# BANGALORE v. THE INDO MERCANTILE BANK, Lli\H'l'ED

- **Citation:** [1959] Supp. 2 S.C.R. 256
- **Court:** Supreme Court of India
- **Decided:** 1959
- **Case number:** Civil Appeals Nos. 259 and 260 of 1958
- **Bench:** N. H. BrrAGWATI, B. P. Sinha, J. L. Kapur
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/bangalore-v-the-indo-mercantile-bank-lli-h-l-ed-1639
- **Pages:** 14

## Headnote

Inconie Tax-Business Loss-Set off-Profits niade in Travancorc State-Losses inc1'rrcd o1'tside the Statc--Scopc of tile proviso
to the 111ain cnactn1e1it-Travancore Inco1ne-tax Act, II2I (Travancorc
XXIII of II2I), SS. 4, 9, IJ, I8, 32(I), first proviso-Indian
Income-tax Act, I922 (XI of I922), ss. 3, 4, 6, IO, I4, 24(I), first
proviso.
Section 32(1) of the Travancore Income-tax Act, which corresponds to s. 24(1) of the lndian Income-tax Act, 1922, provided :
"Where any assessee sustains a loss of profits or gains in any
year under any of the heads mentioned in Section 9 [s. 6 of the
Indian Act] he shall be entitled to have the amount of loss set
off against this 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 'vould but for the loss have accrued or arisen \vithin
British India or in an Indian State and would under the provisions of clause (c) of sub-section (2) of Section 18 [corresponding
to s. 14 of the Indian Act] have been exempted from tax, such
loss shall not be set off except against profits or gains accruing c1r
arising within British India or in an Indian State and exc1npt
fro1n tax under the said provisions ".
The assessees were companies having their head offices in
the erstwhile State of Cochin with branches in the erstwhile
State of Travancore and in other places outside the latter State.
They made profits in 1~ravancore State but incurred losses in
Cochin State and other places, and for the purposes of assessment
to income-tax they sought to deduct this lo>s from the profits
made in Travancore State. The Income-tax Officer acting under
the provisions of the Travancore Income-tax Act, determined the
assessable inco1ne representing only the profits made in Travancore State and under s. 32(1), first proviso of the Travancore
Income-tax Act [which corresponds to the first proviso to s. 24(1)
of the Indian Income-tax Act, 1922] refused to allow a deduction
of the losses incurred. The assessees claimed that the business
(2) S.C.R.
SUPREME COURT REPOHTS
257
which they were carrying on was one and indivisible for the purpose of determining the amount assessable to income-tax and
that they were entitled to a deduction of the losses incurred outside Travancore State. The contention on behalf of the incometax authorities was (I) that under the first proviso to s. 32(1)
of the Travancore Income-tax Act losses incurred in places outside the State of Travancore cannot be set off against profits
made in that State, (2) that though profits and losses in the
State arising under the same head could be set off, the proviso,
aforesaid, affected not only the generality of the main enactment
but also introduced an addendum that where the profits of the
business arose in the State and the losses under the head business
were sustained outside that State, those losses could not by
virtue of the proviso be deducted from profits made in the State,
(3) that the proviso applied only to the head "business" in the
two respective territories, as the words used therein are "where
the loss sustained is a loss of profits or gains " and the word
"income" is not mentioned therein, and (4) that the word "business" in s. 13 of the Tra van core Act corresponding to s. IO of
the Indian Act, must mean business in Travancore State under
s. 13 of that Act and "business in British India" under the Indian
Act, because before 1939 income was not chargeable under the
two Acts, unless it was received or accrued in Travancore State
or British India, as the case may be, and profits and gains of
business in territories outside Travancore or in an Indian State
were exempted from payment of income-tax in Travancore State
or in British India, as the case may be.
Held: (1) Under s. 24(1) of the Indian Income-tax Act, 1922
[s. 32(1) of the Travancore Income-tax Act] a set off can be
claimed only when the loss arises under one head and the income,
profits and gains against which it i

## Text

I959
February 23.
256 SUPREME COURT REPORTS [1959] Supp.
THE COMMISSIONER OF INCOME-TAX,
MYSORE,
TRAV ANCORE-COCHIN AND COORO,
BANGALORE
v.
THE INDO MERCANTILE BANK, Lli\H'l'ED
(and connected appeal)
(N. H. BrrAGWATI, B. P. SINHA and
J. L. KAPUR, JJ.)
Inconie Tax-Business Loss-Set off-Profits niade in Travancorc State-Losses inc1'rrcd o1'tside the Statc--Scopc of tile proviso
to the 111ain cnactn1e1it-Travancore Inco1ne-tax Act, II2I (Travancorc
XXIII of II2I), SS. 4, 9, IJ, I8, 32(I), first proviso-Indian
Income-tax Act, I922 (XI of I922), ss. 3, 4, 6, IO, I4, 24(I), first
proviso.
Section 32(1) of the Travancore Income-tax Act, which corresponds to s. 24(1) of the lndian Income-tax Act, 1922, provided :
"Where any assessee sustains a loss of profits or gains in any
year under any of the heads mentioned in Section 9 [s. 6 of the
Indian Act] he shall be entitled to have the amount of loss set
off against this 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 'vould but for the loss have accrued or arisen \vithin
British India or in an Indian State and would under the provisions of clause (c) of sub-section (2) of Section 18 [corresponding
to s. 14 of the Indian Act] have been exempted from tax, such
loss shall not be set off except against profits or gains accruing c1r
arising within British India or in an Indian State and exc1npt
fro1n tax under the said provisions ".
The assessees were companies having their head offices in
the erstwhile State of Cochin with branches in the erstwhile
State of Travancore and in other places outside the latter State.
They made profits in 1~ravancore State but incurred losses in
Cochin State and other places, and for the purposes of assessment
to income-tax they sought to deduct this lo>s from the profits
made in Travancore State. The Income-tax Officer acting under
the provisions of the Travancore Income-tax Act, determined the
assessable inco1ne representing only the profits made in Travancore State and under s. 32(1), first proviso of the Travancore
Income-tax Act [which corresponds to the first proviso to s. 24(1)
of the Indian Income-tax Act, 1922] refused to allow a deduction
of the losses incurred. The assessees claimed that the business
(2) S.C.R.
SUPREME COURT REPOHTS
257
which they were carrying on was one and indivisible for the purpose of determining the amount assessable to income-tax and
that they were entitled to a deduction of the losses incurred outside Travancore State. The contention on behalf of the incometax authorities was (I) that under the first proviso to s. 32(1)
of the Travancore Income-tax Act losses incurred in places outside the State of Travancore cannot be set off against profits
made in that State, (2) that though profits and losses in the
State arising under the same head could be set off, the proviso,
aforesaid, affected not only the generality of the main enactment
but also introduced an addendum that where the profits of the
business arose in the State and the losses under the head business
were sustained outside that State, those losses could not by
virtue of the proviso be deducted from profits made in the State,
(3) that the proviso applied only to the head "business" in the
two respective territories, as the words used therein are "where
the loss sustained is a loss of profits or gains " and the word
"income" is not mentioned therein, and (4) that the word "business" in s. 13 of the Tra van core Act corresponding to s. IO of
the Indian Act, must mean business in Travancore State under
s. 13 of that Act and "business in British India" under the Indian
Act, because before 1939 income was not chargeable under the
two Acts, unless it was received or accrued in Travancore State
or British India, as the case may be, and profits and gains of
business in territories outside Travancore or in an Indian State
were exempted from payment of income-tax in Travancore State
or in British India, as the case may be.
Held: (1) Under s. 24(1) of the Indian Income-tax Act, 1922
[s. 32(1) of the Travancore Income-tax Act] a set off can be
claimed only when the loss arises under one head and the income,
profits and gains against which it is sought to be set off arises
under a different head. In cases where profits and losses arise
under the same head they have to be adjusted against each other
under the provisions of ss. 7 to l2B of the Indian Act.
Arunachalam Chettiar v. Commissioner of Income-tax, (1936)
L.R. 63 I. A. 233 and Anglo-French Textiles Co., Ltd. v. Commissioner of Income-tax, Madras, [1953] S.C.R. 448, relied on.
(2) The territory of a proviso is to carve out an exception to
the main enactment and exclude something which otherwise
would have been within the section; it has to operate in the
same field and if the language of the main enactment is clear it
cannot be used for the purpose of interpreting the main enactment or to exclude by implication what the enactment clearly says
unless the words of the proviso are such that that is its necessary
effect.
Abdul Jabar Butt v. State of Jammu and Kashmir, [1957]
S.C.R. 51, Ram Narain Sons Ltd. v. Assistant Commissioner of
Sales Tax, [1955] 2 S.C.R. 483, Madras & Southern Mahratta
Railway Co. v. Bezwada Municipality, (1944) L.R. 7I I.A. n3
33
I959
Commissioner of
Income-tax
v.
Jndo Mercantile
Hank, Limited.
•
258
SUPREME COURT REPORTS [1959] Supp.
and Corporation of the City of Toronto v. Attorney-General for
Commissioner of Canada, [1946] A.C. 32, relied on.
Income-tax
Consequently, s. 24(1), first proviso, of the Indian IncomeI959
v.
I11do JI! ercantile
Bank, Limited.
•
Kapur].
tax Act, 1922 [s. 32(1), first proviso, of the Travancore Act] bars
the right of set off only where a loss in the Indian States under
one head is sought to be set off against profits in British India
under any other head, and does not apply to profits and losses
and computation thereof which fall under s. Io of the Indian Act,
corresponding to s. 13 of the Travancore Act.
(3) The mere fact that the word "income" is not used in
the proviso does not justify the construction that the intention
of the Legislature was to restrict the right to a set off of profits
and losses arising in Indian States only to business or to modify
the mode of computation under s. IO of the Indian Income-tax
Act.
(4) The word "business" in s. IO of the Indian Income-tax
Act, 1922, is not confined to business in British India, in view of
the definition of "total income" and "total world income" and
chargeability of total income under s. 3, or the provisions of s. 4
where in the case of a resident "total income" includes income, profits and gains accruing within or without British
India.
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos.
259 and 260 of 1958.
Appeals by special leave from the judgment and
orders dated August 5, 1955, of the former TravancoreCochin High Court in Income-tax Reference Appeals
Nos. 6 of 1953 and 21 of 1954.
K. N. Rajagopa"la Sastri, R. H. Dhebar and D. Gupta,
for the appellant.
G. B. Pai and Sardar Bahadur, for the respondent
in C. A. No. 259 of 1959.
A. V. Viswanatha Sastri and Naunit Lal, for the
respondents in C. A. No. 260 of 1958.
1959. February 23.
The Judgment of the Court
was delivered by
KAPUR, J.-These two appeals by special leave
raise a common question of law, and .that is, whether
business losses incurred in the erstwhile State of
Cochin could, under the Income-tax Act of Travancore, be set off against the business profits' made in
the erstwhile State of Travancore. In Appeal No. 260/
58 a further question arose whether in the case of
(2) S.C.R. SUPREME COURT REPORTS
259
that assessee the year ending June 30, 1949, was the
previous year for the assessment year 1950-51 with
the result that it should be assessed under the Indian
Income-tax Act of 1922. But this question was not
answered by the High Court which confined itself to
answering the first question which was common to
both the appeals. The appellant before us in both
the appeals is the Commissioner of Income-tax and
the respondents are the two assessees, in one case a
Bank and the other a private limited company. The
main argument has been confined to the question of
applicability of s. 32(1) and the first proviso to that
section of the Travancore Income-tax Act (hereinafter
called the Tra van.core Act).
In C. A. No. 259/58 the assessee is a public limited
company incorporated in the State of Cochin with
branches in that State as well as in what was British
India and in Travancore State. It filed its incometax return showing an income of Rs. 11,872 for the
assessment year 1948-49, its accounting year being
the previous calendar year. The Income-tax Officer
determined its assessable income to be Rs. 90,947
representing only the profit it made in Travancore
State and under s. 32(1) proviso (i) of the Travancore
Act he refused a deduction of Rs. 79,275 shown as
loss from branches situate outside the State of Travancore, in British India and other Indian States. The
assessee's appeal to the Income-tax Commissioner was
unsuccessful but the Appellate Tribunal held that the
banking business of the assessee being one and indivisible for the purpose of determining the amount assessable to income-tax it was entitled to deduct the
losses incurred outside Travancore State from the
profits accruing and arising in that State. At the
instance of the Commissioner of Income-tax the
following question was referred to the High Court of
Travancore-Cochin :-
"Is the aforesaid sum of Rs. 79,275 a loss of the
assessee arising outside the Travancore State for purpose of the first proviso to section 32(1) of the Travancore Income-tax Act ? "
This question was slightly modified by the High Court
I959
Commissioner of
Income-tax
v.
I ndo M ercanlile
Ba:'nk, Limited.
Kapur].
•
r959
Commissioner of
Income-tax
v.
Indo Mercantile
Bank, Limitod.
J(apur ].
260
SUPREME COUR1' REPORTS [1959] Supp.
which after referring to several decided cases answered the question in favour of the assessee.
In C. A. 260/58 the assessee is a private limited
company with its registered office in the former Cochin
State. It was carrying on business at its head office
in Cochin State and it also carried on business in
Travancore State. The assessment was made under
the Travancore Act and relates to the previous year
ending June 30, 1949, the assessment year being 195051. The assessee made a profit in Travancore State
and incurred a loss in the State of Cochin and sought
to deduct this loss from the profit of Tra vancore State
thus showing a net profit of Rs. 2,643. This was not
allowed by the Income-tax Officer aI)d on appeal this
order was confirmed by the Appellate Assistant Commissioner. The Appellate Tribunal also did not accept the submissions of the assessee and upheld the
order of assessment. On an application of the assessee
the following question was referred to the High Court
of Travancore-Cochin :-
" W'hether on the facts and in the circumstances
of the case the loss of Rs. 27, 709 arising in Cochin
State could be set off against the profit of Rs. 38,998
arising in Travancore State? "
and was answered in favour of the assessee. The
Commissioner has come up in appeal pursuant to
special leave against both these judgments.
It may be stated that the relevant sections of the
Travancore Act which govern the two appeals are
identically worded with those of the Indian Incometax Act of 1922 (to be called the Indian Act).
The
corresponding sections are as follows :
Headings
Sections in
Application of the Act
Head of income chargeable to income-tax
Business
Exemptions of a general nature
Set off of loss in computing aggregate income
Travancore Act.
4
9
13
18
32
Section in
Indian Act.
4
6
10
14
24
(2) S.C.R.
SUPREME COURT REPORTS
261
It is only necessary to set out s. 32(1) of the
Travancore Act and the proviso which correspond
to s. 24(1) and proviso (i) of the Indian Act and
which are necessary for the decision of the appeals
before us:
S. 32(1) "Where any assessee sustains a loss of
profits or gains in any year under any of the heads
mentioned in Section 9 (Section 6) he shall be entitled
to have the amount of loss set off against this '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 British India or in an Indian
State and would under the provisions of clause (c) of
sub-section (2) of Section 18 (Section l4(2)(c) ), have
been exempted from tax, such loss shall not be set off
except against profits or gains accruing or arising
within British India or in an Indian State and exempt
from tax under the said provisions". (Sections in
brackets are the corresponding sections of the Indian
Act).
So the only difference between the two sections is that
in the proviso to s. 24(1) of the Indian Act instead of
the words "an Indian State " the words "British
India or in an Indian State" have to be substituted.
The question for decision is as to how this proviso is
to be construed. Ordinarily the effect of an excepting
or a qualifying proviso is to carve something out of
the preceding enactment or to qualify something
enacted therein which but for the proviso would be in
it and such a proviso cannot be construed as enlarging the scope of an enactment when it can be fairly
and properly construed without attributing to it that
effect.
Corporation of the City of Toronto v. AttorneyGeneral for Canada (1).
But it has been held that a
section framed as a proviso to a preceding section
may sometimes contain matter which is in substance
a fresh enactment adding and not merely qualifying
that which goes before. Rhondda Urban Council v.
Taff Vale Railway (2).
It was argued on behalf of the Revenue that this
(1) [1946] A.C. 32, 37.
(2) [1909] A.C. 253, 258.
I959
Commissioner of
Income-tax
v.
I ndo Mercantile
Bank, Limited.
Kapur ].
262
SUPREME COURT REPORTS
[1959] Supp.
r959
proviso falls in the second category and takes the
C
-_ -_
present cases out of s. 32(1) of the Travancore Act
onnmmoner of
d .
l' b'J'
t
t
h
fi
Income-tax
an m1poses a Ia I ity o ax on t e pro ts or gains
v.
arising in that State, disallowing a deduction of the
Indo Mmantile losses in British India and in States other than TraBnnk, Limited. va.ncore State against profits made in Travancore
I<apur ].
State: Rhondda Urban Council v. Taff Vale Railway (1)
and Hcr;rrison v. Ward('). It may be mentioned that
in the majority of cases decided in India the proviso
to s. 24(1} of the Indian Act has been construed in a
manner contrary to the submissions made on behalf
of the Hevenue.
In order to determine the true meaning of the
words of the proviso it is necessary and convenient to
refer to the scheme of the Indian Act which is admitted by the parties to be same as that of the Travancore
Act. From 1922 to 1939 in order to be taxable income,
profits and gains had to be received or had to accrue
in British India. In 1939 the idea of 'total world
income ' was introduced and the definition of ' total
income' was modified by the Indian Income-tax
(Amendment) Act (VII of 1939) which also made consequential changes in other sections of the Indian Act.
Under s. 2(15) of the Act 'total income' was defined
to mean the total amount of income, profits and gains
computed in the manner laid down in that Act. The
' total world income ' was defined as including all
income, profits and gains wherever accruing or arising
except income to which the Act did not apply.
Section 3 provided for the charge of income-tax in respect
of the tot9'l income of the previous year. Under s. 4
the total income of any previous year of any person
who was resident included all income, profits and
gains from wh11tever source derived but (i) it must
accrue or arise to him during the year in British
India or (ii) accrue or arise to him without British
India during such year. The third clause is not necessary for this appeal.
Section 4(3) provided what
income, profits or gains were not to be included in the
total income of the person receiving them. Both
under the Indian Act and under the Travancore Act
(1) [1909] A.C. 253, 258.
(2) [1922] r Ch. 517.
(2) S.C.R.
SUPREME COURT REPORTS
263
there were six heads of income chargeable to incometax. In the Indian Act they were set out in s. 6 as
follows:-
S. 6 "Save as otherwise provided by this Act the
following heads of income, profits and gains shall be
chargeable to income-tax in the manner hereinafter
appearing, namely :-
(iv) Profits and gains of business, profession or
vocation.
"
Then followed ss. 7 to 12B laying down the method of
computation of the income arising from each head.
In 1941 during the war an exemption was given for
the purpose of taxability to any income, profits or
gains which accrued or arose within what was then
called Indian States but which were not received or
brought into British India. This was done by s. 8 of
the Indian Income-tax (Amendment) Act, 1941 (XXIII
of 1941) by which another clause (c) was added to
s. 14(2) which was as follows:
"The tax shall not be payable by an assessee:
(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 the
Indian State in the previous year by or on behalf of the
assessee or are assessable under section 12B or section
42 ".
Thus income, profits or gains arising under any of the
heads under s. 6 became exempted in circumstances
above-mentioned but the effeqt of this exemption was
no€ to exclude such income of an assessee for all
purposes as was the case under ~. 4(3).
Such suins
were to be t11.ken into account for the pu,i:pose of determining the rate ·under s. 16 of the Indian Act.
A
further consequential change was made in s. 24(1) by
Commissioner of
Income-tax
v.
Indo Mercantile
Bank, Limited.
Kapur ].
264
SUPREME COURT REPORTS
(1959] Supp.
1959
the addition of the first proviso and a similar addition
was made in the Travancore Act to s. 32(1) which has
Commission" of already been quoted and it is this proviso which is the
Income.tax
v.
subject-matter of controversy between the parties.
A
Inda Mmantile review of the various sections and enactments shows
Bank. Limited. that during 1922.1939 the tax was leviable on income,
profits and gains arising or accruing to an assessee in
Rapu, f ·
British India. In 1939 the total income became
taxable subject to exclusions in sub-s. 3 of s. 4 and
the chargeability of the ' total income ' was laid down
in s. 3. In 1941 income, profits or gains which a
resident made in an Indian State and in the case of
Travancore State income, profits or gains which a
resident made in British India or other Indian States
were exempted from payment of income-tax unless
received or brought into the respective territories, but
this income, profits or gains had to be included for the
purpose of calculating the rate.
Now we come to s. 24(1).
This section was introduced in 1922 before which under the Indian Act of
1918 a loss under one head of income could not be set
off against income under another head, the taxabilit_y
of income arising from each head being separate. By
the addition of this section the loss under one head of
profits or gains was allowed to be set off against
income, profits and gains under any other head in
any assessment year. There was also a provision in
s. 24(2) for carrying over the loss after such set off
had been effected.
Section 24(1) became the subject
matter of controversy in the courts.
The Privy
Council in Arunachalam Chettiar v. Commissioner of
Income-tax (1) held that this section was meant for a
set off of profits arising under different heads and not
where profits and losses had to be adjusted if they
arose under the same head. Sir George Rankin said
at p. 241:
"In their Lordships' opinion, whether a firm is
registered
or unregistered, partnership does not
obstruct or defeat the right of a partner to an adjustment on account of his share of loss in the firm, whether the set off be against other profits under the same
(1) (1936) L.R. 63 I.A. 233.
(2) S.C.lt
SUPREME COURT REPORTS
265
head of income within the meaning of s. 6 of the Act
or under a different head (in which case only need
recourse be had to s. 24, sub-s. 1) ".
Thus the Privy Council emphasised that the object of
s. 24(1) was to allow a set off of profits against losses
arising under different heads and only in such cases
could recourse be had to s. 24(1).
In cases where profits and losses arose under the same head they had to
be adjusted against each other.
This Court in AngloFrench Textiles Go. Ltd. v. Commissioner of Incometax, Madras (1) again emphasised that distinction in
the following words :-
"Next, a set off under section 24(1) can only be
claimed when the loss arises under one head and the
profits against which it is sought to be set off arises
under a different head.
When the two arise under the
same head, of course the loss can be deducted but that
is done under section 10 and not under section 24(1) ".
(Per Bose, J.)
Indeed it is not disputed that when profit and loss
arose under the same head in any place which was not
an Indian State recourse had to be had to the provisions of ss. 7 to 12B and not to any other section. But
it was contended on behalf of the Revenue that the
first proviso to s. 24(1) of the Indian Act not only
affected the generality of the main enactment but also
introduced an addendum that where the profits of the
business arose in what was British India in the case of
the Indian Act or what was Travancore State in the
case of the Travancore Act and the losses under the
head business were sustained in an Indian State or in
the latter case in any other Indian State or British
India, these losses could not by virtue of the proviso
be deducted from profits made in British India or
Travancore State as the case may be.
They could
only be adjusted against profits arising in an Indian
State or in the case of Travancore State in British
India or another Indian State. Thus the proviso, it
was contended, was a modification of the method of
computation under s. 10(2) of the Indian Act for
(1) [1953J S.C.R. 448, 453·
34
I959
Commissioner of
Income-tax
v.
Inda Mercantile
Bank, Limited.
Kapur ].
266
SUPREME COURT REPORTS [1959] Supp.
'959
determining profits and gains of the business of any
-
resident.
We should be averse to lend any oountenCornmissioizer of
h
d
f
'
·
1
Income-t•x
ance to sue a mo e o construmg a proviso un ess the
v.
language used expressly or by necessary intendment
Indo Mmantile len,ds to that conclusion. The proper function of a
Bank, Limited. proviso is that it qualifies the genemlity of the
]{apur j.
main enactment, by providing an exception and
taking out as it were, from the main enactment, a
portion which, but for the proviso
would
fall
within the main enactment. Ordinarily it is foreign
to the proper function of a proviso to read it as providing something by way of an addendum or dealing
with a subject which is foreign to the main enactment.
"It is a fundamental rule of construction that a
proviso must be considered with relation to the principal matter to which it stands as proviso''. Therefore
it is to be construed harmoniously with the main
enactment. (Per Das, C. J.) in Abdul Jabar Butt v.
State of Jammu & Kashmir (1).
Bhagwati, J., in Ram
Narain Sons Ltd. v. Assistant Commissioner of Sales
Tax (2) said :
"It is a cardinal rule of interpretation that a
proviso to a particular provision of a statute only
embraces the field which is covered by the main provision. It cn,rves out n,n exception to the main provision
to which it has been enacted as a proviso and to no
other".
Lord Macmillan in Madras & Southern Mahratta
Railway Go. v. Bezwada Municipality (3) laid down the
sphere of a proviso as follows :-
" The proper function of a proviso is to except
and deal with a case which would otherwise fall within
the general language of the main enn,ctment, and its
effect is confined to that case.
Where, as in the present case, the language of the main enactment is clear
and unambiguous, a proviso can have no repercussion
on the interpretation of the main enactment, so as to
exclude from it by implication what clearly falls within
its express terms ".
The territory of a proviso therefore is to cn,rve out an
(1) [1957] S.C.R. 51, 59.
(2) [1955] 2 S.C.R. 483, 493
(3) (1944) L.R. 71 I.A. u3, 122.
(2) S.C.R. SUPHEME COURT REPORTS
267
exception to the main enactment and exclude something which otherwise would have been within the
section. It has to operate in the same field and if the
language of the main enactment is clear it cannot be
used for the purpose of interpreting the main enactment or to exclude by implication what the enactment
clearly says unless the words of the proviso are such
that that is its necessary effect.
(Vide also Corporation of The City of 'Paronto v. Attorney-General for
Canada) (1).
In the proviso in dispute there are no positive words
which would support an interpretation in favour of
the disintegration of the head " business "and compel
the application of the proviso to the same head, specially keeping in view the object of the main section,
i.e., s. 24(1) which was to set off loss of profits or gains
under one head against income, profits or gains under
any other head.
It was then submitted that in the proviso the words
used were "where the loss sustained is a Joss of profits or gains" and therefore it necessarily applied to
the head " business " in the two respective territories.
But in the main enactment itself, i.e., s. 24(1) of the
Indian Act the words used are "a loss of profits or
gains". The mere fact that the word "income" is
not used does not justify the constru.ction that the
intention of the Legislature was to restrict the set off
of profits and losses arising in Indian States only to
business or to modify the mode of computation under
s. 10 of the Indian Act. That the use of these words
does not circumscribe the proviso to business alone is
shown by the difference in the language of the proviso
to sub-s. (2) of s. 24 of the Indian Act:-
S. 24 (2) .......................................................... .
" provided that
(a) where the loss sustained is a loss of profits and
gains of a business or vocation to which the first
proviso to sub-section (1) is applicable, and the profits
and gains of that business, profession or vocation are,
under the provisions of clause (c) of sub-section (2) of
section 14, exempt from tax, such loss shall not be set
(1) [1946] A.C. 3z, 37.
I959
Co1nmissioner of
Inconze tax
v.
Inda Mercantile
Bank, Limited.
Kapur J.
268
SUPREME COURT REPORTS [1959] Supp.
'959
off except against profits and gains accruing or arising
. .
in (an Indian State) from the same business, profesc ommisstoner of
•
•
d
Income-tax
s10n or vocat10n an
exempt from tax under the
v.
said provisions".
Indo Me'.cantite That proviso shows that where the Legislature wanted
/Jank. Limited. to restrict the losses and profits or gains to business
Kapur J.
alone they specifically said so. It is significant that
in ss. 2(13) and (5) of the Indian Act of 1918 corresponding to ss. 2(15) and 6 of the Indian Act of 1922
the word used was" income" which in the latter Act
was expanded into "income, profits and gains ". The
Privy Council said in the Commissioner of Income-tax,
v. Shaw Wallace and Co. (1) that "the object of the
Indian Act is to tax " income " a term which it does
not define. It is expanded no doubt into "income,
profits and gains" but the expansion is more a matter
of words than of substance". It was also so said in
Commissioner of Income-tax, Bengal v. Mercantile Bank
of India Ltd.('). See also London County Council v.
Attorney-General (3).
Thus the mere use of the words
loss of profits or gains to be set off against profits and
gains would not be sufficient to restrict the scope of
the proviso to the profits and losses arising under the
head business in the two territories, i.e., British India
and the Indian States.
On behalf of the Revenue an alternate argument was
raised for which support was sought from two decisions of the Allahabad High Court in In Re: Mishrimal Gulabchand (') and Raghunath Parshad v. Commissioner of Income-tax('). There it was held thats. 10
of the Indian Act had to be read with s. 14(2) (c) and if
profits could not be added for the purposes of' total
income' losses sustained also could not be deducted.
Counsel for the Revenue did not go to this extent that
because profits were exempted losses could not be
deducted; his argument was that because before 1939
income was not chargeable unless it was received or
accrued in British India therefore business in s. 10
could only mean business in British India. But this
(1) (1932) L.R. 59 I.A. 206, 212.
(2) (1936) L.R. 63 I.A. 457.
(3) [1901] A.C. 26.
(4) [1950] 18 l.T.R. 75-
(5) [1955] 28 l.T.R. 45.
(2) S.C.R. SUPREME COURT REPORTS
269
argument does not take note of the definition of' total
1959
income ', ' total world income' and· chargeability of c
:--:--
1
.
. .
ommissioner o
total mcome under s. 3 or the prov1s10ns of s. 4 where
Income-tax
in the case of a resident 'total income' includes
v.
income, profits and gains accruing within or without Inda Mercantile
British India. Therefore to say that business in s. 10
Bank, Limited.
means business in British India or business the profits
or gains of which are taxable in British India is to
ignore the definitions and ss. 3, 4 and 6. Section 10 of
the Indian Act does not distinguish between business
in British India and business in an Indian State or so
divide business.
But then it was. said that as the
profits or gains of business in an Indian St.ate were
exempted from payment of tax in British India business in s. 10 must mean business in British India.
That would be straining the language of s. 10 and
would necessitate addition of words in s. 10 which are
not there in the section.
In the course of argument a number of cases of the
various High Courts were cited and criticised.
W c
find it unnecessary to refer to them because we have
indicated above what is the correct sphere of a proviso
and what proviso (i) to s. 24(1) means.
In our view the question referred to the High Court
which is common to the two appeals was rightly
answered in favour of the assessee.
As to the second
question in Civil Appeal No. 260 of 1958 we do not
propose to say anything. It will be open to the
assessee in that appeal to take such steps in regard to
that question as it may be advised.
In the result the appeals fail and are dismissed with
costs.
Appeals dismissed.
Kapur J.