1953 (3) TMI 55 - AT - Income Tax

Summary

Issues Involved:
1. Whether the net loss of Rs. 51,671 suffered by the assessee in business at Bombay is liable to be set off against the assessee's income from the business in Hyderabad in the previous year relevant to the assessment year 1358 F.

Issue-wise Detailed Analysis:

1. Setting off Bombay Loss Against Hyderabad Income:
The primary issue was whether the net loss of Rs. 51,671 incurred by the assessee in Bombay could be set off against the income from the business in Hyderabad. The assessee argued that this should be allowed based on the precedent set in *Commissioner of Income-tax, Bombay City v. Murlidhar Mathurawala*. The Income-tax Department, however, contested this, referring to *Mishrimal Gulabchand of Beawar, In re*. The Tribunal followed the Bombay decision and directed the Income-tax Officer to allow the set-off.

2. Interpretation of Section 10 and Section 24 of the Income-tax Act:
The judgment emphasized the interpretation of Section 10, which deals with business income, stating that "all businesses wherever carried on constitute one head which falls under Section 10 of the Act." The court noted that losses incurred in one business could be set off against profits from another business under the same head. The court also discussed the proviso to Section 24(1), concluding that it applies when setting off a loss under one head against profits under another head, not within the same head of business.

3. Applicability of Section 14(2)(c):
The court examined Section 14(2)(c), which exempts income arising in an Indian State unless received or deemed to be received in British India. The court concluded that this exemption does not preclude the set-off of losses incurred in an Indian State when computing the total income of a resident and ordinarily resident assessee.

4. Distinction Between Resident and Non-Resident Assessees:
The judgment highlighted the distinction between "resident and ordinarily resident," "resident but not ordinarily resident," and "non-resident" assessees under Section 4(1). It noted that the incidence of taxation is highest for "resident and ordinarily resident" individuals, and their entire income, including that from Indian States, is taxable, subject to specific exemptions.

5. Historical Context and Amendments:
The court provided historical context, noting that the Income-tax Amendment Act, 1939, based liability on residence, including foreign income of residents. The 1941 amendment introduced Section 14(2)(c) to prevent double taxation. The court emphasized that before this amendment, losses were set off against profits regardless of where they accrued.

6. Computation of Total Income:
The court discussed Section 16(1), which requires the inclusion of exempted sums in computing total income for determining the tax rate. The court concluded that losses incurred in an Indian State should be considered when computing the total income of the assessee.

7. Applicability of Section 24(1):
The court clarified that Section 24(1) applies only when setting off losses under one head against profits under another head. Since the case involved setting off losses within the same head of business, Section 24(1) and its provisos were deemed inapplicable.

Conclusion:
The court agreed with the view taken by the Bombay and Nagpur High Courts, allowing the set-off of Bombay losses against Hyderabad profits. The Tribunal's decision was upheld, and the reference was answered in the affirmative, entitling the assessee to set off the loss of Rs. 51,671 against the income in Hyderabad. The Commissioner was directed to pay the costs of the reference, and a copy of the judgment was to be sent to the Appellate Tribunal.