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Issues:
Whether losses from business in an Indian State can be set off against profits in British India for tax computation under the Income Tax Act, 1922. Detailed Analysis: 1. The case involved a question referred by the Income Tax Appellate Tribunal regarding setting off losses from business in an Indian State against profits in British India for tax computation. The assessee, a registered firm resident in Ludhiana, had profits from British India and losses from Malerkotla State in the accounting year 1948-49. 2. The Appellate Assistant Commissioner disallowed the set off of losses citing Section 14(2)(c) of the Income Tax Act. However, the Income Tax Tribunal allowed the set off based on a Bombay High Court decision. The main contention was whether losses from an Indian State business could be set off against profits in British India. 3. Sections 6, 10, 14, and 24 of the Income Tax Act were crucial for determining the issue. Section 24(1) with a proviso added in 1944 restricted the set off of losses from Indian States against profits in British India exempt from tax under Section 14(2)(c). 4. The Income Tax Commissioner argued against allowing the set off based on Section 14(2)(c), supported by a judgment from the Allahabad High Court. However, the Court disagreed, emphasizing that Section 10 should be read independently for computing profits from any business carried out by the assessee. 5. The Madras High Court and the Supreme Court's decisions highlighted that the Income Tax Act does not restrict business profits to British India only. The scheme of the Act and various sections indicated that profits from all businesses, including those outside British India, should be considered for tax computation. 6. The Supreme Court's ruling clarified that set off under Section 24(1) applies when losses and profits arise under different heads, not the same head. The judgments emphasized that Section 10 governs the computation of profits and losses for tax purposes. 7. Previous judgments from Bombay and Nagpur High Courts supported the view that losses from Indian State businesses can be set off against profits in British India under Section 10, treating all businesses as part of the same head for tax calculation. 8. The Court concluded that the weight of authorities favored considering all business profits and losses under Section 10 without the restrictions imposed by Section 24(1) and its proviso. Section 14(2)(c) did not apply to the facts of the case. 9. The Court rejected the analogy of the proviso to Section 24(1) for excluding losses from Indian States in tax computation under Section 10. It emphasized interpreting fiscal statutes to avoid citizen liability unless explicitly mandated by the law. 10. Ultimately, the Court held in favor of the assessee, allowing the set off of losses from Malerkotla against profits from Ludhiana for tax computation under the head 'business.' This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the legal reasoning applied by the Court in reaching its decision.
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