Set-off of business losses: losses incurred outside the taxable territory may be aggregated with domestic business income and reduce tax liability.

Net loss from one business location must be aggregated with profits of another when computing business income and taxable total income; the Tribunal applied residence-based taxation principles to hold that losses incurred outside the taxable territory are to be taken into account for computing business income and the applicable rate of tax, distinguishing inter head set-off rules from aggregation within the single head 'business'. Outcome: the assessed net loss from the Bombay business was held allowable as a set-off against Hyderabad business income.

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Issues: Whether the net loss of Rs. 51,671 suffered by the assessee in business at Bombay is liable to be set off against the assessee's income from the business in Hyderabad in the previous year relevant to the assessment year 1358 Fasli.

Analysis: The Tribunal referred the question under Section 82(1) of the Hyderabad Income-tax Act, VIII of 1357 F. The Court examined the scheme of taxation, including the chargeability under Section 4(1) of the Hyderabad Income-tax Act and the concept of total income as computed under Section 16(1) of the Hyderabad Act, together with the head "profits and gains of business" as governed by Section 10 of the Indian Income-tax Act. The Court analysed the effect of the exemption in Section 14(2)(c) of the Indian Income-tax Act and held that such exemption affects chargeability but does not exclude losses incurred outside the taxable territory from being taken into account when computing total income and determining the rate of tax. The Court distinguished the limited operation of Section 24(1) (which governs set-off between different heads) from the computation of profits and losses within the same head (business), observing that losses and profits of all businesses form part of the single head "business" and are to be set off in computing the business income. The Court reviewed relevant authorities (including decisions of the Bombay and Nagpur High Courts) and applied the principle that when an assessee is resident and ordinarily resident, total income wherever accruing is taxable subject to statutory exemptions, and in computing that total income losses incurred in businesses outside the taxable territory must be taken into account for arriving at taxable business income and the rate of tax.

Conclusion: The net loss of Rs. 51,671 suffered in the Bombay business is liable to be set off against the assessee's income from the Hyderabad business in the previous year relevant to assessment year 1358 Fasli; decision in favour of the assessee.

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