- (1.) THE Tribunal has referred this case for decision on the following question : "Whether, on the facts and circumstances of the case, and on a true construction of S. 25(4) of the IT Act, the loss of Rs. 13,277 suffered by the assessee during the period 1st April, 1948, to 30th March, 1949, should be allowed to be set off against the assessee's income under other heads under S. 24(1) in the assessment for 1949 -50 ?"
(2.) THE assessee is an HUF. It enjoys income from property and interest on securities. It also derives income from business. Income from this business has suffered tax under the IT Act, 1918. On 30th March, 1949, by virtue of a partial partition of the family assets, the business passed from the hands of the family to a partnership firm. For the asst. year 1948 -49, the relevant previous year being the financial year ending 31st March, 1948, the assessee claimed the benefit of S. 25(4) by the substitution of the income of the broken period, 1st April, 1948 to 30th March, 1949, in place of the income actually earned in the previous year 1st April, 1947 to 31st March, 1948. During the broken period, 1st April, 1948 to 30th March, 1949, the assessee had suffered a net loss of Rs. 13,277. The ITO allowed the relief claimed by the assessee. He substituted this net loss of Rs. 13,277 for the income actually earned during the previous year relevant to the asst. year 1948 - 49. There was yet a second relief to which the assessee was entitled under S. 25(4), and that was to the exemption from tax of the income from the business during the broken period considered in relation to the asst. year 1949 -50. As the business had resulted in a loss during the broken period, no actual benefit accrued to the assessee for the asst. year 1949 -50, if the business alone was considered for assessment. But the assessee claimed that it was entitled to set off the loss from the business against the income under other heads by virtue of S. 24(1) in the assessment proceedings for the asst. year 1949 -50. This claim was rejected by the ITO, and he did not set off the loss against the income under other heads for the asst. year 1949 - 50. The AAC, however, on appeal, held in favour of the assessee but the Tribunal reversed the finding of the AAC and restored that of the ITO. The question, therefore, before us is whether the loss of Rs. 13,277 suffered in the business during the period 1st April, 1948, to 30th March, 1949, can be set off against income under other heads in the assessment for the asst. year 1949 -50. We are of opinion that the set off cannot be allowed. The Indian IT Act, 1922, expressly exempts certain items of classes of income from its operation. Such income is not liable to be considered for the purposes of the Act at all, unless some other provision of the Act brings it within its scope for some specific purpose. The Act contained from time to time various provisions which provided for exemption. There were the provisos to S. 7 before it was amended in 1955. There are the provisos to S. 8. Sec. 14 sets out a number of exemptions of general nature. Secs. 15, 15A, 15B and 15C similarly provide for exemption. Although the language generally employed is that the "the tax shall not be payable" in respect of such sums, the actual language employed is immaterial. What is to be ascertained is whether the language clearly intends an exemption from the operation of the Act. Now, the several sums covered by these provisions would lie outside the scope of the Act altogether, were it not that certain provisions of the Act expressly include them within its scope for a certain purpose. One such provision is S. 16(1)(a) which declares that in computing the total income of an assessee any sums exempted under some of the provisions mentioned above shall be included. These sums are included in the total income for the purpose of determining the true rate applicable to the rate applicable to the taxable income of the assessee. The sum exempted under S. 25(4) is not referred to in S. 16(1)(a) and is not liable to be included in the total income of the assessee. It is exempt altogether from the operation of the Act. The Bombay High Court took this view in CIT vs. N. M. Raiji (1949) 17 ITR 180 (Bom), and we are in respectful agreement with that decision.
(3.) THE assessee points out that before its amendment by the IT (Amendment) Act, 1939, the definition of "total income" was : "Total income means total amount of income, profits and gains from all sources to which this Act applies computed in the manner laid down in S. 16." As a result of the Amendment Act of 1939, the present definition of "total income" is : "Total amount of income, profits and gains referred to in sub -s. (1) of S. 4 computed in the manner laid down in this Act." ;