Inter-State business loss set-off allowed under Travancore income-tax law despite profits arising in a different State.

Business losses incurred in Cochin could be set off against business profits earned in Travancore under section 32(1) and its proviso, because the proviso was treated as an exception to the general charging and computation scheme rather than a restriction on inter-State business set-off. The Court relied on the parallel structure of the Indian Income-tax Act and prior authorities to hold that the provision did not confine relief to losses within the same territory or head of income. The second question in one appeal, concerning the relevant previous year for assessment, was not decided and was left open for appropriate steps.

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Issues: Whether losses incurred in Cochin or other Indian States could be set off against profits earned in Travancore under the first proviso to section 32(1) of the Travancore Income-tax Act.

Analysis: The proviso to section 32(1) was construed in the same manner as the corresponding proviso to section 24(1) of the Income-tax Act, 1922. The main enactment allowed set-off of a loss of profits or gains against income, profits or gains under another head, and the proviso was held to be an exception to that rule, not a provision enlarging it or creating a separate rule of computation for business income. The statutory scheme, including the provisions governing total income, business income and exempt income, did not justify reading the proviso as splitting up the head of business by territory. The language used was not sufficient to confine the set-off only to business income arising in a particular territory, and where the Legislature intended such a restriction it said so expressly.

Conclusion: The losses were allowable to be set off against the Travancore profits, and the question was answered in favour of the assessee.

Ratio Decidendi: A proviso must be confined to carving out an exception from the main enactment and cannot be read, without clear language, as creating a separate territorial rule that restricts set-off of business losses against business profits.

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