Set-off of Indian State business loss allowed where proviso was not in force at the start of the assessment year.

For the 1944-45 assessment year, the first proviso to Section 24(1) did not bar set-off of loss from an Indian State business against British India profits because it came into force after the assessment year had begun, and tax liability had to be determined under the law in force on the first day of that year. The text also states that, for a resident assessee, business income from an Indian State formed part of total income for computation purposes, and Section 14(2)(c) did not prevent the loss from that business being taken into account merely because the income was not received in British India during the relevant accounting period.

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Issues: (i) Whether the first proviso to Section 24(1) of the Indian Income-tax Act applied to the assessment year 1944-45 so as to bar set-off of loss suffered in an Indian State against profits in British India; (ii) Whether loss from business carried on in an Indian State could be taken into account in computing the profits of business carried on in British India notwithstanding Section 14(2)(c) and the fact that income from the Indian State was not received in British India in the relevant accounting period.

Issue (i): Whether the first proviso to Section 24(1) of the Indian Income-tax Act applied to the assessment year 1944-45 so as to bar set-off of loss suffered in an Indian State against profits in British India.

Analysis: The first proviso was inserted on 12 April 1944, whereas the relevant assessment year began on 1 April 1944. The tax liability for that year had to be determined under the Act as in force on the first day of the assessment year. A proviso cannot control the main enactment unless the proviso itself is applicable, and the proviso relied on was not in force when the assessment year commenced. The set-off permitted by Section 24(1) therefore remained governed by the unamended provision.

Conclusion: The first proviso did not apply to the assessment year 1944-45, and the assessee was entitled to the set-off.

Issue (ii): Whether loss from business carried on in an Indian State could be taken into account in computing the profits of business carried on in British India notwithstanding Section 14(2)(c) and the fact that income from the Indian State was not received in British India in the relevant accounting period.

Analysis: Sections 4(1) and 16(1)(a) required inclusion of income from an Indian State in the total income of a resident assessee, while Section 14(2)(c) merely granted exemption from tax unless the income was received or brought into British India or assessable under Section 42. Business income was to be computed under Section 10, and different businesses did not constitute different heads of income merely because one was in an Indian State. The absence of receipt in British India did not change the computation where the assessee was resident and the Indian State income formed part of the total income for rate purposes. The contrary view taken in an earlier decision was not accepted.

Conclusion: The loss from the Indian State business could be taken into account in computing the assessee's business profits, and Section 14(2)(c) did not prevent that result.

Final Conclusion: The reference was answered in favour of the assessee on both questions, and the loss was allowable in computation of taxable income.

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