Separate business computation bars set-off of discontinued business against profits of another continuing business

For purposes of computing profits under section 10 of the Indian Income-tax Act, 1922, each distinct and independent business is a separate computational unit, and only expenditure referable to the business carried on in the relevant year can be deducted. An outgoing attributable to a discontinued business cannot be debited against the profits of another continuing business merely because both belong to the same assessee, including where the assessee is a firm. The deduction was therefore not allowable.

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Issues: Whether an expenditure incurred in respect of one discontinued business could be deducted in computing the income of another continuing business under section 10 of the Indian Income-tax Act, 1922.

Analysis: Expenditure under section 10(1) is allowed as part of the process of ascertaining the profits of a particular business activity. Where an assessee carries on several distinct and independent businesses, each business is treated as a separate unit for the purpose of computing profits. If one business has been closed before the relevant year, an outgoing attributable to that closed business cannot be debited against the income of another business merely because both are carried on by the same assessee. The fact that the assessee was a firm did not alter this principle.

Conclusion: The claim for deduction was not allowable; the question was answered against the assessee and in favour of the Revenue.

Final Conclusion: A loss or outgoing referable to a discontinued and independent business cannot be set off against the profits of a separate business carried on in the assessment year.

Ratio Decidendi: For the purpose of section 10, each distinct and independent business is a separate computational unit, and only expenditure referable to the business carried on in the relevant year can be deducted in ascertaining its profits.

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