1955 (8) TMI 47 - HC - Income Tax

Court allows deduction for losses outside area, awards costs to assessee, including advocate's fee.

INDO-MERCANTILE BANK LTD. Versus COMMISSIONER OF INCOME-TAX

INDO-MERCANTILE BANK LTD. Versus COMMISSIONER OF INCOME-TAX - [1956] 29 ITR 619 (T&C) Issues Involved:1. Whether the assessee is entitled to deduct the sum of Rs. 79,275, representing losses incurred outside Travancore, from the income, profits, and gains made in Travancore.Detailed Analysis:Issue 1: Entitlement to Deduct Losses Incurred Outside TravancoreThe primary issue in this case is whether the assessee, Indo-Mercantile Bank Limited, can deduct the losses of Rs. 79,275 incurred outside the Travancore State from the profits made within Travancore for the assessment year 1124 M.E.Background and Arguments:- The Income-tax Officer, Alleppey, assessed the income of the assessee at Rs. 90,947, representing profits from branches in Travancore only, and refused to deduct Rs. 79,275, which were losses from branches outside Travancore.- The Appellate Assistant Commissioner upheld this decision, relying on the Allahabad High Court's decision in Mishrimal Gulabchand [1950] 18 I.T.R. 75.- The Income-tax Appellate Tribunal, however, held that the business of banking carried on by the assessee at all branches, both within and outside Travancore, should be considered as one and indivisible. Therefore, the losses incurred outside Travancore should be deducted from the profits made within Travancore.Legal Provisions and Analysis:- Section 18(2)(c) of the Travancore Income-tax Act: This section exempts income, profits, or gains accruing or arising within British India or any Indian State from being taxed in Travancore unless received or brought into Travancore.- Section 32(1) of the Travancore Income-tax Act: This section allows for the set-off of losses under one head of income against profits under another head. The proviso to this section prohibits setting off losses incurred in British India or any Indian State against profits accruing in Travancore.Court's Reasoning:- The court observed that Section 32(1) and its proviso apply only when there are different heads of income. In this case, there is only one head of income (business), so the proviso does not apply.- The court referred to the Bombay High Court's decision in Commissioner of Income-tax, Bombay v. Murlidhar Mathurawalla Mahajan Association [1948] 16 I.T.R. 146, which held that different businesses constitute one head under Section 10, and losses from one business can be set off against profits from another within the same head.- The court also examined Section 18(2)(c) and concluded that it does not preclude the deduction of losses incurred outside Travancore when computing the income of the assessee within Travancore.Precedents and Comparative Analysis:- The court noted that the Allahabad High Court's view in Mishrimal Gulabchand was not accepted by other High Courts, including Bombay, Madras, Nagpur, Punjab, and Hyderabad.- The Madras High Court in V. Ramaswamy Ayyangar and Another v. Commissioner of Income-tax, Madras [1950] 18 I.T.R. 150 held that the computation of business income should consider all businesses, whether carried on within or outside British India.- The Nagpur High Court in Commissioner of Income-tax, Madhya Pradesh v. C.P. Syndicate [1952] 22 I.T.R. 493 and Mohanlal Hiralal v. Commissioner of Income-tax, C.P. & Berar [1952] 22 I.T.R. 448 rejected the Allahabad High Court's view and held that losses incurred outside British India should be considered in computing total income.- The Punjab High Court in Commissioner of Income-tax, Punjab v. Hira Mall Narain Dass [1953] 24 I.T.R. 199 and Hyderabad High Court in Commissioner of Income-tax, Hyderabad v. Baliram Santhoba [1954] 25 I.T.R. 309 also supported the view that losses incurred outside the taxable territory should be deducted from profits made within it.Conclusion:The court concluded that the proviso to Section 32(1) of the Travancore Income-tax Act does not apply to the case, and Section 18(2)(c) does not affect the question. Therefore, the assessee is entitled to deduct the losses incurred outside Travancore from the profits made within Travancore. The reference was answered accordingly, and the assessee was awarded costs.Reference Answered Accordingly:The court held that the sum of Rs. 79,275 representing losses incurred by the assessee outside Travancore should be deducted from the profits made within Travancore. The assessee was awarded costs, including an advocate's fee of Rs. 100, from the Commissioner of Income-tax, Mysore, Travancore-Cochin, and Coorg.