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Issues Involved:
1. Whether the Tribunal erred in law or misdirected itself in rejecting the assessee's claim to set off the alleged losses of 1941 of Hongkong business against the income of the assessment year. 2. Whether the income of the assessee from the Hongkong branch should be apportioned either on a time basis or in any other manner for the purpose of inclusion in the total income of the assessee. Issue-Wise Detailed Analysis: Issue 1: Whether the Tribunal erred in law or misdirected itself in rejecting the assessee's claim to set off the alleged losses of 1941 of Hongkong business against the income of the assessment year. The assessee claimed that losses incurred in the Hongkong business in 1941 should be set off against the income of the assessment year 1947-48 under section 24(2) of the Act. The Income-tax Officer disallowed this claim, stating the factum of loss was not established. The Tribunal upheld this decision, noting that "there was no determination of such loss anywhere" and that the Hongkong business was not subject to Indian income-tax at the time. The Tribunal further observed, "the income or loss during that period was completely out of the pale of the Indian income-tax." Mr. Palkhivala, representing the assessee, argued that the rejection of the loss claim in 1942-43 did not equate to a determination of the loss at zero and that the assessee should be allowed to re-establish the loss in 1947-48. He cited the Supreme Court decision in Commissioner of Income-tax v. Khushal Chand Daga, which held that failure to notify the loss computation allowed for redetermination in subsequent years. The court, however, distinguished this case, noting that in 1942-43, the assessee failed to establish the loss, meaning no obligation arose for the Income-tax Officer to notify under section 24(3). The court concluded, "Redetermination of the quantum of loss when loss has been once established cannot be equated with a second opportunity to establish that loss had occurred." Thus, the Tribunal was not in error in rejecting the claim to set off the alleged losses. Issue 2: Whether the income of the assessee from the Hongkong branch should be apportioned either on a time basis or in any other manner for the purpose of inclusion in the total income of the assessee. The Tribunal found that the assessee was a "resident but not ordinarily resident" and that the Hongkong business was controlled in India, making its income includable under the second proviso to section 4(1). The assessee argued that only 2/3rds of the income should be taxed in India, as he resided in India for only 8 months. The Tribunal rejected this, stating, "there is no authority to dissect the income of the previous year on the basis of control in British India." Mr. Palkhivala contended that the Tribunal erred by not apportioning the income based on the control period. He argued that the proviso allowed inclusion of only the income derived from a business controlled in India. Mr. Joshi countered that the Tribunal's finding was that the business was controlled in India throughout the year, and temporary absence did not shift control. The court agreed with Mr. Joshi, noting that the Tribunal had found the business was controlled in India for the entire year. The Tribunal had considered evidence, including correspondence showing control from India. The court concluded, "the Tribunal was right in holding that the entire income of the Hongkong business was liable to be included in the total income of the assessee." Conclusion: The court answered both questions in the negative, upholding the Tribunal's decisions. The assessee's claims were rejected, and the entire income from the Hongkong business was included in the total income for the assessment year. The assessee was ordered to pay the costs of the department.
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