- (1.) THIS is a case stated by the Income-tax Appellate Tribunal by their order dated 30-1-1952, referring the following question to this Court : "whether the losses suffered by the assesses In transaction in the Indian State of Maler Kotia in the year of account ending March, 1949 may be deducted from or set off against the profits and gains in British India in the same period in order to arrive at the asses-see's taxable income under the Income-tax Act, 1922. "
(2.) ACCORDING to the statement of the case as explained by counsel the assessee is a re-gistered firm resident in Ludhiana. The year of assessment is 1949-50 and the accounting year is 1948-49. The assessee carried on business in Ludhiana and Ahmednagar in Maler-kotla State and kept accounts in accordance with the Mercantile system of accounting. In the accounting year the profit which accrued to the assessee was Rs. 72,203/- and this was from its business in what at one time was British India. In their business at Malerkotla there was a loss of Rs. 43,263/ -. There were some other items which the assessee was claiming' on account of income-tax paid in Malerkotla and kitchen expenses both of which were disallowed. The loss was thus reduced to Rs. 40,344/ -. On appeal being taken to the Appellate Assistant Commissioner a sum of Rs. 2,450/- was added back but the loss of Rs. 43,263/- was not allowed to be taken into consideration. The Appellate assistant Commissioner relied on a judgment of the Allahabad High Court in -- 'in the matter of mishri Mal Gulab Chand', AIR 1950 All 270 (A ). The assessee took a further appeal to the income-tax Tribunal which was allowed and this loss was allowed to be set off. In coming to this conclusion the Tribunal followed a decision of the Bombay High Court in -- 'commissioner of income-tax Bombay City v. Murlidhar Mathura-wala', AIR 1948. Bom 403 (B ). The commissioner of Income-tax applied that the question which I have set out above be referred to the High Court and that has been done.
(3.) IN order to answer the question reference may here be. made to the sections which are relevant for the purpose. Section 6 gives the heads of income chargeable to income-tax and sub-section (iv) thereof relates to profits and gains of business, profession or vocation. Section 10 deals with computation and provides : "10 (1) The tax shall be payable by an as sessee under the head ('profits and gains of business profession or vocation') in respect of the profits or gains of any business, pro fession or vocation carried on by him. (2) Such profits or gains shall be computed after making the following allowances namely : * * *" Section 14 gives exemptions of a general nature and Section 14 (2) (c) was as follows at the relevant time : "14 (2) (c) in respect of any income, profits or gains accruing or arising to him within an Indian state unless such income, profits or gains are received or deemed to be received in or are brought into British India in the previous year by or on behalf of the assessee, or are assessable under section 42. " Section 16 deals with exemptions and exclusions determining the total income. It is not necessary to quote this section. Section 24 deals with computing of aggregate income and to section 24 (1) a proviso was added and this section was as under : "24. Set-off of loss in computing aggregate Income. (1) Where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in Section 6, he shall be entitled to have the amount of the loss set-off against his income, profits or gains under any other head in that year : provided that where the loss sustained is a ioss of profits or gains which would but for the loss have accrued or arisen within an Indian State, and would, under the provisions of Clause (c) of sub-section (2) of Section 14 have been exempt from tax, such loss shall not be set-off except against profits or gains accruing or arising within an Indian State and exempt from tax under the said provisions. " This proviso was added in 1944 and it came into force on the 1st of April of that year.;