Exemption for income accruing in an Indian State cannot be narrowed by set-off where profits and losses fall under the same head.

Profits and losses arising under the same head of income, namely business income, were treated as outside the scope of set-off under section 24(1) of the Indian Income-tax Act, 1922. The exemption in section 14(2)(c) was construed in its plain and wide terms to cover income accruing within an Indian State, and the proviso to section 24(1) could not be used to narrow that exemption. On that construction, the loss in Jaipur State was not deducted from profits arising in other Indian States, and the full profit remained exempt.

---

---

Issues: Whether the loss arising in Jaipur State was required to be deducted from profits arising in other Indian States so that only the net amount was exempt under section 14(2)(c) of the Indian Income-tax Act, 1922.

Analysis: The relevant profits and losses arose under the same head, namely business income under section 10(1) of the Indian Income-tax Act, 1922. Section 24(1) dealt with set-off between different heads of income and did not apply where profits and losses fell under the same head. The exemption in section 14(2)(c) was expressed in wide terms, covering any income, profits or gains accruing or arising within an Indian State, and the proviso to section 24(1) could not be used to cut down that clear exemption. The reasoning of the Supreme Court on the limited office of a proviso supported that construction.

Conclusion: The loss of Rs. 1,24,132 was not required to be deducted from the Indian State profits for the purpose of the exemption. The full profit of Rs. 3,01,792 was exempt, and the question was answered against the Revenue and in favour of the assessee.

Ratio Decidendi: Where profits and losses arise under the same head of income, section 24(1) has no application, and a proviso cannot be used to qualify or restrict the plain scope of an exemption provision that covers the entire income accruing within an Indian State.

---