1978 (1) TMI 48 - HC - Income Tax

Summary

Issues:
Assessment of firm for the year 1949-50, Exemption of income under s. 14(2)(c) of the I.T. Act, 1922, Set-off of losses under s. 24(1) of the Act.

Analysis:
The judgment pertains to the assessment of a firm for the year 1949-50, involving income earned in Indian States and taxable territories. The firm earned a total profit of Rs. 3,01,792 in Indian States and suffered a loss of Rs. 1,24,132 in the Jaipur State. The Income Tax Officer (ITO) excluded the net income of Rs. 1,77,660 under s. 14(2)(c) of the Act. The firm claimed exemption for the full amount of Rs. 3,01,792, with the loss to be set off separately. The Appellate Assistant Commissioner (AAC) rejected this claim, leading to an appeal before the Tribunal. The Tribunal held that the entire profit of Rs. 3,01,792 was exempt under s. 14(2)(c) and allowed the appeal.

The Tribunal referred a question to the High Court regarding the treatment of the loss in Jaipur State against the profits in other Indian States for exemption under s. 14(2)(c). Section 14(2)(c) exempts income from Indian States unless brought into British India. Section 24(1) deals with the set-off of losses against profits, with a specific provision for losses from Indian States. The Court analyzed the provisions and held that the entire income of Rs. 3,01,792 was exempt under s. 14(2)(c) as it arose within Indian States, irrespective of the loss suffered in the Jaipur State.

The Court rejected the revenue's argument that losses should be segregated and set off only against profits from the same source. Referring to a Supreme Court judgment, the Court emphasized that where profits and losses arise under the same head, they cannot be dealt with separately. The Court concluded that the language of the Act did not support the revenue's contentions, and the entire profit from Indian States was to be exempt under s. 14(2)(c). The judgment was delivered by Sabyasachi Mukharji J., with Sudhindra Mohan Guha J. concurring.

In conclusion, the High Court ruled in favor of the assessee, holding that the loss in the Jaipur State should not be deducted from the profits in other Indian States for exemption under s. 14(2)(c). The Court found that the entire income of Rs. 3,01,792 from Indian States was exempt under the provision, and set-off provisions did not apply due to profits and losses arising under the same head. Sudhindra Mohan Guha J. concurred with the judgment, and no costs were awarded in the case.