1965 (12) TMI 15 - HC - Income Tax

Set off against the under other heads - sum being the loss under the head Income from property , which income is exempt from taxation u/s. 4(3)(xii), could not be set off against the assessee s income under other heads

Summary

Issues:
1. Whether the loss under the head "Income from property", which is exempt from taxation under section 4(3)(xii), should be set off against the assessee's income under other heads?

Analysis:
The case involved a private limited company claiming a loss of Rs. 69,265 under the head "Income from property" for the assessment year 1954-55. The company had paid interest on borrowed capital utilized in constructing a house in Calcutta, which was let out. The income from the property was not chargeable to tax due to specific provisions in the Indian Income-tax Act, 1922. The Income-tax Appellate Tribunal rejected the claim for setting off the loss against income from other heads, stating that as the property income was exempt from tax, the loss could not be set off under section 24(1) of the Act.

The High Court analyzed the relevant provisions of the Act, highlighting that the exemption under section 4(3)(xii) for income from the property in question was absolute and not to be included in the total income of the assessee. Therefore, the computation or determination of income or loss under section 9 of the Act did not arise. The Court emphasized that for a set-off under section 24(1), the loss must be of taxable profits or gains. Since the property income was not chargeable to tax, the loss could not be set off against income from other heads as per section 6 of the Act.

The Court discussed precedents where the Supreme Court clarified that set-off provisions apply to taxable profits or gains. It distinguished cases where tax-free income was involved, emphasizing that the allowance of expenditure under the Act does not depend on producing taxable income. The Court held that the loss under the exempt property income could not be set off against income from other heads. The judgment favored the department, requiring the assessee to bear the cost of the reference.

In conclusion, the Court answered the question in favor of the department, ruling that the loss under the exempt property income could not be set off against income from other heads. The judgment emphasized the distinction between taxable and tax-free income for the purposes of set-off under the Income-tax Act, 1922.