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PETITIONER: COMMISSIONER OF INCOME-TAX,AHMEDABAD

       Vs.

RESPONDENT: KARAMCHAND PREMCHAND LTD.,AHMEDABAD.

DATE OF JUDGMENT: 28/04/1960

BENCH: DAS, S.K. BENCH: DAS, S.K. KAPUR, J.L. HIDAYATULLAH, M.

CITATION:  1960 AIR 1175            1960 SCR  (3) 727  CITATOR INFO :  R          1962 SC1272  (9)  R          1970 SC1173  (26)  R          1975 SC1282  (13)

ACT: Income-tax-Set-off-Business loss in Indian State-Profits  in British India-Applicability of the Act to business in Indian State Business profits Tax Act, 1947 (21 Of 1947), SS. 2(3), 4, 5.

HEADNOTE: The  assesses held the managing agency of a limited  company in  what  was  then called " British India and  had  also  a pharma 728 ceutical  business  in  the Baroda State which  was  at  the relevant  time  an Indian State.  The  business  in  British India showed profits assessable under the provisions of  the Business Profits Tax Act, 1947, but the business carried  on in  Baroda  resulted in a loss, in the  relevant  chargeable accounting  periods  between  1946  and  1949.   Before  the Income-tax  authorities the assessee claimed that  the  loss suffered by it in its business in Baroda should be  deducted in computing its business income liable to business  profits tax,  but this claim was rejected on the ground that  though under s. 5 Of the Act, if it stood by itself without any  of the  provisos,  the Act would be applicable  to  the  Baroda business, the third proviso had the effect of excluding that business  from the purview of the Act, except in so  far  as the  income, profits or gains of the business were  received or deemed to be received in or brought into British India: Held,  that the effect of the third proviso to s. 5  of  the Business  Profits  Tax Act- 1947, was merely to  exempt  the income, profits and gains of the Baroda business except when they  were received or brought into British India,  but  the business  itself  was one to which the  Act  was  applicable under the substantive part Of s. 5. Consequently, the losses of the business could be set off against the profits of  the business in British India. The relevant provisions of the Act are set out in the  judg- ment.

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JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 304 of 1958. Appeal from the judgment and order dated September 7,  1956, of  the Bombay High Court in Income-tax Reference No. 19  of 1956. C. K. Daphtary,Solicitor-General of India,K. N.    Rajagopal Sastri and D. Gupta, for the appellant. N.   A. Palkhivala and S. N. Andley, for the respondent. 1960.  April 28.  The Judgment of the Court was delivered by S.K.  DAS, J.-This is an appeal on a certificate of  fitness granted by the High Court of Bombay, and the short  question for  decision  is  the true scope and effect  of  the  third proviso  to s. 5 of the Business Profits Tax Act, 1947  (Act No.  XXI of 1947), hereinafter referred to as the Act.   The appellant is the Commissioner of Income-tax, Ahmedabad,  and the  respondent is a private limited company under the  name and  style  of Karamchand Premchand Ltd., Ahmedabad,  to  be called hereafter as the assesses. 729 The  relevant  facts  are  these :  the  assessee  held  the managing  agency of the Ahmedabad Manufacturing  and  Calico Printing Co. Ltd.  It also had a pharmaceutical business  in the  Baroda State, which was at the relevant time an  Indian State run in the name and style of Sarabhai Chemicals.   The assessee’s  business in India (we shall use  the  expression India in this judgment to mean British India as it was  then called  in  contra-distinction to an  Indian  State)  showed business profits assessable under the provisions of the Act; but  the  business  carried  on in the  name  and  style  of Sarabhai  Chemicals in Baroda showed a loss in the  relevant chargeable  accounting  periods which were four  in  number, namely: (1) April 1, 1946, to December 31, 1946; (2) January 1,  1947,  to  December 31, 1947; (3) January  1,  1948,  to December  31, 1948 ; and (4) January 1, 1949, to  March  31, 1949.   The assessee claimed that its assessable  income  in India  should be reduced by the loss suffered by it  in  its business  in  Baroda.  The Income-tax Officer  rejected  the claim of the assessee and held that the Act did not apply to the  business carried on in an Indian State  unless  profits and  gains of that business were received or deemed to  have been  received  in  or brought into India.   On  appeal  the Appellate  Assistant Commissioner upheld the  contention  of the assessee and allowed the appeal.  The Department went up in  appeal to the Appellate Tribunal, which held that  under the relevant proviso to s. 5 of the Act, profits and  losses of  a business in an Indian State were not to be taken  into consideration  unless they were received or deemed  to  have been received in or brought into India.  In that view of the matter  the  Tribunal set aside the order of  the  Appellate Assistant  Commissioner and restored that of the  Income-tax Officer.   The  assessee  then moved  four  applications  in respect of the four relevant chargeable accounting  periods, and by these applications the assessee required the Tribunal to state a case to the High Court of Bombay on the  question of   law  which  arose  out  of  its  order.    These   four applications  were  consolidated.   The  Tribunal  on  being satisfied  that a question of law arose out of its order  in the four cases numbered as 85, 86, 87 730 and 88 of 1953-54, referred that question to the Bombay High Court in the following terms: " Whether on the facts and in the circumstances of the  case

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the  loss  suffered  by  the assessee  in  the  business  of Sarabhai  Chemicals  should  be deducted  in  computing  the business  income of the assessee company liable to  business profits tax ?" The High Court answered the question in the affirmative  and came  to  the conclusion that the assessee was  entitled  to deduct the losses incurred by it in its Baroda business  and set  them  off  against  the profits  made  in  the  taxable territories.   The appellant then moved the High  Court  and obtained a certificate of fitness.  On that certificate  the present appeal has come to us. The  main contention on behalf of the appellant is that  the High  Court came to an erroneous conclusion with  regard  to the  true scope and effect of the third proviso to s.  5  of the  Act.   It  is necessary here to refer to  some  of  the provisions of the Act to understand its general scheme.   In 1940  the Central Legislature passed the Excess Profits  Tax Act,  1940 (Act No. XV of 1940), to impose a tax  on  excess profits  arising out of certain businesses.  We  shall  have occasion to refer to some of the provisions of that Act,  in due course.  For the purposes of that Act, the expression  " chargeable  accounting  period " meant  (a)  any  accounting period falling wholly within the term beginning on September 1,  1939,  and ending on March 31, 1946, and (b)  where  any accounting period fell partly within and partly without  the said  term,  such  part of that accounting  period  as  fell within the said term.  It may be here stated that originally the term was from September 1, 1939, to March 31, 1941,  but by  several annual Finance Acts the term was extended up  to March 31, 1946. In  1947  came  the Act in  which  "  chargeable  accounting period" means: (a)  any  accounting period falling wholly within  the  term beginning  on April 1, 1946, and ending on March  31,  1949, and (b)  where  any  accounting period falls partly  within  and partly without the said term, such part 731 of that accounting period as falls within the said term. The Act extended to the whole of India.  The word  business" is  defined  in s. 2(3) of the Act as including  any  trade, commerce  or  manufacture, etc., the profits  of  which  are chargeable  according  to  the provisions of s.  10  of  the Indian  Income-tax  Act, 1922.  There are two  provisoes  to this definition clause, and the second. proviso states  that all  businesses to which the Act applies carried on  by  the same  person  shall  be  treated as  one  business  for  the purposes  of the Act.  The expression " taxable profits"  is defined under s. 2(17) of the Act and it means the amount by which  the  profits during a  chargeable  accounting  period exceed  the  abatement in respect of that period.   What  is meant by " abatement" is defined in s. 2(1) of the Act.  The charging section is s. 4 and we may read that section  here, so  far  as  it is relevant for our  purpose,  in  order  to understand the general scheme, of the tax imposed under  the Act. " S. 4. Charge of tax-Subject to the provisions of this Act, there  ;hall  in respect of any business to which  this  Act applies,  be  charged,  levied and paid  on  the  amount  of taxable  profits during any chargeable accounting period,  a tax  (in  this Act referred to as " business  profits  tax") which shall, in respect of any chargeable accounting  period ending on or before the 31st day of March, 1947, be equal to sixteen and two-third per cent, of the taxable profits,  and in  respect  of any chargeable accounting  period  beginning

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after  that date be equal to such percentage of the  taxable profits as may be fixed by the annual Finance Act." Shortly  stated,  the  scheme  is that  in  respect  of  any business  to which the Act applies, there shall be  charged, levied  and paid a tax called "business profits tax" on  the amount  of  the  taxable profits,  which  means  the  amount exceeding  the abatement, during any  chargeable  accounting period; the tax shall be equal to sixteen and two-third  per cent.  of the taxable profits in respect of  the  chargeable accounting period ending on or before March 31, 1947, and in respect  of  any charge. able accounting period  after  that date, the tax shall 732 be equal to such percentage of the taxable profits as may be fixed by the annual Finance Act.  Then comes s.   5 which is the section dealing with the application of  the Act and  it is in these terms: S.  5.  Application  of Act-This Act shall  apply  to  every business  of which any part of the profits made  during  the chargeable accounting period is chargeable to income-tax  by virtue  of  the provisions of sub-clause (i)  or  sub-clause (ii)  of  clause (b) of subsection (1) of section 4  of  the Indian  Income-tax Act, 1922, or of clause (c) of that  sub- section: Provided  that this Act shall Dot apply to any business  the whole  of the profits of which accrue or arise  without  the taxable territories where such business is carried on by  or on  behalf  of a person who is resident but  not  ordinarily resident  in the taxable territories unless the business  is controlled in India: Provided further that where the profits of a part only of  a business  carried on by a person who is not resident in  the taxable territories or not ordinarily so resident accrue  or arise  in  the taxable territories or are deemed  under  the Indian  Income-tax  Act, 1922, so to accrue or  arise,  then except where the business being the business of a person who is  resident  but not ordinarily resident,  in  the  taxable territories  is  controlled in India, this Act  shall  apply only  to such part of the business and such part  shall  for all  the  purposes of this Act be deemed to  be  a  separate business : Provided  further  that  this Act shall  not  apply  to  any income,  profits  or gains of business accruing  or  arising within  any part of India to which this Act does not  extend unless such income, profits or gains are received in or  are brought  into  the  taxable territories  in  any  chargeable accounting period, or are assessable under section 42 of that Act." We  have  read  the  section  as  it  stands  to-day.    The expression  "  taxable territories " in  the  provisoes  was substituted for " British India " by the Adaptation of  Laws Order,  1950, and the third proviso originally  referred  to any income, profits or gains of business accruing or %rising within "an Indian State"; then 733 the expression " a Part B State " was substituted, but  this was  again changed by the Adaptation of Laws (No. 3)  Order, 1956,  and  the present expression " any part  of  India  to which  this Act does not extend " was introduced.   For  the purposes  of this appeal nothing turns upon  these  changes, and  we  may  read the third proviso  as  referring  to  any income,  profits or gains of a business accruing or  arising in  an  Indian  State.   Section  6  deals  with  relief  on occurrence of " deficiency of profits " an expression  which is defined in s. 2(7) of the Act.  The rest of the Act deals

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with  matters,  such  as issue  of  notice  for  assessment, assessments, profits escaping assessment, penalties, appeal, etc.,  with  which  we are not directly  concerned  in  this appeal. Now,  ss.  4 and 5 of the Act make it quite clear  that  the unit of taxation is the business, that is, any busi. ness to which the Act applies; and if a person carries on more  than one  business  to  all of which the  Act  applies,  all  the businesses carried on by the same person shall be treated as one business for the purposes of the Act.  Section 5, in its substantive  part, states to which business the Act  applies and says that the Act applies to every business of which any part  of the profits made during the  chargeable  accounting period  is  chargeable  to  income-tax  by  virtue  of   the provisions of sub-cl. (i) or sub-cl. (ii) of cl. (b) of sub- s.  (1) of s. 4 of the Indian Income-tax Act, 1922,  or  el. (c)  of  that  sub-section.  A reference  to  the  aforesaid provisions of the Indian Income-tax Act, 1922, shows at once that in so far as they concern the present assessee s. 5  in its  substantive  part  makes  the  Act  applicable  to  his business  whether  the profits of the  business  accrued  or arose  in India or Baroda ; and this is so in spite  of  the fact  that the Act extended only to India.  Indeed,  learned counsel  for the appellant has conceded that bad s. 5  stood by itself without any of the provisoes, the Baroda  business of the assessee would have come within the wide ambit of  s. 5  and  the Act would be applicable to that  business.   His contention,  however,  is  that the third  proviso  has  the effect  of excluding the Baroda business from the pur.  view of the Act, except in so far as the income, profits or gains of that business are received or deemed to 95 734 be  received  in or brought into India.  On  behalf  of  the assessee  the argument is that in its true scope and  effect the  third  proviso has merely the effect of  exempting  the income, profits or gains of the Baroda business except  when they  are received or brought into India, but  the  business itself  is  not excluded from the purview of  the  Act;  the business  is  still one to which the Act applies  under  the substantive  part of s. 5 and as the third  proviso  exempts income,  profits  or gains only, the losses  of  the  Baroda business can be set off against the profits of the  business in India. These  are the two main rival contentions which we  have  to consider in this appeal.  Now, let us examine a little  more closely ss. 4 and 5 of the Act.  We have stated earlier that s.  4  is the charging section, which levies a  tax  on  the amount  of taxable profits during any chargeable  accounting period, in respect of any business to which the Act applies. The  corresponding  section in the Excess Profits  Tax  Act, 1940,  was  also  s. 4 thereof, which levied a  tax  on  the amount by which the profits during any chargeable accounting period  exceeded  the  standard  profits  inrespect  of  any business  to  which  that Act  applied.   Under  the  Excess Profits  Tax  Act,  1940, as also under the  Act  under  our consideration,  the unit is the business-business  to  which the Act applies.  For the application of the Act we have  to go to s. 5. We have pointed out that s. 5 in its substantive part makes the Act applicable to every business of which any part of the profits is chargeable to income-tax by virtue of the provisions of sub-cl. (1) or sub-cl. (ii) of el. (b)  of sub-s. (1) of s. 4 of the Indian Income-tax Act, 1922,  and, thus makes the Act applicable to the Baroda business of  the assessee.  The question then is-does the third proviso to s.

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5  exclude  that business except in so far  as  the  income, profits or gains of that business are received or deemed  to be  received in or are brought into the taxable  territories in  any chargeable accounting period ? If that is  the  true scope and effect of the third proviso, then the appellant is entitled to succeed.  If, on the contrary, the third proviso merely  makes  the Act inapplicable to  income,  profits  or gains of the Baroda business unless such income, profits  or gains are 3 received or deemed to be received in or are brought into the taxable territories, but does not exclude the business  from the  purview  of ss. 4 and 5, then the answer given  by  the High Court is correct. The  High Court has stated that whichever view is taken  the third  proviso leads to certain difficulties, and in a  case where  much  can be said on both sides, the benefit  of  any ambiguity  of  language must be given to the  assessee.   We agree  with  the High Court that the question is  not  quite free from difficulty; but on the language of the proviso  as it stands, the answer given by the High Court appears to  us to be the correct answer. It  is not the case of the appellant that the first and  the second  provisoes to s. 5 apply to the facts of  this  case. But  it is significant to note the phraseology of these  two provisoes  and  contrast them with the third  proviso.   The first proviso says:- " Provided that the Act shall not apply to any business  the whole  of the profits of which accrue or arise  without  the taxable territories, etc." The  language  is  clear  enough  to  exclude  the  business referred to therein from the purview of the Act.  Similarly, the second proviso excludes under certain circumstances part of  a business and uses appropriate language to give  effect to  that  exclusion.   By a legal fiction  as  it  were,  it divides  a  business into two parts, one separate  from  the other,  and  makes the Act applicable to one of  them  only. Unlike  the other two provisoes, the third proviso does  not use  the language of exclusion in respect of  any  business. What  it takes out of the ambit of the Act is merely  the  " income,  profits and gains " of a particular business.   The language  is thus more apt to effectuate an  exemption  from tax  of ,income, profits or gains" rather than an  exclusion of  the business from the purview of the Act.  On behalf  of the  appellant  it  is contended that  such  a  construction results in this anomaly that if the income, profits or gains are  not  brought into India, they escape tax  and  yet  the losses  of a business which is outside India are taken  into consideration  in  computing the profits,  etc.,  in  India. This,  it is argued, could not have been the object  of  the legislature in 736 enacting  the  third  proviso to s. 5 of  the  Act.   It  is contended that the object was to exclude the business in  an Indian  State as also the income, profits or gains  thereof, unless such profits, etc., were received in or brought  into India.   This  argument is not devoid  of  plausibility  and requires careful consideration. We  may here refer to the relevant provisions of the  Excess Profits  Tax  Act,  1940.   Section 5 of  that  Act  in  its substantive part and the first and second provisoes  thereto were worded in identical language, but the third proviso  to s.  5 of the Excess Profits Tax Act, 1940, was worded  quite differently from the third proviso to s. 5 of the Act.   The third  proviso to S. 5 of the Excess Profits Tax Act,  1940,

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stated: "  Provided  further that this Act shall not  apply  to  any business  the whole of the profits of which accrue or  arise in  a  Part B State, and where the profits of a  part  of  a business accrue or arise in a Part B State, such part shall, for  the  purposes  of this provision, be  deemed  to  be  a separate  business the whole of the profits of which  accrue or  arise  in  a Part B State, and the  other  part  of  the business shall, for all the purposes of this Act, be  deemed to be a separate business." The language used was clearly one of exclusion, and it  said that  the  Excess Profits Tax Act was not  applicable  to  a business  the profits of which accrued or arose in a Part  B State.  Why then did the legislature use different  language in  the third proviso to s. 5 of the Act?  On behalf of  the appellant it has been submitted that the change in  language is  deliberate and the reason for the change is to make  the income, profits or gains of a business accruing in an Indian or  Part B State liable to tax when such income, profits  or gains are brought in India while under the third proviso  to a. 5 of the Excess Profits Tax Act, they were not liable  to tax  even when they were brought into India.  On  behalf  of the assessee, however, it has been submitted that the change in  language is due to a different reason  altogether.   The third  proviso to s. 5 of the Excess Profits Tax Act,  1940, and s. 14(2) (c) (now deleted) of the Indian Income-tax Act, 1922,  were  enacted at about the same time, and  the  broad object of both the 737 provisions was to exclude profits of a business in an Indian or  Part  B State from charge of tax; but under  the  Excess Profits Tax Act, 1940, such profits were not chargeable even if received in or brought into India whereas under s.  14(2) (c)  of  the  Indian  Income-tax  Act  such  profits  became chargeable  to  tax if received in or  brought  into  India. This  difference, learned counsel for the  assessee  states, was no doubt done away with by the change in language of the third proviso to s. 5 of the Act; but the change in language did  something  more, because it  assimilated  the  position under  the proviso to that under s. 14(2) (c) of the  Indian Income-tax Act, namely, that though profits of a business in an Indian State cannot be taxed unless they are brought into the  taxable  territories, yet the losses  incurred  can  be adjusted  in  computing  the profits of the  business  as  a whole.   Learned counsel for the assessee has relied on  the decision  of  this  Court  in  Commissioner  of  Income-tax, Mysore, Travancore-Cochin and Coorg v. Indo-Mercantile  Bank Ltd.  (1)  and  the decisions of the Bombay  High  Court  in Commissioner   of  Income-tax,  Bombay  City  v.   Murlidhar Mathurawalla  Mahajan Association (2 ) and  Commissioner  of Excess Profits Tax, Bombay City v. Bhogilal H. Patel, Bombay (3  ).  The first two decisions cited above  considered  the effect  of  s.  24 (1), Indian Income-tax  Act,  1922,  with special reference to the first proviso thereto (as it  stood at the time relevant therein) and its impact on s. 10 of the said  Act.  It was held that sub-s. (1) of s. 24 dealt  only with  set-off of loss under one head against  profits  under any other head, and therefore the old first proviso to  sub- s. (1) of s. 24 applied and barred the right of set-off only where  a loss in the Indian State was sought to be  set  off against Indian profits under any other head; where, however, the assessee sought to set off his loss in the Indian  State against his Indian profits under the same head, e. g.,  set- off  of loss incurred in a business carried on in an  Indian State  against the profits of the same or  another  business

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carried  on  in  India, the proviso did not  apply  and  the assessee was entitled to such set-off under s. 10 (1) [1959] Supp. 2 S.C.R. 256.  (2) [1948] 16 I.T.R. 146. (3) [1952] 21 I.T.R. 72. 738 of  the  Indian  Income-tax Act.  Learned  counsel  for  the assessee has submitted that the same principle applies  with regard  to  the third proviso to s. 5 of the  Act.   Learned counsel  has  submitted that as under s. 10  of  the  Indian Income-tax Act, different businesses constitute one head and in  order to determine what are the profits and gains  of  a business under s. 10 an assessee is entitled to show all his profits and set off against those profits losses incurred by him,  in the same head; so also under s. 5 of the  Act,  the Baroda  business of the assessee is within the ambit of  the Act,  though  the  income,  profits  or  gains  thereof  are excluded  by the third proviso unless they are  received  or brought  into India.  He has pointed out that  the  position under  the  Excess  Profits Tax Act was  different,  as  was explained  in  Bhogilal Patel’s case (1) where  the  learned Chief Justice said: " This contention of Mr. Kolah is based on the language used in  the proviso, namely, that ’this Act shall not  apply  to any  business  the whole of the profits of which  accrue  or arise  in  an  Indian  State’.   Now,  this  contention   is obviously fallacious, because the proviso does not say  that the  Act shall not apply to the profits of a business  which accrue  or arise in an Indian State.  What the proviso  says is that the Act shall not apply to any business the whole of the profits of which accrue or arise in an Indian  State.The expression  "the  whole of the profits of  which  accrue  or arise  in an Indian State’ is an expression which  indicates the  nature  of  the business which  is  excluded  from  the purview or ambit of the Act". Now,  the  third  proviso to s. 5 of the Act  uses  not  the phraseology  of  the Excess Profits Tax Act,  but  the  very phraseology  which  according to the learned  Chief  Justice would have made all the difference.  Learned counsel for the assessee has argued, and we think it has considerable force, that  the legislature had before it the language used in  s. 14  (2)  (e) of the Indian Income-tax Act and  it  knew  the effect of those provisions and it used the same language  in the third proviso to s. 5 of the Act.  If the object of  the legislature  was  to exclude the business  itself  from  the ambit (1)  [1952] 21 I.T.R. 72. 739 of the Act while taxing the profits which were brought  into the taxable territories, then it used language which  failed to achieve that object. On behalf of the appellant it has been pointed out that  the expression  used in the third proviso to s. 5  is  "Provided further that the Act shall not apply to any income,  profits or  gains  of  a  business, etc." It  is  argued  that  this language,  (namely, that the Act shall not apply) is apt  to exclude from the purview of the Act business the profits  of which  accrue or arise in an Indian State, except in so  far as  such profits are brought into the  taxable  territories. In support of this argument a reference has been made to  s. 4 (3) of the Indian Income-tax Act as it stood prior to 1939 and  reliance is placed on the decisions in Commissioner  of Income-tax,  Madras  v.  M.  P.  T.K. M.  M.  S.  M.  A.  B. Somasundaram  Chettiar (1) and" Commissioner of  Income-tax, Bombay  v. The Provident Investment Co. Ltd.(2). It is  true that s. 4(3) of the Indian Income-tax Act, as it stood prior

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to  1939, said that this Act (meaning the Indian  Income-tax Act,  1922) shall not apply to certain classes of income  ", and  in the two decisions cited it was held that the word  " business  "  meant  a  business  whose  profits  were  being assessed  in the year under consideration and there  was  no justification  for  deduction of the expenses of  a  foreign business.   We  do not, however, think that the use  of  the expression, " the Act shall not apply ", is decisive in this case.   We have to read the third proviso as a whole and  in the context in which it occurs, in order to find out what it means.   So  read it is difficult to hold that  it  has  the effect of excluding the Baroda business except in so far  as the   profits   thereof  are  brought   into   the   taxable territories.  What it says in express terms is that the  Act shall not apply to any income, profits or gains of  business accruing  or arising in an Indian State, etc.  It  does  not say that the business itself is excluded from the purview of the Act.  We have to read and construe the third proviso  in the  context of the substantive part of s. 5 which takes  in the  Baroda  business and the phraseology of the  first  and second provisoes thereto, which clearly uses the (1) A. I. R. 1928 Mad. 487. (2) (1931) 1 L. R. 56 Bom. 92. 740 language of excluding the business referred to therein.  The third  proviso does not use that language and  what  learned counsel  for the appellant is seeking to do is to alter  the language  of the proviso so as to make it read as though  it excluded  business  the income’ profits or  gains  of  which accrue or arise in an Indian State.  The difficulty is  that the third proviso does not say so ; on the contrary, it uses language  which merely exempts from tax the income,  profits or  gains unless such income, profits or gains are  received in or brought into India. Next,  we  have  to consider  what  the  expression  income, profits  or  gains  " means.  In the context  of  the  third proviso, it cannot include losses because the latter part of the proviso says " unless such income, profits or gains  are received,  etc., into the taxable territories ".  Obviously, losses cannot be brought into the taxable territories except in an accounting sense, and the expression " income, profits or  gains  "  in the context  cannot  include  losses.   The expression  must  have  the  same  meaning  throughout   the proviso, and cannot have one meaning in the first part and a different  meaning in the latter part of the  proviso.   The appellant  cannot  therefore  say  that  the  third  proviso excludes the business altogether, because it takes away from the  ambit of the Act not only income, profits or gains  but also losses of the business referred to therein. On  behalf of the appellant it has been argued  that  though the  language  of the third proviso to s. 5 of  the  Act  is similar to that of s. 14(2)(c) of the Indian Income-tax Act, the  language of the two provisions is not identical and  it is not correct to say that their effect is substantially the same.   It is pointed out that the language of  s.  14(2)(c) was one of exemption only in respect of any income,  profits or gains accruing or arising in an Indian State, though  for purposes  of  " total income " the  Income-tax  Act  applied thereto,  and  therefore the normal process  of  aggregating profits and losses wherever they occurred could be  adopted. But says learned counsel for the appellant, the position  is otherwise  under  the  third proviso to s.  5  of  the  Act, because, firstly, it uses the expression, " the Act 741 shall  not  apply " and secondly, there is  no  question  of

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exempting the profits from tax while including them for  the purposes of " total income ". We agree that the complication of  excluding the profits from tax while including them  for determining " total income " does not arise under the  third proviso  to s. 5 of the Act; but the argument  presented  is the same as we have dealt with earlier.  The argument merely takes us back to the question-does the third proviso to B. 5 of  the  Act merely exempt the income, profits or  gains  or does it exclude the business?  If it excludes the  business, the appellant is right in saying that the position under the proviso  is not the same as under s. 14(2)(c) of the  Indian Income-tax  Act.   If, on the contrary, the  proviso  merely exempts  the  income, profits or gains of  the  business  to which  the Act otherwise applies, then the position  is  the same as under s. 14(2)(c).  It is perhaps repetition, but we may  emphasize  again that exclusion, if any, must  be  done with  reference to business, which is the unit of  taxation. The  first  and second provisoes to s. 5 do  that,  but  the third proviso does not. Lastly  it has been contended that the construction  adopted by  the High Court is likely to lead to  consequences  which the  legislature manifestly could not have  intended.   This contention  has been pressed in respect of two matters:  (a) computation of capital under the rules in Schedule 11 of the Act in a case where the assessee company sustains a loss  in an  Indian State; and (b) relief for deficiency  of  profits where  the  assessee makes profits in an  Indian  State  but sustains  a loss in India.  As to the first matter,  it  has been fully dealt with by the High Court with reference to r. 2A  of  the  Rules in Schedule 11 and it  has  been  rightly pointed  out that no difficulty really arise,% by reason  of r. 2A.  Nor are we satisfied that any real difficulty arises with  regard  to relief for deficiency of profits  when  the assessee  makes  profits in an Indian State but  sustains  a loss  in  India.   The Act will not apply  to  such  profits unless they are brought into India, and if they are  brought into  India., a. 6 will apply with regard to relief  on  the ground of deficiency of profits. 96 742 It   is  unnecessary  to  consider  here  any   hypothetical difficulty which may arise in the application of s. 6. The appellant relies on the third proviso to s. 5 of the Act in  support  of the contention that it excludes  the  Baroda business  of  the assessee and the losses of  that  business cannot  be  set off against the profits of the  business  in India,  and the appellant can succeed only  on  establishing that the proviso clearly and without any ambiguity  excludes the  Baroda business.  We agree with the High Court that  if there  is  any ambiguity of language, the  benefit  of  that ambiguity  must  be  given to the  assessee.   However,  the conclusion at which we have arrived is that on the  language of the proviso as it stands, it does not exclude the  Baroda business  of  the  assessee but exempts  only.  the  income, profits or gains thereof unless they are received or  deemed to  be received in or brought into India.  Accordingly,  the High  Court correctly answered the question of law  referred to it.  The appeal falls and is dismissed with costs.                                Appeal dismissed.