BHARGAVA, J. - (1.) THE question referred by the Income-tax Appellate Tribunal for the opinion of this court is : Whether, in the circumstances of the case, the losses of Rs. 26,843 in respect of the assessment year 1945-46 and of Rs. 28,224 in respect of the assessment year 1946-47 which were sustained by the assessee in Indian States were rightly allowed by the Tribunal to be adjusted against the profits from transactions in British Indian while computing the assessees income, profits and gains under the head `profits and gains of business profession or vocation ?
(2.) THE assessee is a Hindu undivided family carrying on business in grain, both ready and forward, at various places. THE headquarters of the assessee are at Hapur. THE transactions for purchase and sale are entered into in the various markets within British India as well as in Indian States. In the two assessment years 1945-46 and 1946-47, the assessee earned profits in respect of transactions in British India but during the year 1945-46 a sum of Rs. 26,843 was sustained as loss by the assessee in transactions entered into in Indian States and another loss of Rs. 28,224 was incurred in respect of the assessment year 1946-47. THE assessee claimed that these losses should be adjusted towards the income of the transactions in British India. THE claim was rejected by the Income-tax Officer and that decision was upheld by the Appellate Tribunal however allowed the claim by the Appellate Assistant Commissioner. In second appeal the Income-tax Appellate Tribunal, however, allowed the claim relying on a decision of the Bombay High Court in Commissioner of Income-tax v. Murlidhar Mathurawalla Mahajan Association, AIR 1948 SC 403. THE Tribunal took notice of a decision of this court in Mishrimal Gulab Chand of Beawar, In re, and held that that case was distinguishable and not applicable. In these circumstances the Tribunal has referred for our opinion the question quoted above. On the point raised by this question our attention was drawn to a number of decisions of various High Courts including two decisions of this court. The earlier of those two decisions is the one already mentioned by the Tribunal in its appellate order. Thereafter a second decision given by this court is Raghunath Prasad v. Commissioner of Income-tax. In this latter case, almost all the decisions of the other High Courts, which have been brought to our notice, were discussed and, after discussing all those cases, this court disagreed with the other High Courts and affirmed the earlier decision of this court in the case of Mishrimal Gulab Chand, In re, cited above. In the case of Raghunath Prasad the question whether the loss should be set off was examined in two alternative and separate aspects. One point that came up for examination was, Whether the set-off of losses incurred in Indian States against profits earned in British India was barred under the proviso to section 24(1) of the Income-tax Act and on this point the court held that the proviso did bar the claim for such a set-off. The second point dealt with in that case was that, even if the proviso to section 24 did not apply such a claim could not be allowed in view of the provisions contained in section 14(2)(c) of the Income-tax Act as it stood at the relevant time. On the first point decided by this court, the view expressed was that even though the main provision in section 24(1) of the Income-tax Act was confined to permit a claim for a set-off of losses incurred under one head mentioned in section 6 against income profits or gains under any other head, the proviso was in wider language and prohibited allowing set-off of losses incurred in an Indian State in respect of income under one head against income earned under the same head in British India.
(3.) ON the second point, this court held that the effect of the provision contained in section 14(2)(c) of the Income-tax Act was that when computing income profits or gains of a business under section 10, the losses incurred in Indian States in a business could not be taken into account. In one of the judgments delivered in that case, it was said. The language of sub-section (1) of section 10 shows that this section lays decided onwn in respect of which profits and gains income-tax is payable by an assessee under the head profits and gains of business profession or vocation. The computation of profits or gains under sub-section (2) of section 10 is confined to the profits or gains which fall within sub-section (1) of that section by the use of the word such. The language of sub-section (1) indicates that it is a general provision making the tax payable in respect of the profits or gains of any business profession or vocation carried on by the assessee. The language of sub-section (2) of section 14 is similar to that of sub-section (1) of section 10 but lays down the contrary rule prescribing the profits or gains in respect of which the tax shall not be payable by an assessee. Clauses (a), (b) and (c) of this sub-section mention three sources of income in respect of which the tax is not payable. This sub-section is therefore, clearly a special provision which apparently conflicts with the general provision contained in sub-section (1) of section 10. Under sub-section (1) of section 10, the tax is made payable in respect of profits or gains of any business, profession or vocation carried on by the assessee which would include income, profits or gains accruing or arising to him even within a Part B State, but the latter is not liable to be taxed under clause (c) of sub-section (2) of section 14. Clause (c) of sub-section (2) of section 14 is therefore, a special provision in respect of the same income profits or gains which are also covered by the general provision in sub-section (1) of section 10. In such a case the principle of generalia specialibus non derogant become applicable... The application of this principle to the case before us necessarily leads to the conclusion that when income profits or gains of a business have to be computed in order to determine whether the tax is payable in respect of it the computation under section 10 must be made after applying the special provision laid down in clause (c) of sub-section (1) of section 14 and, consequently, whenever income is computed under sub-section (2) of section 10, the income, profits or gains covered by clause (c) of sub-section (2) of section 14 cannot be taken into account. If the income profits or gains cannot be taken into account so also the losses must also be disregarded.;