TMI Blog1956 (2) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... ve of ₹ 17,340 and ₹ 55,621 respectively, while the assessee sustained a loss in the branch business at Bangalore of ₹ 6,408 and ₹ 14,603, in the two respective years. The assessee claimed that for the computation of the total income on which he could be taxed the loss sustained by him in his business in paper at Bangalore should be taken into account and it was only the resultant figure that could be deemed to be his assessable profit for the respective years. The Income-tax Officer negatived this claim on the ground that the loss incurred by him in the Bangalore branch could not be set off on the ground that it was forbidden by reason of the first proviso to section 24(1) of the Income-tax Act. The Appellate Assistant Commissioner on appeal however allowed the assessee's appeal basing himself on the decision of the Bombay High Court in Commissioner of Income-tax v. Murlidhar Mathurawalla Mahajan Association [1948] 16 ITR 146. The Department filed an appeal to the Tribunal and this appeal was allowed, the Tribunal relying on a decision to the contrary effect by the Allahabad High Court in Mishrimal Gulabchand of Beawar, In re [1950] 18 ITR 75. On these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been referred for our decision under section 66(1) are : (1) Whether the loss in pepper business arose in the Travancore State ? (2) If so whether in view of the provisions of sections 14(2)(c) and 24(1) and its provisos, such loss could be set off against the income from business in the taxable territories ? In the last of these cases R.C. 48 of 1052 the assessee, Ponnappa Chettiar, carried on a mundy business at Erode with a branch at Pudukottai. He also indulged in speculative forward contracts in turmeric with merchants in the State of Kolhapur. The result of this was that the Pudukottah branch sustained a net loss of ₹ 8,475 and the head office at Erode a loss of ₹ 10,672 during the assessment year 1948-49 with which this reference in concerned. The assessee put forward two claims that on the facts of the case the inference to be drawn of the transactions had by him was that those losses aggregating to ₹ 19,147 must be taken to have accrued and did arise in the taxable territories and secondly that even if he was wrong in this contention and the loss must be taken to have arisen in an Indian State, even then he was entitled to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gathered from section 4 which enacts that the total income of any person includes all income, profits and gains from whatever source derived which (a) are received or deemed to be received in the taxable territories in such year by or on behalf of such person or (b) if such person is resident in the taxable territories during such year, (i) accrue or arise or are deemed to accrue or arise to him in the taxable territories during such year, or (ii) accrue or arise to him without the taxable territories during such year. The rest of the provision is not relevant and need not be therefore referred to. What is to the point is that the total income in the case of residents-this is the case with which we are concerned in these references-includes all income which accrues or arises to him without the taxable territories during such year. In other words the place where the income arises or accrues is irrelevant and all such income is deemed to be part of the income of the resident assessee. This aspect is emphasised by the definition of total income in section 2(15) of the Act which runs thus : 'total income' means total amount of income, profits and gains referred to in sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the books of the assessee showed any loss incurred in respect of transactions effected in any particular branch, while the operations in the other branches resulted in a profit, it is the net result of these transactions newly, after adjusting the profits and losses in regard to the totality of the transactions that would yield the income or profits under the head business to be computed under sections 6 and 10. One further fact we might noticed at this stage. If any particular head of income under section 6 resulted in a loss while another head yielded profit, there is no machinery or provision up to this stage which would enable the assessee to set off the loss under one head of income against profits under another of the heads enumerated in section 6. It is the purpose and function of section 24(1) to redress the injustice arising from this feature. Accordingly this sub-section enacts : 24. (1) Where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in section 6, he shall be entitled to have the amount of the loss set off against his income, profits or gains under any other head in that year. We shall be ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduced a proviso to sub-section (2) of section 24 which provides for carrying forward the loss, but we are omitting this because it is in the same terms as the first proviso to subsection (1) and the present case is not concerned with the carrying forward of the loss but only with the adjustment of losses in the same accounting year. It is really on the terms of the first proviso to sub-section (1) of section 24 that the counsel for the Department wholly relies for his contention, that the loss incurred in an Indian State could not be set off against the profits accruing to him in British India, i.e., the taxable territories. It is an elementary rule of construction that a proviso is not normally construed other than as a subtraction of the main section and as introducing a qualification or exception from the enacting part. It is agreed by learned counsel for the Department that section 24(1) read without the proviso only enables a set-off of losses under one head under section 6 against the profits accruing under another head of income all in the same year and that so far as the income accruing under the same head is concerned, it is the totality of the operatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first proviso to section 24(1) as a positive enactment and as modifying the concept of income from business within section 10(1) of the Act. So far we have considered the question on an independent examination of the relevant provisions. We find the same confirmed by the preponderance of authority in the Indian decisions. That the function of section 24(1) is to permit the set-off of a loss under one of the heads mentioned in section 6 against another of the heads of income accruing or arising in the same year is clear on the terms of the section, but if authority were needed reference might be made to the decision of the Supreme Court in Anglo-French Textile Co. Ltd. v. Commissioner of Income-tax [1953] 23 ITR 82, Bose, J., who delivered the judgment of their Lordships, said: Next, a set-off under section 24(1) can only be claimed when the loss arises under one head and the profit against which it is sought to be set off arises under a different head. When the two arise under the same head, of course the loss can be deducted, but that is done under section 10 and not under section 24(1). See the decision of the Privy Council in Rm.Ar.Ar.Rm. Arunachalam Chettiar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in such a foreign business was confined to those cases where the profit was liable to tax. In other words section 14(2)(c), the first proviso to section 24(1) and section 10 have all to be read together and if so read, the loss could not be set off. We are unable to agree with this decision, as it seeks to attribute an effect to the first proviso to section 24(1) which it cannot bear and also because this view ignores the basic concept of what constitutes income from a business within section 10 read, with section 4(1)(b)( ii). A similar question arose for consideration before the Nagpur High Court in two references which came up before it in 1952 in Mohanlal Hiralal v. Commissioner of Income-tax [1952] 22 ITR 448 and Commissioner of Income-tax v. C.P. Syndicate [1952] 22 ITR 493. The learned; Judges preferred the Bombay decision to what might be termed the Allahabad view and answered the question in favour of the assessee. The Punjab High Court had occasion to consider this point in Commissioner of Income-tax v. Hira Mall Narain Dass [1952] 22 ITR 493, where the learned Judges held, after a discussion of the decisions to which we have referred, in favour of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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