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TMI Blog1955 (1) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... should be referred to us for decision and in compliance with the order two other questions that have been referred are as follows:- (a) Whether on the facts and circumstances of this case after the partial partition had taken place in the Hindu undivided family, the two members Ram Sarup and Radhey Lal continued to carry on the business of money-lending although no fresh loan was advanced by them but only they took steps to realise these loans along with interest due on them? (b) Whether on the facts and in the circumstances of this case the amount of ₹ 15,612 in the hands of the assessee is income taxable under the Indian Income-tax Act? The facts though not fully set out in the original statement of the case now appear from the fresh statement made by the Tribunal. Makkhan Lal, grandfather of the assessee, had a number of businesses. He had three sons, Ram Sarup, Narain Das and Radhey Lal. Narain Das predeceased him leaving an adopted son Amar Nath. Makkhan Lal in his lifetime gave Amar Nath certain assets with which Amar Nath started his separate business and we are no longer concerned with him. On the death of Makkhan Lal his two businesses, one in clot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te then that loss can be set off only against profits or gains made within an Indian State and exempt from tax under the same provision. Section 14(2)(c) provides that the tax shall not be payable by an assessee- in respect of any income, profits or gains accruing or arising to him within an Indian State, unless such income, profits or gains are received or deemed to be received in or are brought into British India in the previous year by or on behalf of the assessee, or are assessable under section 42. Section 24(1) read with section 14(2) would, therefore, make it clear that a loss of profits or gains within an Indian State can be set off only against the profits and gains which are not liable to tax by reason of the provisions of section 14(2)(c), that is, they can be set off against profits and gains accruing or arising within an Indian State which have not been received or deemed to be received in or brought into British India. On a plain reading of the two sections, therefore, the answer to the question must be in the negative. Learned counsel for the assessee has, however, not confined himself to the question referred to us whether the loss of ₹ 4,483 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him. Under sub-clause [1950] 18 I.T.R. 150 of that section such profits or gains have to be computed after making the allowances enumerated in that clause. Nowhere in this section or in section 6 is there any basis for restricting the words 'business, profession or vocation' to business, profession or vocation carried on only in British India and not outside it. .........When the language of the statute is general and the context does not justify any restriction and when it is conceded that the legislature has the power to enact laws having extra-territorial operation, it is difficult to accept and construe the section in the manner contended..... The argument therefore must be rejected and the section must be read as applying not only to business in British India but also outside it. In that case, however, the business that was carried on was not in an Indian State but in Ceylon. The case directly in point in which the contrary view was taken is Commissioner of Income-tax, Bombay City v. Murlidhar Mathurawalla Mahajan Association [1948] 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income-tax, C.P. and Berar, Nagpur [1952] 22 I.T.R. 448, and in Commissioner of Income-tax, Madhya Pradesh v. C.P. Syndicate, Nagpur [1952] 22 I.T.R. 493. In Mohanlal Hiralal's case the learned Judges relied on the decision of the Bombay High Court in Murlidhar's case and held that losses incurred in an Indian State have to be deducted to ascertain the profits from business. The question was more fully discussed in Commissioner of Income- tax, Madhya Pradesh v. C.P. Syndicate, Nagpur [1952] 22 I.T.R. 493 and the learned Judges observed as follows:- Under section 4(1) read with section 16(1)(a), a+b+c is the total income liable to tax, but section 14(2)(c) exempts income b from payment of tax. So the resident will have to pay income-tax on a+c at the rate of tax payable on a+b+c. In the event of loss in an Indian State, the total income computed under the Act will be a-b+c and the tax will be paid on this amount as there are no income, gains or profits to which section 14(2)(c) would apply. In other words, loss is to be treated as negative profit. There can be no doubt that in working out the profits under various heads under section 10 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be payable by an assessee under the head 'Profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him. To our minds, this section also deals with profits or gains of business, profession or vocation which are liable to tax. Section 14(2)(c) provides that: The tax shall not be payable by an assessee- (c) in respect of any income, profits or gains accruing or arising to him within an Indian State, unless such income, profits or gains are received or deemed to be received in or are brought into British India in the previous year by or on behalf of the assessee, or are assessable under section 42. Section 16(1)(a) provides that: (1) In computing the total income of an assessee- (a) any sums exempted under the second proviso to sub-section (1) of section 7, the second and third provisos to section 8, sub-section (2) of section 14 and section 15 shall be included and any sum exempted under section 15A shall also be included except for the purpose of determining the rates at which income-tax (but not super-tax) is payable by the assessee to whom the exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fferent thing and was, therefore, not allowable as an admissible business expenditure. On the finding recorded by the Appellate Tribunal that the amount was not laid out or expended wholly and exclusively for the purposes of the business it could not come under the provisions of section 10(2)(xii) now (xv) of the Income-tax Act. The point is covered by a decision of this Court in Shrimati Indermani Jatia v. Commissioner of Income-tax, U.P., Lucknow [1951] 19 I.T.R. 342. The question in that case was whether the amount spent in connection with a criminal litigation could be said to be expenditure laid out or expended wholly and exclusively for the purpose of such business. The Tribunal had recorded a finding that the expenses were not incidental to the business and we pointed out that the assessee, in order to claim this deduction as expenditure, had not only to prove that the expense was incidental to the business but to show that the expenses were laid out or expended wholly and exclusively for the purpose of the business. In In re Gabdulal Tulsiram [1952] 21 I.T.R. 330, where a sum of money was paid to the Central Government to compound an offence, we held that- It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive examination of the case-law as to when money spent not for the purpose of increasing the profits but for other purposes connected with the trade can be said to be money spent for purposes of the business. In the course of his opinion Lord Reid said: A general test is whether the money was spent by the person assessed in his capacity of trader or in some other capacity--whether on the one hand the expenditure was really incidental to the trade itself or on the other hand it was mainly incidental to some other vocation or was made by the trader in some other capacity than that of trader. The difference of opinion that arose in that case between the majority opinion and the minority view turned on the decision of the question whether expenditure designed to retain the ownership and control of a business was expenditure laid out for the purposes of the trade, but on the principles laid down in that case it cannot be doubted that money spent by one partner to enforce his rights against another partner could not be said to be money laid out or expended wholly and exclusively for the purpose of the business as it was not an expenditure incidental to the business, nor was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e debts inherited by the assessee, who did not carry on money-lending business, became his capital and any interest that accrued due or was realised during the chargeable accounting period over and above the amount inherited was income from other sources. In Bennett v. Ogston (H.M. Inspector of Taxes) [1930] 15 Tax Cas. 374 a money-lender had made loans on promissory notes which provided for payment to him of certain instalments. Instalments falling due after his death were collected by the administrator of his estate but the administrator was not at any time carrying on any trade. It was held by Rowlatt, J., that: When a trader or a follower of a profession or vocation dies or goes out of business.....and there remain to be collected sums owing for goods supplied during the existence of the business or for services rendered by the professional man during the course of his life or his business, there is no question of assessing those receipts to income-tax; they are the receipts of the business while it lasted, they are arrears of that business, they represent money which was earned during the life of the business and are taken to be covered by the assessment made during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (2) of section 14 is similar to that of sub-section (1) of section 10 but lays down the contrary rule prescribing the profits or gains in respect of which the tax shall not be payable by an assessee. Clauses (a), (b) and (c) of this sub-section mention three sources of income in respect of which the tax is not payable. This sub-section is, therefore, clearly a special provision which apparently conflicts with the general provision contained in sub-section (1) of section 10. Under sub-section (1) of section 10, the tax is made payable in respect of profits or gains of any business, profession or vocation carried on by the assessee which would include income, profits or gains accruing or arising to him even within a Part B State, but the later is not liable to be taxed under clause (c) of sub-section (2) of section 14. Clause (c) of sub-section (2) of section 14 is, therefore, a special provision in respect of the same income, profits or gains which are also covered by the general provision in sub-section (1) of section 10. In such a case, the principle of generalia specialibus non derogant becomes applicable. Where there are two provisions in an Act, one of which is specific ..... X X X X Extracts X X X X X X X X Extracts X X X X
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