The proviso to S. 24(1) of the Indian Income-tax Act, 1922, which allowed for the set-off of losses sustained in business in an Indian State against profits made in British India, was not intended to restrict the set-off of profits and losses arising in Indian States only to business or to modify the mode of computation under S. 10 of the Act.

Judgment

J. L. KAPUR J. : These two appeals by special leave raise a common question of law, and that is, whether business losses incurred in the erstwhile State of Cochin could, under the Income-tax Act of Travancore, be set off against the business profits made in the erstwhile State of Travancore. In Appeal No- 260/58 a further question arose whether in the case of that assessee the year ending June 30, 1949, was the previous year for the assessment year 1950-51 with the result that it should be assessed under the Indian Income-lax Act of 1922. But this question was not answered by the High Court which confined itself to answering the first question which was common to both the appeals. The appellant before us in both the appeals is the Commissioner of Income-tax and the respondents are the two assessees, in one case a Bank and the other a private limited company. The main argument has been confined to the question of applicability of S. 32(1) and the first proviso to that section of the Travancore Income-tax Act (hereinafter called the Travancore Act).

2. In C. A. No. 259/58 the assessee is a public limited company incorporated in the State of Cochin with branches in that State as well as in what was British India and in Travancore State. It filed its income-tax return showing an income of Rs. 11,872 for the assessment year 1948-49, its accounting year being the previous calendar year.The income-tax officer determined its assessable income to be Rs. 90,947 representing only the profit it made in Travancore State and under S. 32(1) proviso (i) of the Travancore Act he returned a deduction of Rs. 79,275 shown as loss from branches situate outside the State of Travancore, in British India and other Indian States. The assessee s appeal to the Income-tax Commissioner was unsuccessful but the Appellate Tribunal held that the banking business of the assessee being one and indivisible for the purpose of determining the amount assessable to income-tax it was entitled to deduct the losses incurred outside Travancore State for the profits accruing and arising in that State. At the instance of the Commissioner of Income Tax the following question was referred to the High Court of Travancore-Cochin:-

"Is the aforesaid sum of Rs. 79,275 a loss of the assessee arising outside the Travancore State for purpose of the first proviso to Section 32(1) of the Travancore Income-tax Act?"

This question was slightly modified by the High Court which after referring to several decided cases answered the question in favour of the assessee.

3. In C. A, 260/58 the assessee is a private limited company with its registered office in the former Cochin State. It was carrying on business at its head office in Cochin State and it also carried on business in Travancore State. The assessment was made under the Travancore Act and relates to the previous year ending June 30, 1949, the assessment year being 1050-51, The assessee made a profit in Travancore State and incurred a loss in the state of Cochin and sought to deduct this loss from the profit of Travancore State thus showing a net profit of Rs. 2,643. This was not allowed by the Income-tax Officer and on appeal this order was confirmed by the Appellate Assistant Commissioner. The Appellate Tribunal also did not accept the submissions of the assessee and upheld the order of assessment. On an application of the assessee the following question was referred to the High Court of Travancore-Cochin:-

"Whether on the facts and in the circumstances of the case the lossess of Rs. 27,709 arising in Cochin State could be set off against the profit of Rs. 38,998 arising in Travancore State?"

and was answered in favour of the assessee. The Commissioner has come up in appeal pursuant to special leave against both these judgments.

4. It may be stated that the relevant sections of the Travancore Act which govern the two appeals are identically orded with those of the Indian Income-tax Act of 1922 (to be called the Indian Act).