FALSHAW, J. - The question framed for our consideration by the Income-tax Appellate Tribunal in this reference is -'Whether in the circumstances of the case, the loss of Rs. 12,762 in respect of the assessment year 1944-45 which was sustained by the assessee in the State of Indore was rightly allowed by the Tribunal to be adjusted against the profits from transactions in British India while computing the assessees income, profits and gains under the head profits and gains of business, profession or vocation ?'
The assessee in this case is a one man firm named Partap Singh and Sons carried on by Partap Singh. In the assessment year in question he made certain profits on his business in British India but sustained losses amounting to Rs. 12,762 on certain business carried on by him in the State of Indore, and he sought to have this sum taken into account in calculating his taxable income. This concession was refused by the Income-tax Officer and the Appellate Assistant Commissioner, who relied on the decision of the Allahabad High Court in In re Mishrimal Gulabchand of Beawar. The Appellate Tribunal, however, without quoting any decisions held that in computing the assessees profits and gains under the head of business, the result of all his business activities wherever they take place must be arrived at and section 14(2) (c) has nothing to do with the correct method of computing the income, profits and gains from business or under any other head mentioned in section 6. On the motion of the Commissioner of Income-tax the above question was framed and referred to this court.
It may be mentioned that the decision of the Allahabad High Court is certainly in favour of the Income-tax authorities as it was held therein that section 10 of the Income-tax Act has to be read along with section 14(2) (c) and so, if, in computing, the profits of a business carried on in an Indian State cannot be added by reason of section 14(2) (c), the losses of such business also cannot be deducted. This decision has, however, been dissented from on more than one occasion, and in fact by this Court in the case of Commissioner of Income-tax, Punjab v. Hira Mall Narain Dass. In that case the assessee carried on business in Ludhiana and had a branch in Malerkotla State, and he sought to set off losses of about Rs. 40,000 in his business in Malerkotla against his income in British India of about Rs. 70,000. Here again the matter was decided against the assessee by the Income-tax authorities but in his favour by the Appellate Tribunal, which, on the motion of the Commissioner of Income-tax, referred the question. -
'Whether the losses suffered by the assessee in transactions in the India State of Malerkotla 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 assessees taxable income under the Income-tax Act ?'
The case was heard by Kapur, J., and myself and we dissented from the decision of the Allahabad High Court in Mishrimal Gulabchands case and followed inter alia the view expressed by Chagla, C.J., in Commissioner of Income-tax, Bombay v. Murlidhar Mathurawallah Mahajan Association where he said :
'To my mind the scheme of the Act is perfectly clear. When you turn to section 10 which deals with business it is a self contained head. Different business do not constitute different heads under the Income-tax Act. All business wherever carried on constitute one head which falls under section 10 of the Act and in order to determine what are the profits and gains of a business under section 10, an assessee is entitled to show all his profits and set off against those profits losses incurred by him in the same head. It is only when he proceeds to set off a loss under business against a profit under some other head that section 24 comes into operation and various considerations will arise whether he is entitled to such a set-off or not.'
We also cited with approval the view of Vishwanatha Sastri, J., in V. Ramaswami Ayyangar and Another v. Commissioner of Income-tax, Madras, where he said :
'This argument seems to me to run counter to the whole scheme of the Income-tax Act. Section (4) which defines business does not confine it to business carried on in British India. Section 4 which is the charging section expressly and definitely subjects to Indian income-tax foreign profits arising or accruing to residents in British India. Section 6 which deals with the sources of income also does not ignore or exempt either expressly or by implication sources of income situated abroad from which residents of British India derive their income. Section 10 also is not confined to business carried on in British India.'
There were also two decisions of the Nagpur High Court in Commissioner of Income-tax, Madhya Pradesh v. C. P. Syndicate, Nagpur and Mohan Lal v. Commissioner of Income-tax, C. P. and Berar, Nagpur, in which it was held that losses incurred by an assessee on business dealings in a native State could be set off against his profits made from business in British India. It is indeed my own opinion that section 14(2) (c) of the Act merely gave the concession to assessee for the years while it still remained applicable, that if they made profits in Indian States and chose to leave them there rather than to bring them into British India, they could not be taxed on those profits in British India, and I do not agree with the view expressed in Mishrimal Gulabchands case that this necessarily implies the converse proposition that in computing the net business profits losses sustained on business in native States must be excluded from consideration. I would accordingly answer the question framed for our decision in the affirmative and allow the assessee his costs in the reference. Counsels fee Rs. 250.