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Issues Involved:
1. Applicability of the first proviso to Section 24(1) of the Indian Income-tax Act for the assessment year 1944-45. 2. Consideration of loss from business in an Indian State under Section 14(2)(c) in computing profits of business in British India. Issue-wise Detailed Analysis: Issue 1: Applicability of the first proviso to Section 24(1) of the Indian Income-tax Act for the assessment year 1944-45 The first question addressed whether 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) of the Indian Income-tax Act. The Tribunal noted that the first proviso to Section 24(1), added on April 12, 1944, by Act XI of 1944, was not applicable to the assessment year 1944-45. The Finance Act for 1944-45 came into force on April 1, 1944, and the assessment for the year 1944-45 must be made according to the Indian Income-tax Act in force on April 1, 1944. Therefore, the first proviso does not apply to the assessment for that year. Section 24(1) and its first proviso were examined, and it was concluded that a proviso is not applicable unless the enacting clause is applicable to the facts of the case. The Tribunal referred to the decision in M. and S. M. Ry. Co., Ltd. v. Bezwada Municipality, which clarified that the proper function of a proviso is to except and deal with a case which would otherwise fall within the general language of the main enactment. The Tribunal emphasized that Section 24(1) provides for the set-off of loss of profits or gains under one head against income, profits, or gains under any other head, and the proviso excludes from the operation of this sub-section the kind of loss referred to in the proviso. The Tribunal rejected the contention that the section should be construed in light of the proviso, stating that Section 24(1) clearly provides for a set-off of loss under any of the heads of Section 6 against any other head in that section. As the first proviso is not applicable to the assessment year in question, the assessee is entitled to set off the loss of Rs. 76,973 against the profits accruing or arising in British India. Issue 2: Consideration of loss from business in an Indian State under Section 14(2)(c) in computing profits of business in British India The second question addressed whether the loss of Rs. 76,973 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, despite no income, profits, or gains from the Indian State being received in British India. The Tribunal noted that the last portion of the second question was not supported by the statement of the case, as a sum of Rs. 29,352 was added as income from the Indian State brought into British India. The Tribunal referred to Sections 4(1), 16(1)(a), and 14(2)(c) of the Indian Income-tax Act. Section 4(1) includes all income, profits, and gains from whatever source derived, received, or deemed to be received in British India, or accruing or arising to a resident in British India. Section 14(2)(c) exempts income, profits, or gains accruing or arising within an Indian State unless received or deemed to be received in or brought into British India. The Tribunal concluded that a resident in British India is liable to be assessed on income from whatever source, including income from an Indian State, which must be included in the total income liable to tax. In the event of a loss in an Indian State, the total income computed under the Act will be adjusted accordingly. The assessee is entitled to deduct the loss suffered in an Indian State in computing the total income, as there is no exemption under Section 14(2)(c). The Tribunal also referred to the decision in Income-tax Appellate Tribunal, Bombay v. Central Provinces and Berar Provincial Co-operative Bank Ltd., Nagpur, which supported the inclusion of losses in computing total income. The Tribunal disagreed with the decision in Mishrimal Gulabchand of Beawar, In re, which suggested that profits and gains from an Indian State should be excluded for all purposes. The Tribunal concluded that neither Section 14(2)(c) nor the fact that income, profits, or gains within an Indian State were not received in British India in the relevant accounting period affects the result that the loss of profits or gains in business in an Indian State can be taken into account in computing the profits and gains of business carried on in British India by the assessee who is resident in British India. Conclusion: The assessee succeeds and is entitled to set off the loss of Rs. 76,973 against the profits accruing or arising in British India. The assessee will have the costs of this reference, and the Commissioner will pay the costs of the paper book. A copy of this judgment will be sent to the Appellate Tribunal as required by Section 66(5) of the Act. The reference is answered accordingly.
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