TMI Blog1982 (6) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... ing with the computation of business he has added certain amount and one of the additions made by him was as follows : Rs. Loss claimed in Brood-mares Account disallowed in view of section 10(27) of the Act, 1961, as inserted by Act 5 of 1964, 74,065 and the other head was as follows : " Loss claimed in Pig a/c. disallowed in view of section 10(27) of the Act as instituted by Act 5 of 1964 19,918" He thus arrived at the total income of Rs. 8,96,232 after taking into consideration the business income of Rs. 5,79,577 and other income. The assessee, being aggrieved, went up in appeal before the AAC. The AAC after examining all the facts and circumstances of the case came to the conclusion that since the income derived from the business of livestock breeding, poultry and dairy farming was exempt, it was quite natural that the loss should not also be allowed to be set off against the other income. He, therefore, upheld the order of the ITO. There was a further appeal before the Tribunal. The Tribunal examined the whole position and referred to cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to income-tax. ' If the above principle is applied to the facts of the case then it will become crystal clear that the two items of losses on account of breeding of horses and pigs are not admissible deductions. " Out of the aforesaid order of the said Tribunal, the question as indicated above, has been referred to this court. The question before us is whether under s. 10(27) read with s. 70 of the I.T. Act, 1961, was the assessee entitled to set off the losses on the two heads, namely, Broodmares Account and the Pig Account, against its income of other sources under the head " Business ". In order to appreciate this question it would be relevant to refer to the provisions of s. 10(27) of the I.T. Act, 1961, as it stood in the relevant assessment year. Section 10 stipulates that in computing the total income of the previous year of any person any income falling within the different categories mentioned in different clauses of s. 10 should not be included and sub-s. (27) provided for non-inclusion of " any income derived from a business of livestock breeding or poultry or dairy farming ". Section 70 upon which reliance was placed on behalf of the assessee and upon which set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instant case the exclusion has been conceded in computing the business income or the source of income from the head of business and in computing that business income, the loss from one particular source, that is, broodmares account and the pig account, had been excluded contrary to the submission of the assessee. The assessee wanted these losses to be set off. The Revenue contends that as the sources of the income are not to be included in view of the provisions of cl. (27) of s. 10 of the 1961 Act, the loss suffered from this source could also not merit the exclusion. Under the I.T. Act, there are certain incomes which do not enter into the computation of the total income at all. In this connection we have to bear in mind the scheme of the charging section which provides that the incomes shall be charged and s. 4 of the Act provides that the Central Act enacts that the incomes shall be charged for any assessment year and in accordance with and subject to the provisions of the 1961 Act in respect of the total income of the previous year or years or whatever the case may be. The scheme of " total income " has been explained by s. 5 of the Act which provides that subject to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he head " Business " and compel the application of the proviso to the same head. The Supreme Court held that s. 10 of the Indian I.T. Act, 1922, did not distinguish between business in British India and business in an Indian State or so divide " business ". The Supreme Court on the computation of business profits and gains made certain observations with which we are not concerned. The Supreme Court further held that the proper function of a proviso was that it qualified the generality of the main enactment by providing an exception and taking out as it were, from the main enactment, portion which, but for the proviso, would fall within the main enactment. Ordinarily, it was foreign to the proper function of a proviso to read it as providing something by way of an addendum or dealing with a subject which was foreign to the main enactment. Reliance was, however, placed on certain observations of the Supreme Court at p. 5 where the Supreme Court held that under s. 2(15) of the Act " total income " was defined to mean the total amount of income, profits and gains computed in the manner laid down in that Act. The " total world income " was defined as including all income, profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be inappropriate to set out s.5 of the Business Profits Tax Act which is as follows : " 5. Application of Act.-This Act shall apply to every business of which any part of the profits made during the chargeable accounting period is chargeable to income-tax by virtue of the provisions of subclause (i) or sub-clause (ii) of clause (b) of sub-section (1) of section 4 of the Indian Income-tax Act, 1922, or of clause (c) of that sub-section : Provided that this Act shall not apply to any business the whole of the profits of which accrue or arise without the taxable territories where such business is carried on by or on behalf of a person who is resident but not ordinarily resident in the taxable territories, unless the business is controlled in India: Provided further that where the profits of a part only of a business carried on by a person who is not resident in the taxable territories or not ordinarily so resident accrue or arise in the taxable territories or are deemed under the Indian Income-tax Act, 1922, so to accrue or arise, then, except where the business being the business of a person who is resident, but not ordinarily resident, in the taxable territories is controlled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits or gains) means. In the context of the third proviso, it cannot include losses because the latter part of the proviso says, 'unless such income, profits or gains are received, etc., into the taxable territories'. Obviously, losses cannot be brought into the taxable territories except in an accounting sense, and the expression 'income, profits or gains' in the context cannot include losses. The expression must have the same meaning throughout the proviso, and cannot have one meaning in the first part and a different meaning in the latter part of the proviso, The appellant cannot, therefore, say that the third proviso excludes the business altogether, because it takes away from the ambit of the Act not only income, profits or gains but also losses of the business referred to therein. On behalf of the appellant it has been argued that though the language of the third proviso to section 5 of the Act is similar to that of section 14(2)(c) of the Indian Income-tax Act, the language of the two provisions is not identical and it is not correct to say that their effect is substantially the same. It is pointed out that the language of section 14(2)(c) was one of exemption only in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen the assessee makes profits in an Indian State but sustains a loss in India. The Act will not apply to such profits unless they are brought into India, and if they are brought into India, section 6 will apply with regard to relief on the ground of deficiency Of Profits. It is unnecessary to consider here any hypothetical difficulty which may arise in the application of section 6. The appellant relies on the third proviso to section 5 of the Act in support of the contention that it excludes the Baroda business of the assessee and the losses of that business cannot be set off against the profits of the business in India, and the appellant can succeed only on establishing that the proviso clearly and without any ambiguity excludes the Baroda business. We agree with the High Court that if there is any ambiguity of language, the benefit of that ambiguity must be given to the assessee ; however, the conclusion at which we have arrived is that on the language of the proviso as it stands, it does not exclude the Baroda business of the assessee but exempts only the income, profits or gains thereof unless they are received or deemed to be received in or brought into India." In our opi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same computed and carried forward. Sub-section (2A) of s. 22 would not give him such a right because the operation of that sub-section is, in terms, confined to, (i) a loss which is sustained under the 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 the definition of " total income". The Supreme Court observed as follows (p. 124) : " From the charging provisions of the Act, it is discernible that the words 'income' or 'profits and gains' should be understood as including losses also, so that, in one sense ' profits and gains' represent 'Plus income' whereas losses represent 'minus income '. In other words, loss is negative profit. Both positive and negative profits are of a revenue character. Both must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee. Although section 6 classifies income under six heads, the main charging provision is section 3 which levies income-tax, as only one tax, on the 'total income ' of the assessee as defined in section 2(15). An income in order to come within the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess income of the assessee. It was held by the Supreme Court that the interest paid by the assessee on moneys borrowed from its various depositors had to be allowed in its entirety under s. 10(2)(iii) of the Indian I.T. Act, 1922, and there was no warrant for disallowing a proportionate part of the interest referable to moneys borrowed for the purchase of securities whose interest was tax-free. Our attention was drawn to certain observations of the Supreme Court in the case of CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452. Inasmuch as the decision of the Supreme Court rested mainly on the finding of fact that the expenditure was incurred in respect of certain integrated business we need not detain ourselves with that decision in great detail. Reliance was placed on the decision in the case of Rajapalayam Mills Ltd v. CIT [1978] 115 ITR 777 (SC). There, the Supreme Court had to deal with s. 15C of the I.T. Act, 1922. According to the Supreme Court, it was to set at rest the controversy whether the expression " the profits or gains derived from the new industrial undertaking " in sub-s. (1) of s. 15C of the Indian I.T. Act, 1922, meant commercial profits or gains or profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits of all the businesses carried on by the assessee. It followed, therefore, that where the assessee carried on several businesses be was entitled under s. 10 to set off loss in one business against the profits in another. Our attention was drawn to certain observations of the Division Bench of this court in the case of Indian City Properties Ltd. v. CIT [1965] 55 ITR 262. But the observations by the Division Bench of this court were entirely in a different context and it is not necessary for us to deal with the same in great detail. Reliance was placed on the decision of the Allahabad High Court in the case of Ramjilal Rais v. CIT [1965] 58 ITR 181 (All). But the question involved in that decision was also entirely different and it is not, therefore, necessary for us to deal with the same decision in detail. But, on behalf of the Revenue, great reliance was placed on the decision of the Madras High Court in the case of CIT v. S. S. Thiagarajan [1981] 129 ITR 115. It is true that the observations made by the court at pp. 120-121 of this decision support the contention of the assessee. There the Madras High Court observed that the provisions of ss. 70 and 71 relating to set off ..... 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