Loss incurred in British India remained deductible despite Burma's later separation, allowing set-off against investment income.

A loss incurred in Burma during the accounting year, when Burma formed part of British India, was treated as a loss sustained in British India for set-off against investment income. Sections 3 and 4(1) of the Indian Income-tax Act were read together so that tax liability attached to the income or loss of the previous year. Burma's later separation from British India did not change the character of the loss when it was actually incurred. The loss was therefore allowable for set-off, and the reference was answered in favour of the assessee.

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Issues: Whether the loss incurred in Burma during the accounting year, when Burma was part of British India, could be treated as a loss sustained in British India for the purpose of set-off against the assessee's income from investments.

Analysis: Section 3 of the Indian Income-tax Act charges tax on the income of the previous year, and Section 4(1) applies the Act to income accruing or arising in British India. These provisions were read together, and the tax for the assessment year was held to attach to the income or loss of the previous year. The fact that Burma had ceased to be part of British India by the time of assessment did not alter the character of the loss when it was actually incurred.

Conclusion: The loss was deemed to have been sustained in British India and was allowable for set-off. The reference was answered against the Revenue and in favour of the assessee.

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