LEACH, C.J. - The assessee in this case is Nattukotai Chetiar. He carries on a money-lending business at Karaikudi in the Madras Presidency and at Ipoh and Telukanson in the federated Malay state. Ipoh and Telukanson lie some fifty miles distant apart. During the year 1934-35 the business at Telukanson showed a profit of 16,047 dollars but that at Ipoh showed a loss of 6,598 dollars. In respect of the year 1935-36 the assessee was assessed on a total in come of Rs. 20,515 which included a sum of Rs. 20,000 remitted to Karaikudi from Telukanson. The Income-tax Officer treats this as a remittance of profits of a foreign business : In addition to the Rs. 20,000 remitted from Telukanson a sum of 1,954,48 dollars was remitted from Ipoh. In view of the absence of profits at Ipoh the Income-tax Officer did not include the 1,954,48 dollars in the assessment. The assessee contended that the sum of Rs. 20,000 remitted from Telukanson should not be treated wholly as profits. He said that the proper method of calculating the profits of his business abroad was to deduct the loss suffered at Ipoh from the profits made at Telukanson. As the assessee had an agent at each of the two towns and the two branches worked independently of each other the Income-tax Officer held that the profits and losses of the two branches should be considered separately and consequently refused to allow the loss at Ipoh to be set off against the profits at Telukanson. The Assistant Commissioner of Income-tax agreed with the Income-tax Officer when the matter was before him on appeal, and the Commissioner of Income-tax refused to state a case to this Court under Section 66(2) of the Income-tax Act, on the ground that no question of law arose. This Court, however, considered that a question of law did arise and directed the Commissioner to refer to us the following question :-
'Where an assessee carries on two money-lending business outside British India in close proximity, both being his sole business having current transactions and controlled by him and where one of the two business has suffered loss and the other has profit and the assessee has received remittances from both, in determining whether the remittances so received are his income, profits and gains under Section 4(2) of the Indian Income-tax Act, XI of 1922, should not the results of both the business be considered together and is not the assessee entitled to set off his loss in one business against the profits of the other business to arrive at the resultant profit available for remittance to be taxed ?'
In our opinion this reference must be answered in the affirmative. Section 4(2) of the Act allows the Income-tax Officer to assess to income-tax income, profits and gains arising out of British India, but in deciding whether sums which are brought in from a business abroad are income, profits or gains, he must have regard to the business as a whole. when a person carries on the same kind of business in two places abroad, in order to ascertain whether he has made a profit the result of the working of the two branches must be considered. If at one branch he makes a profit and at the other a loss the profit in his business can only be the gain made at one branch less the loss suffered at the other branch. so far as this case is concerned we know that at one of the branches a profit was made and at the other place a loss was suffered. When the loss in one case is set off against the profit in the other it is clear that the assessee did not make a profit of Rs. 20,000. His profits at Telukanson stated in dollars were 16,047 dollars and his loss at Ipoh amounted to 6,598 dollars. The profit was therefore 9,449 dollars. It was only to this extent that the Income-tax Officer could hold that the remittance was out of profits. The decision on the question whether a particular remittance represents profits or capital will turn on the particular facts of each case, but there can be no question of a remittance representing profits when no profits have been earned taking the business abroad as a whole.
The reference having been answered in favour of the assessee there will be an order for costs in his favour. These we fix at Rs. 250. His deposit will also be refunded.
Reference answered in favour of the assessee.