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Issues Involved:
1. Whether the losses incurred at Indore and Bombay could be set off. 2. Whether the Appellate Assistant Commissioner could rectify an error apparent from the record under section 35 of the Indian Income-tax Act, 1922. 3. Whether the Appellate Assistant Commissioner had the power to rectify the order after it had merged in the order passed by the Tribunal. Issue-wise Detailed Analysis: 1. Set-off of Losses Incurred at Indore and Bombay: The petitioner argued that the losses incurred at Indore and Bombay should be allowed to be set off. However, the court found this ground untenable. The relevant provisions of section 24(2) of the Indian Income-tax Act, 1922, both before and after its amendment by the Act, 25 of 1953, were examined. The court referred to the Supreme Court's decision in *Anglo-French Textile Co. Ltd. v. Commissioner of Income-tax*, which clarified that a set-off under section 24(1) could 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. The amended section 24(2) allowed the whole loss to be carried forward even where the assessee had no other head of income, but this was not in force during the accounting years 1948-49 and 1949-50. Additionally, the court noted the restrictive clause in clause 3 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, which limited the set-off of losses incurred in Native States. The court concluded that the petitioner could not carry forward the losses incurred in Indore State for set-off against future profits in the taxable territories. 2. Rectification of Error Apparent from the Record: The petitioner contended that the Appellate Assistant Commissioner could not rectify an error under section 35 of the Act, as the revenue did not appeal against the original order. The court examined the scope of powers under section 35, referencing several Supreme Court cases, including *Venkatachalam v. Bombay Dyeing and Manufacturing Co. Ltd.*, *Maharana Mills (Private) Ltd. v. Income-tax Officer, Porbandar*, and *Income-tax Officer v. Asok Textiles Ltd.*. These cases established that a mistake of law or fact apparent from the record could be rectified under section 35. In this case, the Appellate Assistant Commissioner had allowed the losses sustained in Indore State to be carried forward and set off against income in the taxable territories, disregarding the unamended section 24(2) and clause 3 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950. The court concluded that this was a mistake apparent from the record, which could be corrected under section 35. 3. Power to Rectify After Tribunal's Order: The petitioner argued that the Appellate Assistant Commissioner had no power to rectify the order after it had merged in the Tribunal's order. The court discussed the principles of merger, citing *Commissioner of Income-tax v. Amritlal Bhogilal & Co.* and other relevant cases. It was established that the jurisdiction of the Tribunal is confined to the subject-matter of the appeal, constituted by the grounds of appeal preferred by the appellant. Since the revenue did not appeal the decision allowing the carry forward and set off of losses, this matter was not the subject-matter of the appeal before the Tribunal. Therefore, the Tribunal's order did not cover this issue, and the Appellate Assistant Commissioner's power to rectify the order remained unaffected. Conclusion: The court found all three grounds urged by the petitioner to be untenable. Consequently, the petition was dismissed, and the petitioner was ordered to bear its own costs and pay the respondents' costs out of the security amount, with the remaining security amount to be refunded. The hearing fee was set at Rs. 150.
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