Carry-forward loss set-off precedes tax exemption where the statute grants only partial relief and no express priority

Carried-forward loss under the Income-tax Act, 1922 had to be set off against the year's profits before applying the section 15C exemption. The Bombay HC held that section 15C granted only a partial exemption from payment of tax and did not exclude the income from computation of total income. In the absence of an express provision giving section 15C priority over the carry-forward loss set-off under section 24(2), the normal sequence of assessment remained unchanged. The set-off therefore came first, and the assessee could not insist on the exemption before adjustment of the prior year loss.

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Issues: Whether the loss brought forward from the preceding year was to be set off against the profits of the year of account before giving the assessee the benefit of exemption from payment of tax under section 15C of the Income-tax Act, 1922.

Analysis: The scheme of the Act required computation of total income by aggregating taxable income and allowing permissible deductions and set-offs under section 24(2) before determining the tax liability. Section 15C did not exclude income from computation of total income; it granted only a partial exemption from payment of tax. The absence of an express provision giving priority to section 15C over carry-forward loss set-off did not justify reversing the normal sequence of assessment. The references in section 15C to computation under section 10 and the saving for section 23A did not imply that losses carried forward under section 24(2) had to be postponed.

Conclusion: The carried forward loss had to be set off first, and the assessee was not entitled to insist on section 15C exemption before such set-off. The answer was in favour of the Revenue.

Ratio Decidendi: A provision granting exemption from payment of tax is distinct from a deduction in computing total income, and in the absence of an express contrary mandate, carried forward losses under the computation provisions must be adjusted before the tax exemption is applied.

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