Case: The Commissioner Of Income-Tax,Mysoretravancore-Cochin And Vs. The Indo Mercantile Bank, Limited(And Connected Appeal)

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 1946 AC 32).11.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.12. It was then submitted that in the proviso the words used were "where the loss sustained is a loss 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 construction 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 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." That proviso shows that where the Legislature wanted to restrict the losses and profits or gains to business alone they specifically said so. It is significant that in section 2(13) and (5) of the Indian Act of 1918 corresponding to sections 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 Commr., of Income-tax v. Shaw Wallace and Co., 59 Ind App 206 at p. 212: (AIR 1932 PC 138 at p. 140) 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 Commr. of Income tax, Bengal v. Mercantile Bank of India Ltd., 63 Ind App 457 at p. 471: (AIR 1936 PC 238 at p. 241). See also London Country Council v. Attorney-General, 1901 AC 26.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.13. 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, 1950-18 ITR 75 : (AIR 1950 AII 270) and Raghunath Parshad ;. Commr. of Income-tax, (1955) 28 ITR 45. There it was held that S. 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 argument does not take note of the definition of total income, 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. Therefore to say that business in S. 10 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 State 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.14. In the course of argument a number of cases of the various High Courts were cited and criticised. We 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.15. 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.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]9. 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 taxability 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. Commr. of Income-tax, 63 Ind App 233 at p. 241: (AIR 1936 PC 133   at p. 136) 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 bead. Sir George Rankin said at p. 241 (of Ind App): (at p. 136 oftheir 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 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.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 he 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 Anglo-French Textile Co. Ltd., v. Commr. of Income-tax, Madras, 1953 SCR 448   at p. 453: (AIR 1958 SC 111 at p. 113) again emphasised that distinction in the followinga set off under section 24(1) can only be claimed when the loss arises under one head and the profit 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 Boseit 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 introduce 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 determining profits and gains of the business of any resident. We should be averse to lend any countenance to such a mode of construing a proviso unless the language used expressly or by necessary intendment leads to that conclusion.The per function of a proviso is that it qualifies the generality of the 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.