Balakrishna Ayyar, J.-

Under section 66 (1) of the Income-tax Act the Income-tax Appellate Tribunal of Bombay has referred the following question for the decision of this Court:-

“Whether the assessee is entitled to earned income relief on Rs. 31,006 income from his profession aforesaid, or only on Rs. 16,149 the net total income aforesaid computed in the manner laid down in the Income-tax Act?”

The relevant facts are these:-The assessee is a chartered accountant. During the accounting year which ended on 31st December, 1950, the assessee earned Rs. 31,006 from the practice of his profession. He received also a further income of Rs. 741 from other sources, making a total of Rs. 31,747. He incurred a loss of Rs. 15,598 in respect of the properties that he owned. The result was that his total net income for the year was only Rs. 16,149. The assessee claimed that he was entitled to earned income relief under section 15-A of the Income-tax Act in respect of Rs. 31,006 which was the income he received from the practice of his profession, subject to the statutory maximum of Rs. 4,000. The Income-tax Officer, however, held that he was entitled to relief only in respect of Rs. 16,149. The appeal which the assessee filed before the Assistant Commissioner was dismissed. The assessee thereupon took up the matter to the Appellate Tribunal.

The two members of the Tribunal who first heard the appeal differed. The case was therefore referred by the President under section 5 -A (7) to the third member. By a majority of two to one the Tribunal held that the assessee was entitled to earned income relief on Rs. 31,006 subject of course to the statutory maximum of Rs. 4,000. On the application of the Commissioner of Income-tax the Tribunal has referred to this Court the question that has been extracted at the beginning of this order.

Section 15-A of the Income-tax Act runs as follows:

“The tax shall not be payable by an assessee in respect of such portion, if any, of the earned income included in his total income as is directed by the annual Central Act fixing the rate or rates of tax for any year to be deducted in making an assessment for that year and for the purposes of determining the rates at which income-tax (but not super-tax is payable by the assessee for that year his total income shall be deemed to be the total income reduced by the said portion.”

The annual Central Act relevant to the year in question is the Indian Finance Act of 1950, section 2 (2) of which runs:

“In making any assessment for the year ending on the 31st day of March, 1951, there shall be deducted from the total income of an assessee, in accordance with the provisions of section 15-A of the Income-tax Act, an amount equal to one-fifth of the earned income, if any, included in his total income, but not exceeding in any care four thousand rupees”.

Clause (15) of section 2 of the Income-tax Act defines the expression “total income” in these terms:

“‘Total income’ means total amount of income, profits and gains referred to in sub-section (1) of section 4 computed in the manner laid down in this Act,................”

It will be noticed that section 15-A is general in its terms and merely enacts that an assessee is not liable to pay tax on his earned income “included in his total income” to the extent that exemption is granted by the relevant Central Finance Act. The extent of the exemption is in respect of “an amount equal to one-fifth of the earned income, if any, included in his total income” subject to a maximum of Rs. 4,000. When in the light of the arguments before us we try to visualise the possible situations or cases that may arise we get this result:

(1) Where an assessee has earned income as also income from other sources:

(2) Where an assessee has earned income but no income from any other sources?

(3) Where the assessee has earned income but his income from other sources is a negative quantity, that is to say, where he has suffered loss, but the loss is smaller than the amoun

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