COMMISSIONER OF INCOME TAX Vs. GAJJA NAND GOBIND RAM
HIGH COURT OF PUNJAB AND HARYANA
COMMISSIONER OF INCOME TAX
GAJJA NAND GOBIND RAM
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FALSHAW, J. -
(1.) THE questions we are called on to answer in this reference arise out of the assessment of the
respondent firm Gajja Nand Gobind Ram of Delhi for the asst. year 1946 -47, the account year
ending on the 2nd of April, 1946. The assessee firm carried on the sarafa business on a large scale
and during the year in question entered into certain transactions in Indian States both from its
head office at Delhi and from its branch office at Agra, the former transactions resulting in a net
profit of Rs. 15,079 while the transaction done from Agra resulted in a net loss of Rs. 38,966.
There was thus a a net loss of Rs. 23,887 on the firm's transactions in Indian States. In his
assessment order the ITO refused to take the loss into account, but on appeal by the assessee the
AAC allowed this loss to be deducted. The ITO appealed to the Tribunal, which in a brief order
upheld the order of the AAC, holding that in its opinion the AAC had rightly come to the conclusion
that all the transactions of the same business, irrespective of the place in which such transactions
took place, have to be taken into account while computing the net profits and gains under the head
"business" in terms of S. 10. The Tribunal also held that it was clear that transactions of this nature
do not come within the scope of the exemption contained in S. 14(2)(c) in view of S. 42 and if S. 14
(2)(c) does not apply there can be no question of the proviso to S. 24(1) coming into play.
(2.) THE CIT applied to the Tribunal under S. 66(1) with the result that the following questions have been framed for our consideration :
"(1) Whether, if the assessee carrying on business from British India had made profits in 1945 -46 in transactions such as are described above forming part of their business, which transactions took place in the Indian States, the whole of such profits would by virtue of S. 42 not be exempt from tax under S. 14(2)(c) ? (1 -a) Whether only a portion of such profits could be deemed under S. 42(1) to accrue or arise within British India in view of S. 42(3) ? (1 -b) Whether S. 42 is at all applicable to allocate losses occurring in transactions in Indian States on the analogy of determining the proportion in which profits (if the transactions had resulted in profits) would have been deemed under S. 42 to accrue or arise in British India ? 2. If the answer to the above questions is against the applicability of S. 42, whether in view of S. 24 (1) 1st proviso, the assessee who sustained losses in 1945 -46 amounting to Rs. 23,887 in transactions in Indian States was entitled to set off such losses against his other income, profits and gains in British India for the purpose of arriving at his total taxable income ? 3. Whether S. 14(2)(c) visualises the splitting up of transactions of a business as a unit in order to ascertain the accrual or arising of income, profits and gains outside the taxable territories ?"
It is clear from the statement of the case that the assessee firm had no branch in any of the Indian States where these transactions took place, nor even kept any employee or agent there,
and that the transactions were entered into by telephonic communication. In fact these
transactions have been treated throughout by the assessee as a part of his business run from
Delhi. In the circumstances it is difficult to see how any question of the application of S. 14(2)(c)
arises at all, since even if the assessee chose to allow any profits made by him on transactions in a
particular Indian State to remain during the assessment year, such profits would be deemed to be
income arising in the taxable territories in view of the provisions of S. 42(1). I have therefore no
hesitation in answering the first of the questions framed in the negative, and in my opinion
question (1 -a) does not arise at all out of the order of the Tribunal, since at no stage of the
assessment in dispute has any question arisen of apportioning profits under S. 42(3). I am
altogether unable to see how question (1 -b) arises out of the order of the Tribunal or the facts of
the case as stated, and I therefore do not think it necessary to answer these two questions. In
view of the answer to the first question, questions 2 and 3 also do not arise.
(3.) IN my opinion it would have been far better on the facts as stated if the Tribunal had simply framed a single question on the lines mentioned in para 4 of the statement of the case, namely
"whether in the facts and circumstances of the case the loss in question was rightly allowed as a
deduction in computing the total taxable income of the assessee ?" Questions framed on similar
lines relating to the setting off of losses on transactions in Indian States against profits made by a
business in British India have already been answered in favour of the assessee by this Court in two
cases. The first of these was CIT vs. Hira Mal Narain Dass (1953) 24 ITR 199 (Pun), decided by
Kapur, J., and myself. In this case we dissented from the view of the Allahabad High Court in
Mishrimal Gulab Chand of Beawar vs. CIT (1950) 18 ITR 75, and followed the views of other High
Courts in the decisions cited in that judgment and held that S. 10 is not confined to business
carried on in British India and that in computing the profits or gains which arise under S. 6(iv)
recourse can be had to only S. 10 and not to S. 24(1), and that sub -s. (1) of S. 24 is applicable only
in the case where computation has to be made by setting off losses under one head against profits
under another head the scope of this sub -section not being enlarged by the 1st proviso contained
therein. The same view was adopted by my Lord the Chief Justice and myself in a case recently
decided in CIT vs. Partap Singh, decided on the 15th Oct., 1954 since reported at (1955) 28
ITR117. In the circumstances I would treat the question which has been outlined in para 4 of the
statement of the case as a question stated for our consideration and answer it in the affirmative.
The assessee will have his costs from the CIT. Counsel's fee Rs. 250.;
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