 401 (Cal) it was held that losses represent negative income. Both income and losses are revenue in character. In CIT vs. J.H. Gotla (1985) 48 CTR (SC) 363 : (1985) 156 ITR 323 (SC), it was similarly held that word income includes loss and therefore, share income of wife/children clubbed under s. 16(3) of IT Act, 1922 could be set off against losses of individual business. Hon ble Supreme Court held as under : "The share income of wife and minor children in firm was included in total income of respondent under s. 16(3) of Indian IT Act, 1922, for asst. yrs. 1959-60, 1960-61 and 1961-62, and question was whether respondent was entitled under s. 24(2) to set off losses, which were incurred in his individual business in earlier years and brought forward, against share income of his wife and minor children. In those years, respondent had continued to carry on business in purchase and sale of groundnut cake and oil on small scale. Tribunal held that though respondent was continuing to carry on business of oil in general in those three years, he was not entitled to set off, since he could not be said to be carrying on business out of which share income of wife and minor children arose. On reference, High Court held that respondent was entitled to set off under s. 24(2). On appeal to Supreme Court : Held : affirming decision of High Court, that respondent was entitled under s. 24(2) to set off loss in his individual business which had been carried forward against share income of wife and minor children included in his total income under s. 16(3), as share income had to be regarded as business income derived from business carried on by respondent. Where s. 16(3) operates, profit or loss from business of wife or minor child included in total income of assessee should be treated as profit or loss from business carried on by him for purpose of carry forward and set off of loss under s. 24(2)." 17. Similar propositions were laid out in CIT vs. Karamchand Premchand Ltd. (1960) 40 ITR 10 6 (SC) and CIT vs. Elphinstone Spinning & Weaving Mills Co. Ltd. (1960) 40 ITR 142 (SC). It is held that loss is negative profit. Both positive and negative profits are of revenue character and will enter computation of income. 18. But where specific provisions are provided in Act, to treat loss in different manner, then those specific provisions will prevail over general provisions that income includes loss. Let us analyse s. 10 (2A), which reads as under : "(2A) in case of person being partner of firm which is separately assessed as such, his share in total income of firm. Explanation : For purposes of this clause, share of partner in total income of firm separately assessed as such shall, notwithstanding anything contained in any other law, be amount which bears to total income of firm same proportion as amount of his share in profits of firm in accordance with partnership deed bears to such profits." 19. Main section provides that share of partner in total income of firm will not be taken into account while computing his income. Normally income should include loss as we have understood from discussion held above, but Explanation attached to it restricts area in which this exception would be applicable. It provides mechanism of computation of such share of partner in income of firm. Such computation is done notwithstanding anything contained in any other law . It also lays down condition for such exception. One is when firm is not assessed to or its income is exempt, then s. 10 (2A) cannot be invoked in case of partner for claiming further exemption to share. Second condition is that only that amount will be share of partner entitled for exemption, which bears same ratio to total income of firm as his share in profits of firm bears to such profits. This part of Explanation envisages that income of firm may be different from profits of firm. From profits earned by firm, interest, remuneration paid to partners are excluded to arrive at assessable income as per s. 40(b). Hence, assessable income may be less than profits of firm. In some cases, assessable income may be higher than profits of firm by virtue of some disallowance made by assessee himself or by AO in assessment of firm. share of partner in income of firm will be same as share of that partner in profits of firm as per partnership deed. Income is therefore, not same thing as profits. Therefore, profits do not mean and include loss like in case of definition of income, which includes loss. Profits, as opposed to loss, are always positive. When we want to indicate negative profits, we refer to it as loss. It has been held in Karmachari Union, Agra vs. Union of India (2000) 159 CTR (SC) 148 : (2000) 243 ITR 143 (SC) that word profits in context of s. 17 is used only to carry advantage or gain by receipt of any payment................ 2 0 . dictionary meaning of word profit is also advantage or benefit . In context of s. 80HHC where word profit is used for allowing deduction, it is held in IPCA Laboratories Ltd. vs. Dy. CIT (2004) 187 CTR (SC) 513 : (2004) 266 ITR 521 (SC) that profit means positive profit and not loss . Thus when after adjustment of profits/loss of export of manufactured goods and trading goods, there is positive profit, and not loss, only then deduction under s..80HHC would be allowable. In old case CIT vs. Bengalee Urban Co- operative Credit Society Ltd. (1934) 2 ITR 121 (Rangoon), Hon ble Court held profit as positive profit. It has also been defined in Law dictionaries as under : "1. Profit : advantage or benefit; gain, preliminary gain in any transaction. [s. 145(2), Cr.PC 1973 (2 of 1974)] 2. residual amount that remains after expenses (including capital maintenance adjustments, where appropriate) have been deducted from income. Any amount over and above that required to maintain capital at beginning of period is profit (IAS. paras F. 10 5, F. 10 7) 3. What remains after production and sales costs have been deducted (Commerce) 4. At its most general, surplus money, after all expenses have been met, generated by company or enterprise in course of one accounting period. [See gross profit; net profit. (International Accounting; Business Term)]. 5. Profit implies comparison between state of business at two specific dates usually separated by interval of year. fundamental meaning is amount of gain made by business during year. This can only be, ascertained by comparison of assets of business at two dates. If total assets of business at two dates be compared, increase which they show at later date as compared with earlier date (due allowance, of course, being made for capital introduced into or taken out of business in meanwhile) represents, in strictness, profits of business business in meanwhile) represents, in strictness, profits of business during period in question . legal meaning of profit is maintaining capital intact and taking out surplus of current year s receipts over expenses. [Dent vs. London Tramways Co. (1880) 16 Ch.D 344; Fisher vs. Black & White Publishing Co. (1901) 1 Ch.D 174 (CA); Lawrence vs. West Somerest Ry. Co. (1918) 2 Ch.D 250]. 6. Advantage, avail, benefit emolument, expediency, gain, good, improvement, proceeds, receipts, return, returns, service, utility, value. (Webster s Comprehensive Dictionary, as cited in Karmachari Union, Agra vs. Union of India (2000) 159 CTR (SC) 148 : (2000) 3 SCC 335, para 24: AIR 2000 SC 1226." 21. Thus, on combined reading of all those observation of Courts and dictionary meaning we are of considered view that profits means only positive profits and not loss. It is other than income, which would include loss. 22. Now question comes is as to whether main s. 10 (2A) can be read in isolation. true meaning of Explanation is discussed by Hon ble Kerala High Court in CIT vs. Kerala Electric Lamp Works Ltd. (2003) 183 CTR (Ker) 182 : (2003) 261 ITR 721 (Ker) as under : "The label Explanation is not decisive of true meaning and scope of provision. Ordinarily purpose of Explanation in statute is to clarify or explain or settle any doubt or ambiguity or controversy. It may even widen scope of main provision in rare cases. words used alone can reflect true intent and they should be construed on their own terms." 23. In CIT vs. Orissa Cement Ltd. (2002) 173 CTR (Del) 317 : (2002) 254 ITR 24 (Del) Hon ble Delhi High Court on object of Explanation to statutory provision observed as under : "The object of Explanation to statutory provision is : (a) to explain meaning and intendment of Act itself; (b) where there is any obscurity or vagueness in main enactment, to clarify same so as to make it consistent with dominant object which it seems to subserve; (c) to provide additional support to dominant object of Act in order to make it meaningful and purposeful; (d) explanation cannot in any way interfere with or change enactment or any part thereof; but where some gap is left which is relevant for purpose, Explanation, in order to suppress mischief and advance object of Act, can help or assist Court in interpreting true purpose and intendment of enactment, and right with which any person under statute has been clothed. It cannot set at naught working of Act by becoming hindrance in interpretation of same." 24. In Cochin Co. vs. CIT 1975 CTR (Ker) 10 4 : (1978) 114 ITR 822 (Ker) Hon ble Kerala High Court observed that : "The proper function of Explanation is to make plain or elucidate what is enacted and not to add to or subtract from it. Explanation is different in nature from proviso, for latter excepts, excludes or restricts, while former explains or clarifies. During relevant accounting year, assessee-company was engaged solely in business of processing and export of fish. It fully satisfied requirements of industrial company contained in s. 2(7)(d) of Finance Act, 1966. Therefore, it was liable to be taxed only at concessional rate of fifty- five per cent. Tribunal erred in holding that even if assessee-company satisfied main part of definition of industrial company still it had also to satisfy requirements of Explanation to definition clause and that as its income from business of manufacture or processing of goods was less than 51 per cent of its total income, assessee was not entitled to concessional rate of tax." 2 5 . Role of Explanation appended to main enactment has also been explained by Justice G.P. Singh in his book "Principle of Statutory Interpretation (Eight Edn., 2001) p. 10 6 as under: "An explanation may be added to include something within or to exclude something from ambit of main enactment or connotation of same words occurring in it." 26. Thus in our considered view though main enactment 10 (2A) deals with exemption of income of partner from firm and it would mean both positive income and negative income but explanation restricts scope to income, which is arrived at from positive profit of firm. In other words this s. 10 (2A) would not be applicable where loss of partner is arrived at from loss of firm, i.e., when parties share loss of firm in loss-517 loss of firm, i.e., when parties share loss of firm in loss-517 sharing ratio as per partnership deed (in contrast to sharing profits of firm as per profit-sharing ratio as per partnership deed). 27. next issue which arises for consideration is whether partner to whom loss is allotted by firm which has suffered loss is entitled to get it assessed in his hands and then set off this loss against his income from other sources and/or under other head after amendment made by Finance Act, 1992. This is relevant because unless partner has share of loss assessable in his hands under head "business", he cannot claim deductions of expenses incurred. Unless there is income or loss received/receivable and assessable from source expenditure relating thereto cannot be claimed. That is, if income or loss is exempt from taxation in hands of assessee expenditure incurred thereon could not be claimed as deduction. Such expenditure will only increase loss for accounting purposes. It has been held in CIT vs. S.S. Thiagarajan deed by LR s (1981) 129 ITR 115 (Mad) that loss incurred by any assessee from source, income therefrom is exempt cannot be set off against income from different source or against income under different head. Similar view has been taken in Dalmia Jain & Co. Ltd. vs. CIT (1967) 65 ITR 408 (Pat) and CIT vs. Harprasad & Co. (P) Ltd. (supra) and J.P. Srivastava & Sons vs. CIT (1972) 86 ITR 730 (All). From this, it follows that loss receivable from firm cannot be assessed in his hands. 28. In this context it is observed s. 75 provides for bringing back into firm share of losses of partners pertaining to years prior to asst. yr. 1992-93, which could not be set off in hands of partners due to non-availability of income in their hands, so that it can be set off against income of firm if that partner continues to be in firm. Similar provisions are available in Kerala Agricultural IT Act. In this context, Hon ble Karnataka Court in Shankaranarayana Construction Co. vs. State of Karnataka (2005) 193 CTR (Kar) 10 7 : (2004) 270 ITR 356 (Kar), held that once there is no provision for reversion to firm of unabsorbed losses allocated to partners, then same cannot also be set off against income of partner. This decision followed earlier decision of Karnataka High Court in Shankaranarayana Construction Co. vs. State of Karnataka (1999) 239 ITR 902 (Kar). From this it follows that unless there is statutory provision, loss cannot be set off against income from another source or another head. Sec. 75 in IT Act as it existed prior to amendment by Finance Act, 1992, provided set off of loss coming to hands of partners, against their other income in current year or allowed to carry forward for set off against their future individual income. present provisions of s. 75 do not provide so. In other words, only firm is entitled to set off losses against income under other sources or under other head. Sec. 70 also does not make any distinction between firm or any other assessee, i.e., firm is treated like any other assessee to set off its losses against other income in same year or is allowed to carry forward to subsequent years to be set off against income of that year. Thus, partner will not be entitled to get losses from firm for setting it off against its other income either from another source or under other head. Thus where there is no loss available from firm as share to partner, he cannot increase this loss by expenses incurred thereon, such as payment of interest on borrowed capital or say salary paid to employee to look after affairs of partner in firm. Even if it is done for accounting purposes, he will not be entitled to set off such loss or for that matter enhance loss (by adding interest on borrowed capital) against its individual income from other sources. This is so, because there is no specific provision in this behalf, to set off loss of partner from firm against his other income. 29. On other hand intention of legislature is against such set off and carry forward by partner. As said earlier, earlier provision of s. 75 provided such set off and carry forward in hands of partner but amended s. 75 provides same only in hands of firm. Similarly, s. 78 suggests that losses have to be set off and carry forward in hands of firm as loss of outgoing partner will not be set off and carry forward in hands of firm. Circular No. 703, dt. 18th April, 1995 further clarifies this intention: "To All Chief CITs All Directors-General of IT Sir, With effect from asst. yr. 1993-94 new procedure for taxation of firms has been introduced according to which distinction between registered and unregistered firms has been done away with. Consequently requirement of apportionment of losses among partners for set off and carry forward has apportionment of losses among partners for set off and carry forward has also been given up. In line with this procedure, s. 75 provides, w.e.f. 1st April, 1993, that if there are unabsorbed losses in hands of partners to whom such losses had been apportioned for asst. yr. 1992-93 and earlier years, same shall be brought back to firm to be set off against income of firm subject to condition that partner continues to be partner in said firm and are to be carried forward for set off under ss. 70, 71, 72, 73, 74 and 74A. 2. Doubts have been expressed in some quarters as to whether unabsorbed business losses so brought back to firm are available for set off against income of firm under all heads for asst. yr. 1993-94. This doubt has arisen because, normally, under s. 72, business losses brought forward are permitted to be set off only against income under head profits and gains of business or profession , and, that too, only if business in respect of which losses were incurred continues to be carried on in year of set off. 3. plain reading of s. 75 shows that losses which remain unabsorbed in hands of partners "shall be allowed to be set off against income of firm subject to condition that partner continues in said firm and to be carried forward for set off under ss. 70, 71, 72, 73, 74 and 74A". expressions set off and carried forward and set off have been used in conjunction with ss. 70, 71, 72, etc., thereby implying that both set off and carry forward and set off, as envisaged in these sections, are permissible. 4. Board has, therefore, decided that set off envisaged under ss. 70 and 71 may be allowed for asst. yr. 1993-94 in hands of firm in respect of unabsorbed losses brought back to firm. 5. This may be brought to notice of all AO s working in your region. (Sd.) Pravin Kumar, Under Secretary, ITA-II, Central Board of Direct Taxes" 30. Thus, we hold that share of loss from firm cannot be allowed to be set off against other income of partner and also cannot be allowed to be carried forward to subsequent years. Once this is so, no expenditure incurred on earning share of loss can be allowed and added to loss and be allowed to be set off against other income or allowed to be carried forward in hands of partner. 3 1 . However situation would be different if partner is allotted salary/interest from firm if such partner is working partner. Then interest/remuneration received from firm will be assessable in hands of partner under head "business" under s. 28(iv). That is where partner has received salary/bonus/interest/commission from firm and same has been allowed as deduction in hands of firm, then partner has source under head "business" under which salary/bonus/interest/ commission will be assessable. Thereafter, any interest paid by partner on borrowed capital invested in firm can be debited and claimed as expenditure. prohibition is only on income or loss which has been assessed in hands of firm but there is no such prohibition in case of salary/bonus/commission/interest. For share of profits received from firm, s. 10 (2A) provides exemption, hence there is no source as such to claim expenditure (such as interest on borrowed capital). In case of loss, same is allowed to be set off and carry forward only in hands of firm. Here again partner does not get source in which expenditure can be debited and claimed. But interest/bonus/salary/commission stand on different footing. For then there is source under head business and therefore expenditure incurred on earning share from firm (e.g. interest on borrowed capital) can be claimed as expenditure. Similar view has been taken by Tribunal J Bench in Sudhir Dattaram Patil vs. Dy. CIT (2005) 2 SOT 678 (Mumbai). 32. As result we hold that (i) s. 10 (2A) comes into operation only when firm has positive profit and partner gets share out of such profit, as per profit-sharing ratio mentioned in partnership deed. (ii) Only firm is entitled to set off and carry forward loss. In absence of any specific provision in statute, loss allocated to partner, cannot be assessed, set off and carry forward in hands of partner. It may be done for accounting purpose only. (iii) As result in either situation, expenditure incurred by partner cannot be allowed as deduction and hence set off/carry forward. (iv) If partner gets any bonus/commission/remuneration/interest from firm which is allowed as deduction in its hands, then partner has source of income under head business against which expenditure incurred by partner, e.g., interest paid on borrowed capital invested in firm can be claimed as deduction. 33. In present case it is not known as to whether partner has any income from firm like salary/bonus/commission/interest. We, therefore, restore matter to file of AO to decide allowability of interest paid on borrowed funds invested in firm in light of discussion made above. 34. ground of assessee is allowed for statistical purposes. *** A.H. BALDOTA v. ASSISTANT COMMISSIONER OF INCOME TAX