Non-resident loss carry-forward under section 24 fails where the loss was not taxable in the year it arose.

Under section 24 of the Indian Income-tax Act, 1922, "loss of profits or gains" meant loss of taxable profits or gains, so a non-resident could not carry forward and set off losses arising outside the taxable field. Reading section 24 with sections 4(1)(a), 4(1)(c) and 14(2)(c), the SC held that the relevant year for characterising the loss was the year it arose, and section 24(2) could apply only to a loss capable of set-off under section 24(1). The assessee's 1948-49 loss was therefore not eligible for carry forward or set-off, and the claim was rejected.

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Issues: Whether the assessee, being a non-resident in the year of loss, was entitled under section 24 of the Indian Income-tax Act, 1922, to carry forward and set off the whole loss of 1948-49 against business income of the later assessment years.

Analysis: Section 24 had to be read with section 4(1)(a) and (c) and section 14(2)(c). The expression "profits or gains" in section 24 referred to taxable profits or gains, that is, income which would have been assessable in British India or the taxable territories. Losses arising outside the taxable field in the hands of a non-resident were not losses contemplated by section 24(1), and section 24(2) could operate only where the loss was of the kind capable of set-off under section 24(1). The relevant year for characterising the loss was the year in which it occurred, and the assessee's loss for 1948-49 was not a loss that could have been set off under either sub-section.

Conclusion: The claim to carry forward and set off the entire loss was rejected, and the question was answered against the assessee.

Ratio Decidendi: For section 24 of the Indian Income-tax Act, 1922, "loss of profits or gains" means a loss of taxable profits or gains, and a non-resident cannot carry forward and set off losses that were not capable of set-off under section 24(1) in the year they arose.

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