FALSHAW, J. - The questions we are called on to answer in this reference arise out of the assessment of the respondent firm Messrs Gajja Nand Gobind Ram of Delhi for the assessment year 1946-47, the account year ending on the 2nd of April, 1946. The assessee firm carried on the sarafa business on a large scale and during the year in question entered into certain transactions in Indian States both from its head office at Delhi and from its branch office at Agra, the former transactions resulting in a net profit of Rs. 15,079 while the transaction done from Agra resulted in a net loss of Rs. 38,966. There was thus a net loss of Rs. 23,887 on the firms transactions in Indian States. In his assessment order the Income-tax Officer refused to take the loss into account, but on appeal by the assessee the Appellate Assistant Commissioner allowed this loss to be deducted. The Income-tax Officer appealed to the Appellate Tribunal, which in a brief order upheld the order of the Appellate Assistant Commissioner, holding that in its opinion the Appellate Assistant Commissioner had rightly come to the conclusion that all the transactions of the same business, irrespective of the place in which such transactions took place, have to be taken into account while computing the net profits and gains under the head 'business' in terms of section 10. The Tribunal also held that it was clear that transactions of this nature do not come within the scope of the exemption contained in section 14(2)(c) in view of section 42 and if section 14(2)(c) does not apply there can be no question of the proviso to section 24(1) coming into play.
The Commissioner of Income-tax applied to the Tribunal under section 66(1) with the result that the following questions have been framed for our consideration :
'(1) Whether, if the assessee carrying on business from British India had made profits in 1945-46 in transactions such as are described above forming part of their business, which transactions took place in the Indian States, the whole of such profits would by virtue of section 42 not be exempt from tax under section 14(2)(c) ?
(1-a) Whether only a portion of such profits could be deemed under section 42(1) to accrue or arise within British India in view of section 42(3) ?
(1-b) Whether section 42 is at all applicable to allocate losses occurring in transactions in India States on the analogy of determining the proportion in which profits (if the transactions had resulted in profits) would have been deemed under section 42 to accrue or arise in British India ?
2. If the answer to the above questions is against the applicability of section 42, whether in view of section 24(1) 1st proviso, the assessee who sustained losses in 1945-46 amounting to Rs. 23,887 in transactions in Indian States was entitled to set off such losses against his other income, profits and gains in British India for the purpose of arriving at his total taxable income ?
3. Whether section 14(2)(c) visualises the splitting up of transactions of a business as a unit in order to ascertain the accrual or arising of income, profits and gains outside the taxable territories ?'
It is clear from the statement of the case that the assessee firm had no branch in any of the Indian States where these transactions took place, nor even kept any employee or agent there, and that the transactions were entered into by telephonic communication. In fact these transactions have been treated throughout by the assessee as a part of his business run from Delhi. In the circumstances it is difficult to see how any question of the application of section 14(2)(c) arises at all, since even if the assessee chose to allow any profits made by him on transactions in a particular Indian State to remain during the assessment year, such profits would be deemed to be income arising in the taxable territories in view of the provisions of section 42(1). I have therefore no hesitation in answering the first of the questions framed in the negative, and in my opinion question (1-a) does not arise at all out of the order of the Appellate Tribunal, since at no stage of the assessment in dispute has any question arisen of apportioning profits under section 42(3). I am altogether unable to see how question (1-b) arises out of the order of the Tribunal or the facts of the case as stated, and I therefore do not think it necessary to answer these two questions. In view of the answer to the first question, questions 2 and 3 also do not arise.
In my opinion it would have been far better on the facts as stated if the Tribunal had simply framed a single question on the lines mentioned in para 4 of the statement of the case, namely 'Whether in the facts and circumstances of the case the loss in question was rightly allowed as a deduction in computing the total taxable income of the assessee ?' Questions framed on similar lines relating to the setting off of losses on transactions in Indian States against profits made by a business in British India have already been answered in favour of the assessee by this Court in two cases. The first of these was Commissioner of Income-tax, Punjab v. Hira Mal Narain Dass, decided by Kapur, J., and myself. In this case we dissented from the view of the Allahabad High Court in Mishrimal Gulab Chand of Beawar v. Commissioner of Income-tax, and followed the views of other High Courts in the decisions cited in that judgment and held that section 10 is not confined to business carried on in British India and that in computing the profits or gains which arise under section 6(iv) recourse can be had to only section 10 and not to section 24(1), and that sub-section (1) of section 24 is applicable only in the case where computation has to be made by setting off losses under one head against profits under another head the scope of this sub-section not being enlarged by the 1st proviso contained therein. The same view was adopted by my Lord the Chief Justice and myself in a case recently decided in Commissioner of Income-tax v. Partap Singh, decided on the 15th October, 1954. In the circumstances I would treat the question which has been outlined in para 4 of the statement of the case as a question stated for out consideration and answer it in the affirmative. The assessee will have his costs from the Commissioner of Income-tax. Counsels fee Rs. 250.
BHANDARI, C. J. - I agree.
Reference answered in the affirmative.