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TMI Blog1959 (2) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... essees, in one case a bank and the other a private limited company. The main argument has been confined to the question of applicability of section 32(1) and the first proviso to that section of the Travancore Income-tax Act (hereinafter called the Travancore Act). In C. A. No. 259/58 the assessee is a public limited company incorporated in the State of Cochin with branches in that State as well as in what was British India and in Travancore State. It filed its income-tax return showing an income of Rs. 11,872 for the assessment year 1948-49, its accounting year being the previous calendar year. The Income-tax Officer determined its assessable income to be Rs. 90,947 representing only the profit it made in Travancore State and under section 32(1) proviso (i) of the Travancore Act he refused a deduction of Rs. 79,275 shown as loss from branches situate outside the State of Travancore, in British India and other Indian States. The assessee's appeal to the Income-tax Commissioner was unsuccessful but the Appellate Tribunal held that the banking business of the assessee being one and indivisible for the purpose of determining the amount assessable to income-tax it was entitled to ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------- Application of the Act 4 4 Head of income chargeable to income-tax 9 6 Business 13 10 Exemptions of a general nature 18 14 Set-off of loss in computing aggregate income 32 24 -------------------------------------------------------------------------------------------------------------------------------------------------- It is only necessary to set out section 32(1) of the Travancore Act and the proviso which correspond to section 24(1) and proviso (i) of the Indian Act and which are necessary for the decision of the appeals before us : Section 32 (1) : " Where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in section 9 [section 6] he shall be entitled to have the amount of loss set off against his income, profits or gains under any other head in that year : Provided that where the loss sustained is a loss of profits or gains which would but for the loss have accrued or arisen within British India or in an Indian State and would under the provisions of clause (c) of sub-section (2) of section 18 [section 14(2)(c)] have been exempted from tax, such loss shall not be set off except against profits or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Under section 2(15) of the Act " total income " was defined to mean the total amount of income, profits and gains computed in the manner laid down in that Act. The " total world income " was defined as including all income, profits and gains wherever accruing or arising except income to which the Act did not apply. Section 3 provided for the charge of income-tax in respect of the total income of the previous year. Under section 4 the total income of any previous year of any person who was resident included all income, profits and gains from whatever source derived but (i) it must accrue or arise to him during the year in British India or (ii) accrue or arise to him without British India during such year. The third clause is not necessary for this appeal. Section 4(3) provided what income, profits or gains were not to be included in the total income of the person receiving them. Both under the Indian Act and under the Travancore Act there were six heads of income chargeable to income-tax. In the Indian Act they were set out in section 6 as follows :- Section 6 : " Save as otherwise provided by this Act, the following heads of income, profits and gains, shall be chargeable to incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we come to section 24(1). This section was introduced in 1922 before which under the Indian Act of 1918 a loss under one head of income could not be set off against income under another head, the taxability of income arising from each head being separate. By the addition of this section the loss under one head of profits or gains was allowed to be set off against income, profits and gains under any other head in any assessment year. There was also a provision in section 24(2) for carrying over the loss after such set-off had been effected. Section 24(1) became the subject-matter of controversy in the courts. The Privy Council in Arunachalam Chettiar v. Commissioner of Income-tax held that this section was meant for a set-off of profits arising under different heads and not where profits and losses had to be adjusted if they arose under the same head. Sir George Rankin said at p. 179 : " In their Lordships' opinion whether a firm is registered or unregistered, partnership does not obstruct or defeat the right of a partner to an adjustment on account of his share of loss in the firm, whether the set-off be against other profits under the same head of income within the meaning of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain enactment, a portion which, but for the proviso would fall within the main enactment. Ordinarily it is foreign to the proper function of a proviso to read it as providing something by way of an addendum or dealing with a subject which is foreign to the main enactment. " It is a fundamental rule of construction that a proviso must be considered with relation to the principal matter to which it stands as a proviso. " Therefore it is to be construed harmoniously with the main enactment. (Per Das, C. J.) in Abdul Jabar Butt v. State of Jammu & Kashmir. Bhagwati, J., in Ram Narain Sons Ltd. v. Assistant Commissioner of Sales Tax said : " It is a cardinal rule of interpretation that a proviso to a particular provision of a statute only embraces the field which is covered by the main provision. It carves out an exception to the main provision to which it has been enacted as a proviso and to no other. " Lord Macmillan in Madras & Southern Mahratta Railway Co. v. Bezwada Municipality laid down the sphere of a proviso as follows : " The proper function of a proviso is to except and deal with a case which would otherwise fall within the general language of the main enactment, and it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be set off except against profits and gains accruing or arising in (an Indian State) from the same business, profession or vocation and exempt from tax under the said provisions. " That proviso shows that where the Legislature wanted to restrict the losses and profits or gains to business alone they specifically said so. It is significant that in sections 2(13) and (5) of the Indian Act of 1918 corresponding to section 2(15) and 6 of the Indian Act of 1922 the word used was " income " which in the latter Act was expanded into " income, profits and gains ". The Privy Council said in Commissioner of Income-tax v. Shaw Wallace and Co. that " the object of the Indian Act is to tax 'income' a term which it does not define. It is expanded no doubt into 'income, profits and gains' but the expansion is more a matter of words than of substance ". It was also so said in Commissioner of Income-tax, Bengal v. Mercantile Bank of India Ltd. See also London County Council v. Attorney-General. Thus the mere use of the words loss of profits or gains to be set off against profits and gains would not be sufficient to restrict the scope of the proviso to the profits and losses arising under the he ..... X X X X Extracts X X X X X X X X Extracts X X X X
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