Business loss deduction across taxable territories allowed where outside profits are exempt, not barred from computation under one business head.

Losses from business branches outside Travancore were held deductible in computing business income earned within Travancore under the Travancore Income-tax Act. The court construed the proviso to section 32(1) as applying only to set-off between different heads of income, not to computation of profits under a single business head. It also treated section 18(2)(c) as an exemption provision for income arising outside Travancore, not as a bar on taking account of outside business losses. On that basis, all branches of the banking business were treated as one business for computation, and the assessee was entitled to deduct the outside loss from Travancore profits.

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Issues: Whether losses incurred by the assessee in businesses outside Travancore could be deducted in computing its income from business in Travancore under the Travancore Income-tax Act.

Analysis: The relevant provisions were construed to hold that the proviso to section 32(1), corresponding to section 24(1) of the Indian Income-tax Act, applies only where there is a set-off between different heads of income and not where business income is computed under a single head. Section 18(2)(c), corresponding to section 14(2)(c), was treated as an exemption provision for income arising outside Travancore and not as a prohibition against taking account of business losses outside Travancore when computing business profits. The Court preferred the view that all branches of a banking business form one business for computation under the business head, and that losses from branches outside the taxable area cannot be ignored merely because the corresponding profits would be exempt in Travancore.

Conclusion: The assessee was entitled to deduct the loss of Rs. 79,275 incurred outside Travancore from the profits made in Travancore.

Ratio Decidendi: In computing business income under the relevant business-head provision, losses of the same business carried on outside the taxable State are deductible unless the statute expressly excludes them; an exemption from tax on foreign or external profits does not by itself bar deduction of corresponding business losses.

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