38.  Limitations as to set-off and carry forward of losses in the case of firms, partners, etc:-

(1)   Where the assessee is a registered firm, any loss which cannot be set-off against any other income of the firm shall be apportioned among the partners of the firm and they alone shall be entitled to have the amount of the loss set-off and carried forward for setoff under sections 34, 35, 36 and 37.

(2)   Nothing contained in section 35, sub-section (2) of section 36 or section 37 shall entitle any assessee, being a registered firm, to have its loss carried forward and set-off under the provisions of the aforesaid sections.

(3)   In the case of an unregistered firm assessed as a registered firm under the provisions of sub-clause (ii) of clause (b) of sub-section (1) of section 69 in respect of any assessment year, its losses for that assessment year shall be dealt with as if it were a registered firm.

(4)   Where the assessee is an unregistered firm which has not been assessed as a registered firm under the provisions of sub-clause (ii) of clause (b) of sub-section (1) of section 69, any loss of the firm shall be setoff or carried forward and set-off only against the income of the firm.

(5)   Nothing contained in sections 34, 35, 36 and 37 and sub-sections (1), (2), (3) and (4) of this section shall entitle-

(a)    any partner of an unregistered firm which has not been assessed as a registered firm under the provisions of sub-clause (ii) of clause (b) of sub-section (1) of section 69, or any member of an association of persons to set-off any loss sustained by such firm or association of persons, as the case may be, or have it carried forward and set-off, against his income; or

(b)    any firm in the constitution of which any change has occurred to have carried forward and set-off so much of the loss proportionate to the share of a retired or deceased partner computed in accordance with the provisions of subsection (4) of section 69 as exceed his share of profits if any, of the income year in the firm, or entitle any partner to the benefit of any portion of the said loss which is not apportionable to him under section 69; or

(c)    any person who has succeeded, in such capacity, any other person carrying on any business or profession, otherwise than by inheritance, to carry forward and set off against his income, any loss sustained by such other person.

(6)   Where, in making an assessment for any year, full effect cannot be given to the allowances referred to in clause (v) of sub-section (1) of section 23 owing to there being no profits or gains chargeable for that year or such profits or gains being less than the allowance, then, subject to clause (v) of sub-section (1) of section 23 and the provisions of subsection (7), the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following year and be deemed to be part of that allowance, or if there is no such allowance for that year, be deemed to be the allowance for that year and so on for succeeding years.

(7)   Where, under sub-section (6), depreciation allowance is also to be carried forward, effect shall first be given to the provisions of section 35 and sub-section (2) of section 36.

(8)   Notwithstanding anything contained in this Ordinance, no loss which has not been determined in pursuance of an order made under section 59, 59A, 62, 63 or 65 shall be carried forward and set-off under section 35, sub-section (2) of section 36 or section 37.