Tax exemption proviso covering only profits does not exclude the business itself; related losses remain deductible.

A taxing proviso that refers only to "income, profits or gains" exempts those receipts from tax unless they are brought into the taxable territories, but does not exclude the underlying business from the charging scheme when it uses no express exclusionary language. On that reading, the third proviso to section 5 of the Business Profits Tax Act, 1947 left the Baroda business within the Act, so its losses could be taken into account in computing the assessee's business profits in India. Any ambiguity in the proviso was resolved in favour of the assessee.

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Issues: Whether the third proviso to section 5 of the Business Profits Tax Act, 1947 excludes the Baroda business itself from the Act or merely exempts the income, profits or gains of that business unless brought into the taxable territories, and consequently whether the losses of that business can be set off against the profits of the assessee's business in India.

Analysis: The substantive part of section 5 applied the Act to the assessee's business. The first and second provisos expressly used exclusionary language directed at a business or part of a business, but the third proviso was framed differently and spoke only of income, profits or gains. Read in context, and having regard to the charging scheme of the Act, the proviso was held to operate as an exemption from tax on income, profits or gains of the Indian State business unless received or brought into the taxable territories, and not as an exclusion of that business from the statutory scheme. The phrase "income, profits or gains" was treated as incapable of including losses. Any ambiguity in the proviso was resolved in favour of the assessee.

Conclusion: The third proviso did not exclude the Baroda business from the operation of the Act; the losses of that business were deductible in computing the assessee's business profits.

Ratio Decidendi: Where a taxing proviso exempts only the income, profits or gains of a business and does not expressly exclude the business itself, the business remains within the charging and computational scheme of the Act and its losses may be taken into account in determining taxable business profits.

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