- (1.) THIS is a reference under Section 66 (1) of the Income Tax Act (hereinafter called the Act) by the Income-tax Appellate Tribunal. The question, which has been referred to this Court for opinion, is this: "whether on the facts and in the circumstances of this case, the asscssec was entitled to set off the loss of Rs. 13,588/- which accrued or arose to the assessee at its Gulabpura shop in Rajasthan, an Indian state against its business income accruing or arising in British India under any of the provisions of the Indian Income-tax Act?"
(2.) THE facts which have been stated by the Appellate Tribunal are these. The assessment year under consideration is 1949-50. The assesses is a Hindu undivided family resident in Beawar in the former State of Ajmer and derives income from property, managing agency commission, Edward Mills, and dividends and also carries on business at Kekri, Bijainagar, Gulabpura, Jainagar, Bombay and Hansi. The assessee's head-office is at Beawar. During the previous year under consideration, the asscssec suffered a loss in its business in specula-tion and arhat at its branch shop at Gulabpura situate in Rajasthan, then an Indian state. This loss is claimed to set off against its other business income in what was british India which amounted to Rs. 8,578/ -. The Income-tax Officer did not agree with this claim of the assessee and held that the loss having arisen outside British India could not be set ott against British indian income. The Appellate Assistant Commissioner, however, held that the loss of Rs. 13,588/- suffered in Gulabpura shop could be set off against business income arising in British India as business income had to be computed as a whole. There was a second appeal to the Appellate Tribunal by the Income-tax deportment (hereinafter called the Department) which was dismissed Thereupon the Department made an application under Section 66 (1) for reference of the question of law arising in the case to the High Court and that is how the question set out above has been referred to us.
(3.) THE answer to the question depends upon the interpretation of the first proviso to Section 24 (1) of the Act as it stood in the year in dispute. The relevant provision is as follows: "24 (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 loss 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 within an Indian State and exempt from tax under the said provisions. ";