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1952 Supreme(Nagpur) 64
HIGH COURT OF NAGPUR
Mangalmurti, Deo
COMMISSIONER OF INCOME-TAX – Appellant
Versus
C P SYNDICATE – Respondent
Miscellaneous Civil Case No. 39 of 1950
Decided on : 23-04-1952
M Adhikari, M R Bobde, S P Kotwal, Advocates
The provisions of Section 14(2)(c), Income Tax Act, 1922, do not affect the assessee's right to deduct the loss suffered by him in an Indian State in the computation of the total income.
Headnote:
INCOME TAX - Set-off of loss - Loss suffered by assessee in Indian State - Whether can be set off against profits accruing or arising in British India - Whether loss can be taken into account in computing profits of business carried on in British India - Income Tax Act, 1922, Ss. 4(1), 10, 14(2)(c), 16(1)(a), 24(1), 66(1), 66(5).
Fact of the Case:
The assessee, a limited liability company carrying on the business of working collieries and mines both in and outside taxable territories, suffered a loss of Rs. 76,973/- in two mines in the Indian States and had a sum of Rs. 29,352/- included in the total income as foreign income brought into British India. The assessee claimed to deduct this loss from the British Indian income. The Income Tax Officer allowed the deduction, but the Commissioner of Income Tax referred the following two questions to the High Court under Section 66(1) of the Income Tax Act, 1922: (1) Whether on the facts of the case the loss suffered by the assessee of Rs. 76,973/- in the Indian State could be set off against the profits accruing or arising in British India under the proviso to Section 24(1), Income Tax Act? (2) Whether on the facts of the case and in view of the provisions contained in Section 14(2)(c), Income Tax Act, loss of Rs. 76,973/- which accrued or arose to the assessee from business carried on in the Indian State could be taken into account in computing the profits of the business carried on by the assessee in British India during the relevant accounting period in spite of the fact that no income, profits or gains from the Indian State had been received in British India?.
Finding of the Court:
1. The first proviso to Section 24(1), Income Tax Act, 1922, which disallows set-off of loss, is not applicable to the assessment year 1944-45 as it was added on 12-4-1944 by Act 11 of 1944 and the Finance Act for 1944-45 came into force on 1-4-1944. 2. Section 24(1) provides for the set-off of loss of profits or gains under any of the heads mentioned in Section 6 against income, profits or gains under any other head in that section and not a set-off of profit or loss under the same head. 3. The proviso to Section 24(1) excludes from the sphere of operation of this Sub-section the kind of loss referred to in the proviso. 4. The income of which loss is claimed is income from business. Different businesses do not constitute different heads under the Act. 5. The provisions of Section 14(2)(c), Income Tax Act, 1922, exempt income, profits or gains accruing or arising to an assessee within an Indian State from taxation unless they are received or deemed to be received in or brought into British India in the previous year by or on behalf of the assessee, or are assessable under Section 42. 6. The assessee is entitled to deduct the loss suffered by him in an Indian State in the computation of the total income and this will be taxable income as there is no exemption under Section 14(2)(c).
Issues: 1. Whether the first proviso to Section 24(1), Income Tax Act, 1922, is applicable to the assessment year 1944-45? 2. Whether on the facts of the case and in view of the provisions contained in Section 14(2)(c), Income Tax Act, 1922, loss of Rs. 76,973/- which accrued or arose to the assessee from business carried on in the Indian State could be taken into account in computing the profits of the business carried on by the assessee in British India during the relevant accounting period in spite of the fact that no income, profits or gains from the Indian State had been received in British India?.
Ratio Decidendi: 1. The first proviso to Section 24(1), Income Tax Act, 1922, is not applicable to the assessment year 1944-45 as it was added on 12-4-1944 by Act 11 of 1944 and the Finance Act for 1944-45 came into force on 1-4-1944. 2. Section 24(1) provides for the set-off of loss of profits or gains under any of the heads mentioned in Section 6 against income, profits or gains under any other head in that section and not a set-off of profit or loss under the same head. 3. The proviso to Section 24(1) excludes from the sphere of operation of this Sub-section the kind of loss referred to in the proviso. 4. The income of which loss is claimed is income from business. Different businesses do not constitute different heads under the Act. 5. The provisions of Section 14(2)(c), Income Tax Act, 1922, exempt income, profits or gains accruing or arising to an assessee within an Indian State from taxation unless they are received or deemed to be received in or brought into British India in the previous year by or on behalf of the assessee, or are assessable under Section 42. 6. The assessee is entitled to deduct the loss suffered by him in an Indian State in the computation of the total income and this will be taxable income as there is no exemption under Section 14(2)(c).
Final Decision: The assessee is entitled to set off the loss of Rs. 76,973/- against the profits accruing or arising in British India and the loss of Rs. 76,973/- which accrued or arose to the assessee from business carried on in the Indian State could be taken into account in computing the profits of the business carried on by the assessee in British India during the relevant accounting period.
1. This is a reference under Section 66(1), Income Tax Act, referring the following two questions at the instance of the Commissioner. They are:
(1) Whether on the facts of the case the loss suffered by the Assessee of Rs. 76,973/- in the Indian State could be set off against the profits accruing or arising in British India under the proviso to Section 24(1), Income Tax Act?
(2) Whether on the facts of the case and in view of the provisions contained in Section 14(2)(c), Income Tax Act, loss of Rs. 76,973/- which accrued or arose to the Assessee from business carried on in the Indian State could be taken into account in computing the profits of the business carried on by the Assessee in British India during the relevant accounting period in spite of the fact that no income, profits or gains from the Indian State had been received in British India?.
2. There are two provisos to Section 24(1). Neither the statement of the case nor the appellate order of the Tribunal specifies any of them. Since the first proviso disallows set-off of loss and since that proviso was specifically considered in the decision relied on by the Appellate Tribunal, we take it that the first proviso was intended. The question is otherwise not happily worded. The words "having regard to" should have appeared in place of "under" in this question. In order to bring out the true meaning we re-frame the question thus: Whether on the facts of the case the loss of Rs. 76,973/- suffered by the Assessee in the Indian State could be set off against the profits accruing or arising in British India, having regard to the first proviso to Section 24(1), Income Tax Act?
3. The last portion of the second question viz. "in spite of the fact that no income, profits or gains from the Indian State had been received in British India" is not borne out by the statement of the case; nor has it any basis on the record. As is apparent from the order of the Income Tax Officer for the assessment year in question, a sum of Rs. 29,352/- was added as income from the Indian State brought into British India. This amount was included in the total income of the Assessee under Section 16(1)(a) for the preceding assessment year. It appears that on the day this statement of the case was prepared there was another case before the Tribunal in which the income from the Indian State was not received in British India. Since the two questions referred to here arose in that case, the addition to this second question was made evidently through inadvertence.
4. The Assessee is a limited liability company carrying on the business of working collieries and mines both in and outside taxable territories. Its registered office is at Nagpur. In the "previous year" ending 31-3-1944 for the assessment year 1944-45 it suffered a loss of Rs. 76,973/- in the two mines Gorumahisani and Badampahar in the Indian States, and a sum of Rs. 29,352/- was included in the total income as foreign income brought into British India which was taken for rate in the preceding year. The accounts of the businesses in the Indian States were always kept separate from the accounts of the business in British India. In computing the assessable income for the assessment year 1944-45 the Assessee claimed to deduct this loss from the British Indian income. Following - Commr. of Income Tax Bombay v. Murlidhar Mathurawalla Association, 1948 16 ITR 146 (Bom), the Appellate Tribunal allowed this deduction.
5. The first question for decision is whether the first proviso to Section 24(1), added on 12-4-44 by Act 11 of 1944, is applicable to the assessment year 1944-45. The Finance Act for 1944-45 came into force on 1-4-1944. In - Maharajah of Pithapuram v. Commr. of Income Tax Madras, 1945 13 ITR 221 (P.C.) their Lordships of the Privy Council observed: ...It should be remembered that the Indian Income Tax Act, 1922, as amended from time to time, forms a code, which has no operative effect except so far as it is rendered applicable for the r
