Set-off of exempt-income loss denied where the Act treats the underlying income as outside taxable computation.

Loss attributable to income treated as outside the operation of the Income-tax Act, 1922 could not be set off against income under other heads under section 24(1). The court reasoned that section 24(1) applies only to losses of taxable profits or taxable gains, and a loss arising from income not brought into the charging or inclusion provisions is not a permissible set-off loss. The amendment to the definition of total income did not change that distinction, and the statutory scheme did not contemplate a double benefit on the same loss. The assessee's claim for set-off was therefore rejected.

---

---

Issues: Whether a loss suffered during the broken period covered by section 25(4) of the Income-tax Act, 1922 could be set off against income under other heads under section 24(1) in the assessment for the relevant assessment year.

Analysis: Income covered by section 25(4) was treated as exempt altogether from the operation of the Act and not merely exempt from charge while still includible in total income. Since section 24(1) applies only to loss of taxable profits or taxable gains, a loss arising from income outside the charging and inclusion provisions could not be brought forward for set-off under that section. The amendment to the definition of total income did not alter this distinction. The interpretation urged by the assessee would also confer a double benefit in respect of the same loss, which the statutory scheme did not contemplate.

Conclusion: The assessee was not entitled to set off the loss against income under other heads under section 24(1); the question was answered in the negative, in favour of the Revenue.

Ratio Decidendi: Losses attributable to income exempt from the operation of the Act and not required to be included in total income cannot be treated as losses of taxable profits for the purpose of set-off under section 24(1).

---