# JY62. M /s~ SooraJmull .Nagai mull v. Commi.s.fiontr pf lncome-ta.t, Calcutt i

- **Citation:** [1962] Supp. 3 S.C.R. 310
- **Court:** Supreme Court of India
- **Decided:** 1962
- **Bench:** S. K. Das, M. Hidayatullah, J.C. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/jy62-m-s-soorajmull-nagai-mull-v-commi-s-fiontr-pf-lncome-ta-t-calcutt-i-2381
- **Pages:** 14

## Headnote

1
Income Tax-Propeedings under s. 24 of the Indian
Income-ta:& Act,-Scope and effect of section and its provisoSet-off of loss-Indian Income-ta:& Act, 1922 (11 of 1922). as
24(1), (2), 14(2) (c), 4(1) (a); (c)l . '
The assessce company carried on a business of manufacture and sale of textile goods. The manufacture was·111ade ac
its mills in Indore which was an Indian State before integra•
tion and had its own law as to income-tax known as the Indore
Industrial 'rax R,;les, 1927.
The sales of textile goods so
manufacttlred wer~ made 'at various places, some inside and
some outside the taxable territories of the then British India.
For and tipfo assessment' year 1949-50 the assessee company
was treated as a pon-resident.
Indore became a part of
the taxable territories within the meaning of the Indian
3 S.C.R.
SUPBE:ME_ COURT REPORTS
311
Tncome-tax Act, 1922 in the two assessment years 1950-51 and
1951-52 and the assessee company was held to be "resident
and ordinarily resi8.ent" wi,thin the meaning of that Act.
Upto the asseisment ,year 1949-50 that part of its profits
which was received by the'assessee company in British India
was s_ubjected to tax together with its other income which
accrued in British India. In making the calculation of busi-.
nesS' profits or loss received or arising in the taxable territories,
a proportion Was struck betWeen the total turnover and its sales
the proceeds whereof were receivfd in the taxable territories.
The assessee company raised· two questions in the_ course of
the assessment proceedings, one of which with regard. to the
entile loss of Rs. 5119,590/- of the year 1948-49
whi~h it
' claimed to set-off against the profits made. in its "busine~s in
the two assessment years.
The a'Ssessee company contCnded
that ihe business was one arid under s. 2-4- it \Vas entitled to
set off the losses which it hlid sustained in- 1948-49;-
:fhe
High i:;ourt decided this question against the assessee compai;iy,
but gave a certif[cate under s. 66A of the .Act.
Held, on app~~J, that the High Gourt,correctly answered·
the question. The pro'Oisions of s. 24 of the Act read with tlie
provisions ins. 4(1) (a) and (c) and s. 14(2)(c) make it clear
that sub-s(l) of s. 24 when it talks of profits or gains has
reference to. iaxab]e profits or tB.xablc gains ; it has no reference
to incorrie accruing or arising withollt t}J.e taxable t.,crritories
which were not liable to be assessed in the case of non-residents.
In determining the natllre of the loss.cs under consi'deration in
these appeals the_ relevant year was 1948-49, the year irt wh\ch
the Ios~es occurred, and·th' High (four! rightly took the View
that for the app!ip>tion of sub-s (2) of s. 24, the losses must be
~uch losses as cpuld have been set-off under ,:;ub-s.( I) o~ s. 24.
Nos.
CIVIL APPELLATE J~ISDICT~oi{: Civil Appeals
149 and 150 of 1961.
.
-
,
Appeals from· the judgment and order dated
September 23, 195~, of the Bdmbay High Court in
I.T.R. No. 86 of the 1957.
"
'
R. J. Kolah, J. B. Da_dachanji, 0. 0. Math'Ur and
Ravinder Narain, for lhe appellants.
•
'
J
K. N. Rajagopala Sastri and D. Gupta, for the
respondent.
·
1961
lndp1t II a/wa Tlnited
Mills Ltd
v.
The Commissioner of
Incum1-tax (Oentral)
. Bombay
1~6t
/ndurt .~!alu:a L·n:·rcd
.\Jilh L~·l.
v.
·rhe <
... :-:i:11mi11,iot;!r 01
/1,(//Tn(-lt,X (c /11:r'1l.
Bombay
'
lJa• J,
312
SUPltE~IE COURT HEPORTS [1962] SUPP.
l!J(i2. February 19. The Judgment of the Court
was dclivt·re<l by. ·
S. K. D.i.s, J.-These are two appeals on a
certific'l.te of fitness granted by the High Cour• of
Ju<lica tu re at Bombay under s. ti6A(2) of the Indian
Income-tax Act, 19:!2. The relernnt facts which
have given rise to them arc shortly stated below.
The Indore !'lfahrn United l\Iills, a limitfd
liability company, is the appellant before us and
will be referred to in this judgment as the assessee
company. Tho respondent i• the Commissioner of
Income-tax(Central), Bombay. The assessec company carried on a business of m1mufactu

## Text

JY62.
M /s~ SooraJmull
.Nagai mull
v.
. Commi.s.fiontr pf
lncome-ta.t, Calcutt..i
Shah J.
1962
FebruaT)' 191 '
'
SlO SUPREME COURT REPORTS (1962] SUPP.
,,
.
the Oovrt or Tribunal is founded.
The Legi.slature
has expressly entrusted th~ powei:- of appraisal of
f!Vidence to the T.axing authorities, and the decision
of those authorities would orqinarily be regarded
as final.
This is not to say that in a proper case
this Court m;i.y not, in the interest of justice. when
occasion demands it, review the evidence. "Tli:e"
power of this Court unde~ Art. 136 is not restricted;
but it is only in very exceptional cases that this
Court enters upon appraisal of evidence in appeals
filed with special leave and this case does not disclose any such exceptional circumstances.
'
On this ground the appeals Nos. 238 and 239
of 1961 filed by the assessees and the Commissioner
against the order of the Tribunal must fail and are
dismissed with costs. One hearing fee.
Appeals dismissed.
INDORE MALWA UNITED MILLS LTD.
v.
THE COMMISSIONER OF INCOME-TAX
(CEN'J."'RAL) BOMBAY
,
...
(S. K. DAS, M. HIDAYATULLAH and J.C. SHAH, JJ.)
1
Income Tax-Propeedings under s. 24 of the Indian
Income-ta:& Act,-Scope and effect of section and its provisoSet-off of loss-Indian Income-ta:& Act, 1922 (11 of 1922). as
24(1), (2), 14(2) (c), 4(1) (a); (c)l . '
The assessce company carried on a business of manufacture and sale of textile goods. The manufacture was·111ade ac
its mills in Indore which was an Indian State before integra•
tion and had its own law as to income-tax known as the Indore
Industrial 'rax R,;les, 1927.
The sales of textile goods so
manufacttlred wer~ made 'at various places, some inside and
some outside the taxable territories of the then British India.
For and tipfo assessment' year 1949-50 the assessee company
was treated as a pon-resident.
Indore became a part of
the taxable territories within the meaning of the Indian
3 S.C.R.
SUPBE:ME_ COURT REPORTS
311
Tncome-tax Act, 1922 in the two assessment years 1950-51 and
1951-52 and the assessee company was held to be "resident
and ordinarily resi8.ent" wi,thin the meaning of that Act.
Upto the asseisment ,year 1949-50 that part of its profits
which was received by the'assessee company in British India
was s_ubjected to tax together with its other income which
accrued in British India. In making the calculation of busi-.
nesS' profits or loss received or arising in the taxable territories,
a proportion Was struck betWeen the total turnover and its sales
the proceeds whereof were receivfd in the taxable territories.
The assessee company raised· two questions in the_ course of
the assessment proceedings, one of which with regard. to the
entile loss of Rs. 5119,590/- of the year 1948-49
whi~h it
' claimed to set-off against the profits made. in its "busine~s in
the two assessment years.
The a'Ssessee company contCnded
that ihe business was one arid under s. 2-4- it \Vas entitled to
set off the losses which it hlid sustained in- 1948-49;-
:fhe
High i:;ourt decided this question against the assessee compai;iy,
but gave a certif[cate under s. 66A of the .Act.
Held, on app~~J, that the High Gourt,correctly answered·
the question. The pro'Oisions of s. 24 of the Act read with tlie
provisions ins. 4(1) (a) and (c) and s. 14(2)(c) make it clear
that sub-s(l) of s. 24 when it talks of profits or gains has
reference to. iaxab]e profits or tB.xablc gains ; it has no reference
to incorrie accruing or arising withollt t}J.e taxable t.,crritories
which were not liable to be assessed in the case of non-residents.
In determining the natllre of the loss.cs under consi'deration in
these appeals the_ relevant year was 1948-49, the year irt wh\ch
the Ios~es occurred, and·th' High (four! rightly took the View
that for the app!ip>tion of sub-s (2) of s. 24, the losses must be
~uch losses as cpuld have been set-off under ,:;ub-s.( I) o~ s. 24.
Nos.
CIVIL APPELLATE J~ISDICT~oi{: Civil Appeals
149 and 150 of 1961.
.
-
,
Appeals from· the judgment and order dated
September 23, 195~, of the Bdmbay High Court in
I.T.R. No. 86 of the 1957.
"
'
R. J. Kolah, J. B. Da_dachanji, 0. 0. Math'Ur and
Ravinder Narain, for lhe appellants.
•
'
J
K. N. Rajagopala Sastri and D. Gupta, for the
respondent.
·
1961
lndp1t II a/wa Tlnited
Mills Ltd
v.
The Commissioner of
Incum1-tax (Oentral)
. Bombay
1~6t
/ndurt .~!alu:a L·n:·rcd
.\Jilh L~·l.
v.
·rhe <
... :-:i:11mi11,iot;!r 01
/1,(//Tn(-lt,X (c /11:r'1l.
Bombay
'
lJa• J,
312
SUPltE~IE COURT HEPORTS [1962] SUPP.
l!J(i2. February 19. The Judgment of the Court
was dclivt·re<l by. ·
S. K. D.i.s, J.-These are two appeals on a
certific'l.te of fitness granted by the High Cour• of
Ju<lica tu re at Bombay under s. ti6A(2) of the Indian
Income-tax Act, 19:!2. The relernnt facts which
have given rise to them arc shortly stated below.
The Indore !'lfahrn United l\Iills, a limitfd
liability company, is the appellant before us and
will be referred to in this judgment as the assessee
company. Tho respondent i• the Commissioner of
Income-tax(Central), Bombay. The assessec company carried on a business of m1mufacture and sale
of textile goods.
The manufacture was made at its
mills in Indore which was Indian State before integration and had its own law as to income-tax
kwiwn all the Indore Industrial Tax Rules, 1927.
'fho sales of texti!o goods. were made at various
places, some inside and some outside the taxable
1.-0rritories of Briti~h India. For and upto the
assessment.year 1949-50 the assesHec company was
treated as a non.resident within the meaning of s.4A
of the Indian Incomo-t1J.x Act,
HJ22.
For tho
aSB~ssment years 1950-:jl, and 1951-5~ which are two
assessment years under consideration, the accow1t
years were the calendar years 1946 and 1950 rsspec·
tively.
Indore became a part of the taxable
territories within the meaning of the Indian Incomo·
tax Act is the two assessment years and the assesseo
company was held to be "resident and ordinarily
res;dent" with the meaning of that Act.
Upto tho
a.asossment year HJ49-50 that part of its profits
which Wad received in British India was subj!'cted
to tax together with it& other incomo which accrued
in British India, namely, interest on sec:urities and
intereet on bank accounts. In the assessmcnta made
for the assessment years Hl48-49 and 19!9-50 the
s s.c.R:
SUPREME COURT REPORTS
313
position of the assessee company was stat~d to be
as follows:
1948-49
Income under the head 'Interest on
securities'
Rs. 1,032
Income under the head 'Other sources'
interest from banks
... Rs. 231
Rs. 1,263
Business loss Rs. l,992/-.
Balance of loss Hs. 729/-
carried forward.
1949-50
Interest on securities
Bank interest
Less : loss of 1948-49 set off
Tota.I income
'·''
Rs. J,023
Rs.
213
Rs. 1,236
Rs.
'129
Rs. 507
----
In ma.king the calculation of business profits or loss
received or arising in the taxable territories, a proportion was struck between the total turn-over of
the a.ssessee company and its sales the proceeds
whereof were received in the taxable territories.
The following table, which is part of the order of
assessment
of 1950-5 l, shows clearly how the
calculation was ma.de.
J96B
Indore Malwa Unit1d
Mills Ltil,
v.
The Commis.5ioner of
1 ncome-tax (Central)
Bombay
Das J,
°'°
Net profit DeprcciaJlusiTotal
Sales for Business profit Other
Total in-
....
of the
tion as per neas
turnover which
considered as
income come for
Assess• company the Indian income of the
proceeds having been
accruing the purpose r:n
ment
before alIncomeof the company wero
received in the in the
of assessCl
"'
year
lowance
tax Act
comreceived taxablo t.erl'itaxable ment under :;;;
of deprcpany
in the
tories(by appor- territbo Indian
l:tj
~
ciation
(Col. 2
taxable
tioning tho
tories
Income-tax .....
l:tj
minus
territories amount in
Act.(Col.7
8
ool.3)
col- 4 in the
plui; col. 8)
Cl
proportion of
:;:;;
col 5 : col. 6)
""3
:;:;;
l
2
3
4
5
6
7
8
9
-
,-,
""
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Ra_
Hs.
0 :;;;
----
·--·-
""3
r:n
1946-47
1,81,71,152 52,68,048
5,05,296
1,854
5,07,lfiO
,..-,
'"'
C>
1947-48
1,45,22,377 5,46,322
~l,028
1,467
22,495 ""
~
w
1948-49 Loss -
I ,57,82,905
60,000
1,992
I ,21i3
729
Cl
""
(loBs)
(loss)
;:i
'
•
\
-
3 S.C.R.
SUPREME COURT REPORTS
315
D11ring the course of the assessment proceedings for
1950-5 l the assessee company claimed lhat it was
en titled to a set off of the entire losses of the
assessm.ent year· 1948-49 which, it was common
ground before the Tribunal, came to Rs. 5,19,590/-,
and not merely the proportionate loss. The assessee company also claimed that the depreciation
allowances of the two years 1948-49 and 1949-50 to
which effect could not be given in those years and
which had, therefore, to be
carried
forward
should be added to the depreciation allowance
of 1950-51 and be set off against the profits and
gains of the assrssee company liable to assessment
in the assessment years in question. It is to be
noted that the assessment of the assessee company
for the assessment years 1948-49 and 1949-50 was
made both under the Indian Income-tax Act and
under the Indore Industrial Tax Rules, Hl27. Now
the assessee company made two claims in the course
of the assessment proceedings for 1950-51. One was
with regard to the loss of Rs. 5,19,590/- and the
assessee company's contention was that it was entitled to set off this loss against the profits made in
its business in that year and it also contended that
it was entitled to carry forward the unabsorbed
depreciation into that year. The first contention of
the assessee company was rejected by the Tribunal
but the second was allowed. Two questions were
then raised, one at the instance of the assessee
company aud the other at the instance of the
Commissioner, dealing with the aforesaid two claims
of the asseessee company.· These two questions
were:
"1. Whether the loss of Rs. 5,19,590/- of
the year 1948-49 is liable to be set off against
the assessee's business income for the assessment years 1950-51 and 1951-52 ?
2. Whether the unabsorbed depreciation
of the years 1948-49 and 1949-50 is liable to
. 1962
Indore ~1 afwa Ui:ited
i:ll tl ls Ltd.
v.
The Commissioner of
Incame-tax ( Genfrill)
Bombay
Das J.
1962
ln~rt JI alu~a Uniltd
.Mi/Ir U<l.
v.
Tiu CommisJiontr of
lnccmt-tox (Ctt1traJ)
Bombay
Dtu J.
316 SUPRE.'.IIE COURT REPOWrs (1962] SUPP.
he set• off against the income of the assessee
for the assessment years 1950-51 and HliH-52."
On being satisfied that aforesaid two questions arose
out of its order, tho income-tax Appellato Tribunal,
Bombay Bench A. referred them to the High Court
of Bombay under s, 66( 1) of the Indian Income·tax
Act.
The High Court answered the first question
against the assesseo company and· the second question in its favour by its judgmont and order dated
September 23, 1958. The assessee company then
moved the High Court for a certificate under s. 66A(2)
of tho Indian Incomn-tax Act with regard to the
answer given by the High Court to the first question and having obtained a certificate of fitness has
preferred the two appeals to this Court. We are
concerned in these two appeals with the correctness
or otherwise of the answer given by foe High Court
to the first question; the second question does not
fall for our consideration.
On behalf of the assessce company s. 24(2) of
the Indian Income-tax Act has been relied on in
support of the claim that the assessoe company is
entitled to carry forward and set off the entire loss
of Rs. 5,19,590/- incurred in the year 1948-49 against the assesseo company's business income for tho
asse~sment yea.rs 1950-51 and 1951-52. .Mr. Kolah
appearing on behalf of the assessce company has
put his argumfnt in the following way.
First
of all, ho has submitted that the Income-tax Officer
wrongly proceeded
011 the footing as though the
assessec company was carrying on two separate
businesses, 011e within the taxable tPrritories and
the other outside them.
lift'. Kolah has contended
that the business was one business within the m(·aning of s. 1\1 of the Indian Income-tax Act and in
the two assessment years in question Indoro
having
become a. part of
the taxable territories. the provisions in sub-s. (2) of s. 24 came into
operation; therefore, the losses whioh the asseSBee
-
-
-
3 s.c.R. SUPREME COURT REPORTS
317
company sustained in 1948-49, being a previous year
not earlier than the previous year mentioned in the
sub-section and the losses not having been set off
under sub-s.(l) of s. 24, the assessee company was
entitled to carry forward the losses and set them
off against the profits and gains of the assessee
company from the same business under any other
head, as the time limit of six years had not expired.
As against this argument, t.he contention on behalf
of the respondent has been that s.24 has no application in thll facts of the present case inasmuch as in
the year 1948-49 in which year the losses had occurred, the assessee company was treated as a nonresident. On behalf of the respondent it has been
submitted that the provisions of s. 24 are applicable
only to profits and gains which are assessable under
the Indian Income-tax Act and in the case of nonresidents who were assessees in British India or in
the taxable territories.
The claim to set off is only
allowable in respect of loss of profits or gains incurred by the non-residents under any of the heads
mentioned in s. 6, and s. 24 is applicable only to
such loss
of profits and gains which if they
had been profits and gains would have been
assessable in British India or the taxable territories.
It is contended that in the case of non-residents,
income accruing or arising without British India or
without taxable territories is not liable to be assessed and t.he loss of such profits and gains is not
contemplated to be set off within the provisions
of sub-ss. (1) and (2) of s. 24 of the Indian Incometax Act.
Before we consider these contentions it is
necessary to set out the material provisions of the
Indian Income-tax Act as they stood at the relevant
time.
"4. (1) Subject to the provisions of
this Act, the total income of any previous
year of any person includes all income, profits and gains from whatever source derived
1162
Indore M alwa United
Mills Ltd.
v.
The Commi8sioner of
IncomeaTax (Centra{)
Bamba~
Das J.
J9Gt
lndort Malu·a Uniftd
M i//s LJd
..
Tht Comn1ij.iionrr 11f
ln<Omt-Ttu. : C'tn'ral)
Bomiay
Vas J.
318 SUPREME COURT REPORTS (1962] SOPP.
which-
( a) aro received or deemed to be receivod in British India in such year by
or on behalf of such perRon, or
(h) x
x
x
x
(c)
if Auch person is not resident in
Briti8h India during suoh yeur, accrue
or arise or are deemed to accrue or
arise to him in British India dnring
such year:
14, (I)
(2)
x
x
x
x
x
x
The tax shall not be payable by an
asscssee~
(al x
x
x
(b} x
x
x
(cl in respect of any income, profits or
gains 1tccruin!! or 1trising to him within an Tn<lian State, unless such income,
profitA or gains are received
or
decmPcl to be rPceived in or are
brought intn Rritish India in the previous year by or on behalf of the
nssessce, or arc asseBBable unrl<'r section 12R or8cction 42.
24. (I) Where any assessec sustains loss of
profits or gains in any year under any of the heads
mentioned in Bectiou (i, hn shall be entitled to
ha v<' the amount of tho loss set off against his
income, profits or gains under any other head in
that year :
Provided that, where tho loss sustained is a
loss of profit,; or gains which would but. for the loss
hnvc accrued or arisen within an Indian State and
woulcl, under the prcn·i8ions of elause (c) of eubRection (2) of section 14, have been exempted from
tax, such lo8S
sh~ll not be set off except against
profits or gains accruing or arising within an Indian
-
-
3 S.C.R.
SUPREME COURT REPORTS
319
State and exempt from tax under the said provisions.
x
x
x
(2) Where any assessee sustains a loss of
profit .or gains in any year, being a previous
year not earlier than the previous year for
the assessment for the year ending on the 31st
<lay of March, 1940, under the head "Profits and
gains of business, profession or vocation", and the
loss cannot be wholly set off under sub-section (1)
the portion not so set off shall be carried forward
to the following year and set off against the profits
and gains, if any, of the assessee from the same
business, profession or vocation for that year; and
if it cannot be wholly so set off, the amount of loss
not so set off shall be carrie.d forward to the following year, and so on; but no loss shall be so carried
forward for more than six years:
Provided that-
( a) Where the loss sustained is a loss of
profits and gains of a business, profession ·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 Joss shall not be set off
except against profits and gains accruing or arising·
in an Indian State from the same business, profession or vocation and exempt from tax under
the said provisions;
(b) \Vhere depreciation allowance is, under
. clause (b) of proviso to clause (vi) of sub-section
(2) of section 10, also to be carried forward, effect
shall be given to the provisions of this sub-section;
x
x
x ."
It may perhaps be stated here that Mr. Kolah
has placBd no reliance on the provisions of the
Taxation Laws
(Part B States) (Removal of
1!62
Indore Motwa United
Mill< Ltd
v.
The Commiss1"ont" of
Income-Tax (Cent1ol)
Bombay
Das J.
19~2
lndort Jtarwa UnitJrf.
.\Ii/ls fJd.
v.
Tf.1 Commfs_rinflt' o/
fnC{)mt· rax (~ntral)
Bombay
D~sJ.
320 SUPREME COURT REPORTS [1962] SUPP.
Difficulties) Order, 1950. Clause 3 of the said Order
provides that losses suffered in Indian States oan
bo carried forward and set off only if under the
8t~te law they could be so carried forward or set
off.
Admittedly, under the Indore Industrial Tax
Rules, 1927 there was no provision for the carrying
forward of lossPs; therefore, cl. 3 of the Taxation
Laws (Part R States)(Removal of Difficulties)
Order, l!lGO was of no assistance to the assessce
company. This view of the High Court has not
been contested before us and wo need, therefore,
make no further reference to this aspect of the
case.
The answer to the question which we have to
consider depends on the true scope !\lld effect of
s. 24 of the Indian Income-tax Act.
Under the
Indian Income-tax Act, 1922, assessees are divided
into three categories: (a) resident and ordinarily
resident, (b) rcRident but not ordinarily resident,
and (c) not resident.. We are concerned in the
prPsent case with an assessee who in the year in
which the loss which is sought to be carried forward
occurred, was a non-resident. Sub-section (l} of
s. 4, the material port inn of which we have quoted
earlier, states that pc1s1_,ns who are not resident
in India are liable t.o charge ullller cl. (a) or cl.(c}
of the said sub-section. Thoy may be taxed under
cl. (a} on income received or deemed to be received
in India even if it acrrues elsewhere, or under rl.( c)
on income which accrues or arises or is deemed to
acoruo or arise in India oven if it is receiv<'d elsewhere.
The liability to t.ax in rnopect of income
received in India is common to both resident;i and
non-residents 11nd is imposed by the general clause
(a).
A non-resident, unlike a
rcsi<lent, is not
chargeable in r<'spect of incorn<> accruing or arising
without India and not receh·ed in India. Section
14(2} (c), which is now deleted, had great importance when Rritif'h Ind\a was distinct from Indian
States, because it exempted income which accrued
•
.
.
.
-~-
:3 s.c.R.
SUPREME COURT REPORTS
or was received in the Indian Stcttes but was not
brought into British fnrlia.
Tim deletion of this
clause became inevitable upon the m<·rger of the
Indian States. This clause
which waH inHerted
in 194 l exempted income accq1ing or arising withiu
the Indian States; but the exemption did not apply
if the income was received or deemed to be reee;v<d
in or was brought into the taxable territories in
the previous year by or on behalf of the assessee
or if the income was assessable under s. 128 ors. 42.
The position, therefore, was that losses made in
British India could not ·be reduced by adjusting
against them the profits in the Indian 8tates which
were exempted under the clause, but the income
exempted from the clause had, however, to be
included in the assessee's total income for tho purpose of determining the ra.te
applicable to his
. taxable income. But so far as a non-resident was
concerned the clause had no application, because a
non· resident was not chargeable in respect of
income accruing or arising without India and not
received in India. Now, we come to s. 24, subss.(l} and (2) with the provisos appended thereto
which we h,ave.quoted earlier in this judgment. It
appears that prior to 1950 profits accruing in the
Indian States, later called Part B
States, were
exempt from tax under s. 14(2)(c), unless they were
received in or brought into the territories then
referred to as British India or were assessable under
s. 128 ors. 42.
The first proviso to sub-s.(l) as it
stood at the relevant time dealt with losses accruing in the quondam Indian States _and provided
that losses incurred in the Indian States should be
set off only against profits accruing in the Indian
States.
This was a reasonable provision, because
an assessee who was not liable to tax in respect of
his profits arising in the Indian States could not be
allowed to set off his losses incurred in the Indian
States against his profits arising in British India.
Similarly, cl.(R.) of the proviso to sub-s. (2) enacted
that losses incurred in an Indian State could be
I96t
Ind ire Ma/wo Uni e
Milla Lti.
v.
The C ommi.ssioner n f
lncome:..1·ox (CentrdJ)
Bombay
l.Jas J.
1962
/nd-0r1 ,,falwa ffnittd
Mills Ltd.
••
Tht Commisjione•.nf
lricomt'" Tox (Ct11halj
Bomba)·
DuJ.
g22 SUPREME COuRT REPoRTS [1962) SUPP.
carried forward and set off only againRt profits accruing in 11.n Indian State from the same business in a
subsequent yrac. Tht· aqrnment on behalf of the
rrspondent is that so far as a non-rrsidcnt is eonccmcd, he is not durgeabl<> in respect of inC'ome
accruing or arising without India and not received
in India.
The1efore, in his case it is unnecessary
to go to the provisos, buts. 24 itself has no appi'ication because sub-s. ( 1) of s. 24 when it rcforn to
loss of profits or gains, has reference to taxable
profits er taxable gains and sub-s.(2) of s. 24 can
only Le applied in a case where the loSB cannot be
set off under sub-s.( I) because of the absence or
inadequacy of profits t'tc.
In other words,
the
argument is thats. 24. is applicable only to such
loss of profits and gains which if they had been
profits and gains would have been assessable in
British India or the taxable territories; but in t.he
case of non-resident;;, income accruing or arising
without British India or without the taxable territories not being liable to Le assessed, the loss of
such profits and gains is not contemplated to be set
0ff within the provisions of s. 24, su b-ss. (I) and
(2) •
. . \fr. Kolah has pointed out that sub-s.(2) of
s. 24 as also sub-s.( I) talk of "any assessee" and he
has argued that there is no reason why the provisions of sub-a.( 2) of s. 24 should not be applicahlP
to a non-resident assessee. He has fur.ther argued
that whatever might have been the effect of the
provisos in l!J48-49, in 1950-51 Indore becam0 part
of the taxable. territories and the asse~ee company
became entitled to carry forward the losses up to
six years and there is nothing ins. 24(2) to prcYrnt.
him from making the claim. We are unablt· to
accept this argumc~t as
corre_c~. R'. ading the
provisions in s. 24 with the provrn10ns m s.4( I )(a)
ands. l4(2)(c) it seems clear to us thats. (24)(1)
when it talks of profits or gains has reference to
• .Ji
..
--
r
3 s.C.R.
stiPREME couRT REP61its
taxable profits or taxable gctins; in other words, it
has
reference to such profits
and gains
as
would have been assessable in British India or the
taxable territories. It has no reference to iucome
accruing or arising without British. India or without
the taxable territories which were not liable to be
assessed in the case of non-residents.
We are
further of the view that for determining the nature
of the losses under consideration in the present
appeals, the relevant year was 1948-49, the year in
which the losses occurred and the High Court
rightly took the view that for the application of
sub-s. (2) of s. 24, the losses must be such losses as
could have been set off under sub-H.( l) of s. 24.
We agree with the .view expressed by the High
Court that the loss amounting to Rs. 5,19,590/- was
not such a loss as could have been set off either
under sub-s. ( 1) or sub-s. (2) of s. 24.
We have, therefore, come to the conclusion .
that the High. Court correctly answered the question which was referred to it.
Accordingly, the
appoals fail and are dismissed with costs, one hearing fee.
Appeals di,smissed.
luJort Malwa United
Millr Ltd,
v.
The Commissio1t1r oj
!neorne .. tax (Central)
Bom6ay
D«s J.