TaxTMI 
TaxTMI 
1982 (6) TMI 21
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....t how the ITO had dealt with this aspect in the assessment order. In the assessment year dealing with the computation of business he has added certain amount and one of the additions made by him was as follows : Rs. Loss claimed in Brood-mares Account disallowed in view of section 10(27) of the Act, 1961, as inserted by Act 5 of 1964, 74,065 and the other head was as follows : " Loss claimed in Pig a/c. disallowed in view of section 10(27) of the Act as instituted by Act 5 of 1964 19,918" He t....
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....e income therefrom was not chargeable for a period of two years from the date of completion under s. 4(3)(xii) of the Indian I.T. Act, 1922. The assessee set off the loss against other income. On these facts it has been held that: 'As the income from the building in question should not be included in the total income of the assessee either for purposes of taxing or even for the purpose of determining the rate, the question of computation or determination of income or loss from the property in question under s. 9 of the Indian I.T. Act, 1922, did not arise and the loss, if any, in respect of the property cannot be set off under any other head chargeable to income-tax. ' If the above principle is applied to the facts of the case then it will become crystal clear that the two items of losses on account of breeding of horses and pigs are not admissible deductions. " Out of the aforesaid order of the said Tribunal, the question as indicated above, has been referred to this court. The question before us is whether under s. 10(27) read with s. 70 of the I.T. Act, 1961, was the assessee entitled to set off the losses on the two heads, namely, Broodmares Account and the Pig Acco....
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....r head in that year. We are not concerned with the several provisions under the head. Section 71 of the 1961 Act provides for set off of loss from one head against income of another head. Section 72 of the 1961 Act provides for carry forward and set off of business losses on certain conditions. In this case it is important to bear in mind that setoff is being claimed under s. 70 of the 1961 Act which permits set off of any income falling under any head of income other than the capital gain which is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head. We have noticed that in the instant case the exclusion has been conceded in computing the business income or the source of income from the head of business and in computing that business income, the loss from one particular source, that is, broodmares account and the pig account, had been excluded contrary to the submission of the assessee. The assessee wanted these losses to be set off. The Revenue contends that as the sources of the income are not to be included in view of the provisions of cl. (27) of s. 10 of the 1961 Act, the loss suffered from....
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....ate of Travancore as well as the State of Cochin, the assessee was entitled to set off the losses incurred in the State of Cochin against the profits made in the State of Travancore. There was nothing in ss 13 and 32(1) of the Travancore Income-tax Act which distinguished between business in the State of Travancore and business in the State of Cochin. According to the Supreme Court the object of the main s. 24 of the Indian I.T. Act, 1922, was to allow the set off of loss of profits or gains under one head against income, profits or gains under any other head and there was nothing in the first proviso to that section which would favour the disintegration of the head " Business " and compel the application of the proviso to the same head. The Supreme Court held that s. 10 of the Indian I.T. Act, 1922, did not distinguish between business in British India and business in an Indian State or so divide " business ". The Supreme Court on the computation of business profits and gains made certain observations with which we are not concerned. The Supreme Court further held that the proper function of a proviso was that it qualified the generality of the main enactment by provid....
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....the British Indian profits of the assessee. It was held that the third proviso to s. 5 of the Business Profits Tax Act took out of the ambit of the Act merely the " income, profits or gains " of a business in an Indian State and did not exclude the business itself. The loss suffered by the assessee in the pharmaceutical business carried on in the State of Baroda had to be deducted in computing the business income of the assessee for the purpose of the business profits tax. The Supreme Court further held that the expression " income, profits or gains " in the third proviso to s.5 of the Business Profits Tax Act, in its context, did not include losses. It may not be inappropriate to set out s.5 of the Business Profits Tax Act which is as follows : " 5. Application of Act.-This Act shall apply to every business of which any part of the profits made during the chargeable accounting period is chargeable to income-tax by virtue of the provisions of subclause (i) or sub-clause (ii) of clause (b) of sub-section (1) of section 4 of the Indian Income-tax Act, 1922, or of clause (c) of that sub-section : Provided that this Act shall not apply to any business the whole of the pr....
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....d the third proviso as a whole and in the context in which it occurred, in order to find out what it meant. So read it was difficult to hold that it had the effect of excluding the Baroda business except in so far as the profits thereof were brought into the taxable territories. What it said in express terms was that the Act should not apply to any income, profits or gains of business accruing or arising in an Indian State, etc. The Supreme Court noted that the proviso did not say that the business itself was excluded from the purview of the Act. The Supreme Court observed at p. 116 of the report (40 ITR) as follows: "Next, we have to consider what the expression income, profits or gains) means. In the context of the third proviso, it cannot include losses because the latter part of the proviso says, 'unless such income, profits or gains are received, etc., into the taxable territories'. Obviously, losses cannot be brought into the taxable territories except in an accounting sense, and the expression 'income, profits or gains' in the context cannot include losses. The expression must have the same meaning throughout the proviso, and cannot have one meaning in the first part a....
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.... Legislature manifestly could not have intended. This contention has been pressed in respect of two matters: (a) computation of capital under the rules in Schedule 11 of the Act in a case where the assessee-company sustains loss in an Indian State; and (b) relief for deficiency of profits where the assessee makes profits in an Indian State but sustains a loss in India. As to the first matter, it has been fully dealt with by the High Court with reference to rule 2A of the Rules in Schedule II and it has been rightly pointed out that no difficulty really arises by reason of rule 2A. Nor are we satisfied that any real difficulty arises with regard to relief for deficiency of profits when the assessee makes profits in an Indian State but sustains a loss in India. The Act will not apply to such profits unless they are brought into India, and if they are brought into India, section 6 will apply with regard to relief on the ground of deficiency Of Profits. It is unnecessary to consider here any hypothetical difficulty which may arise in the application of section 6. The appellant relies on the third proviso to section 5 of the Act in support of the contention that it excludes the Barod....
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....e assessee was not entitled to the carry forward of the loss of Rs. 28,662. The Supreme Court further held that if the loss was from a source or head of income not liable to tax or congenitally exempt from income-tax, neither the assessee was required to show the same in the return, nor was the ITO under any obligation to compute or assess it much less for the purpose of " carry forward". The Supreme Court noted, during the long period, (when) s. 12 did not make income under the head " Capital gains " chargeable, an assessee was neither required to show income under that head in his return, nor entitled to file a return showing "capital losses " merely for the purpose of getting the same computed and carried forward. Sub-section (2A) of s. 22 would not give him such a right because the operation of that sub-section is, in terms, confined to, (i) a loss which is sustained under the head " Profits and gains of business, profession or vocation " and would ordinarily have been carried forward, under sub-s. (2) of s. 24, and (ii) to income which falls within the definition of " total income". The Supreme Court observed as follows (p. 124) : " From the charging provisions of ....
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....allowance falling within the section must fulfil some other condition before it could be allowed. In construing several clauses of the section one should adhere closely to the language of the Act. The Supreme Court emphasized that in allowing a deduction which was permissible one need not look beyond the expenditure and see whether it had the quality of directly or indirectly producing taxable income. There in that case the assessee, banking company, in" the course of its business, invested a large sum in securities including securities, the interest on which was exempt from tax. Profits and losses on the purchase and sales of such securities were duly taken into account in computing the business income of the assessee. It was held by the Supreme Court that the interest paid by the assessee on moneys borrowed from its various depositors had to be allowed in its entirety under s. 10(2)(iii) of the Indian I.T. Act, 1922, and there was no warrant for disallowing a proportionate part of the interest referable to moneys borrowed for the purchase of securities whose interest was tax-free. Our attention was drawn to certain observations of the Supreme Court in the case of CIT v. Maharasht....
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....he profits or gains of any other business carried on by the assessee or against income under any other head and there was no unabsorbed depreciation allowance or development rebate to be carried forward. The main importance of this decision is that the stress that is laid for the purpose of giving special exemption should not be over-emphasised and the other aspect on which the Supreme Court emphasised was about the settled law that though the profits of each distinct business carried on by the assessee had to be computed separately in accordance with the provisions of s. 10, the tax was chargeable under that section, not separately on the profits of each business but on the aggregate of the profits of all the businesses carried on by the assessee. It followed, therefore, that where the assessee carried on several businesses be was entitled under s. 10 to set off loss in one business against the profits in another. Our attention was drawn to certain observations of the Division Bench of this court in the case of Indian City Properties Ltd. v. CIT [1965] 55 ITR 262. But the observations by the Division Bench of this court were entirely in a different context and it is not necessa....