Business income is one head: Indian State losses may be set off against taxable territory profits under the 1922 Act.

Business income under section 10 was treated as a single head, so losses from a business carried on in an Indian State were required to be adjusted against profits from business in the taxable territories. Section 24(1) was confined to set-off between different heads of income and did not split business activity into separate heads based on territorial location. The first proviso to section 24(1), read with section 14(2)(c), was described as a limited qualification on the set-off machinery and not as a provision creating a separate business classification. The question was answered in the affirmative, in favour of the assessee.

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Issues: Whether loss incurred in a business carried on in an Indian State could be set off against profits from the assessee's business in the taxable territories under sections 14(2)(c) and 24(1) of the Income-tax Act, 1922.

Analysis: The scheme of the Act treats all business carried on by an assessee as one head of income under section 10, and the computation of business profits necessarily requires adjustment of losses incurred in that same head wherever they arise. Section 24(1) is concerned with set-off between different heads of income and does not alter the basic conception of business income under section 10. The first proviso to section 24(1), read with section 14(2)(c), is a qualification on the set-off machinery and cannot be construed as separating business into distinct heads according to whether it is carried on within or outside the taxable territories. The contrary view would give the proviso a larger effect than its language permits.

Conclusion: The loss in an Indian State could be set off against profits from business in the taxable territories. The question referred was answered in the affirmative and in favour of the assessee.

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