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PETITIONER: THE COMMISSIONER OF INCOME-TAX,MYSORETRAVANCORE-COCHIN AND C

       Vs.

RESPONDENT: THE INDO MERCANTILE BANK, LIMITED(and connected appeal)

DATE OF JUDGMENT: 23/02/1959

BENCH: KAPUR, J.L. BENCH: KAPUR, J.L. BHAGWATI, NATWARLAL H. SINHA, BHUVNESHWAR P.

CITATION:  1959 AIR  713            1959 SCR  Supl. (2) 256  CITATOR INFO :  R          1960 SC1175  (9)  APL        1962 SC1272  (4)  F          1965 SC1358  (18)  F          1967 SC 415  (7,8)  RF         1972 SC1004  (82)  RF         1975 SC1758  (18)  R          1979 SC 117  (8)  R          1985 SC 582  (32)  RF         1989 SC1737  (7)  RF         1992 SC   1  (75)

ACT:        Income Tax-Business Loss-Set off-Profits made in  Travancore        State-Losses incurred outside the State-Scope of the Proviso        to  the  main  enactment-Travancore  Income-tax  Act,   1121        (Travancore  XXIII of 1121), ss. 4, 9, 13, 18, 32(1),  first        proviso-lndian Income-tax Act, 1922 (XI of 1922), ss. 3,  4,        6, 10, 14, 24(1), first proviso.

HEADNOTE: Section  32(1) of  the  Travancore  Income-tax  Act,  which corresponds to S. 24(1) of the Indian 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 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  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 or arising within  British India  or in an Indian State and exempt from 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 Travancore State but  incurred losses  in  Cochin  State  and other  places,  and  for  the

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purposes  of assessment to income-tax they sought to  deduct this  loss from the profits made in Travancore  State.   The Income-tax  Officer  acting  under  the  provisions  of  the Travancore Income-tax Act, determined the assessable  income 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                             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 income-tax authorities was (i) that under the  first proviso to s. 32(1) of the Travancore Income-tax Act  losses incurred  in  places  out- I side 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 bead  " business in the two respective territories,  as  the words used therein are where the loss sustained is a loss of profits or gains " andthe   word   "  income  "  is   not mentioned therein, and (4) that the word " business " in  s. 13 of  the  Travancore Act corresponding to s.  10  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:(i)  Under s. 24(1) of the Indian Income-tax  Act, 1922  Is. 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 12B 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    ’     [1955]    2    S.C.R.    483,    Madras     & JUDGMENT:

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(1944) L.R. 71 I.A. 113  33 258 and  Corporation of the City of Toronto v.  Attorney-General for Of  Canada,  [1946] A.C. 32, relied on. Consequently, S. 24(1), first proviso, of the Indian Income- tax  Act, 1922 Is. 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. 10 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. 10 of the Indian Income-tax Act. (4)The word " business,, in s. 10 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 Travancore Cochin High  Court in  Income-tax  Reference Appeals Nos. 6 of 1953 and  21  of 1954. K.N.  Rajagopala 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                             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 Travancore Act).

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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 (1) 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 260 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 1950-51. The assesse 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 Travancore  State  thus showing a net profit of Rs. 2,643.  This was not allowed  by the  Income-tax  Officer  and  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:- " Whether 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      Section in                           Travancore Act.  Indian Act. Application of the Act         4               4 Head of income charge- able to income-tax             9               6 Business                      13              10 Exemptions of a gene- ral nature                    18              14 Set off of loss in com-

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puting aggregate in- come                          32              24 261 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 (e) of sub-section (2) of  Section 18  (Section 14(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. Attorney-General 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. 262 proviso  falls in the second category and takes the  present cases  out of s. 32(1) of the Travancore Act and  imposes  a liability  to  tax on the profits or gains arising  in  that State,  disallowing  a deduction of the  losses  in  British India  and  in States other than  Travancore  State  against profits  made in Travancore State: Rhondda Urban Council  v. Taff  Vale Railway (1) and Harrison v. Ward (2).  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 Revenue. 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

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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 total 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 whatever 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] 1 Ch- 517. 263 there were six heads of income chargeable to income tax.  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  effect of this exemption was not to  exclude  such income of an assessee for all purposes as was the case under s.  4(3).  Such sums were to be taken,into account  for  the purpose  of determining the rate -under s. 16 of the  Indian Act.   A further consequential change was made in, s.  24(1) by 264 the addition of the first proviso and a similar addition was made  in  the Travancore Act to s. 32(1) which  has  already been  quoted  and it is this proviso which is  the  subject- matter of controversy between the parties.  A review of  the various sections and enactments shows that during  1922-1939 the tax was leviable on income, profits and gains arising or accruing to an assessee in 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

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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 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 bead 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. 233 265 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 Anglo-French Textiles Co. 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)[1953] S.C.R. 448, 453. 34 266 determining  profits  and  gains  of  the  business  of  any resident.   We should be averse to lend any  countenance  to

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such a mode of construing a proviso unless the language used expressly   or  by  necessary  intendment  leads   to   that conclusion.   The  proper 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.   "  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 carves  out  an 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 Co.  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 enactment, 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 carve out an (1) [1957] S.C.R. 51. 59-  (2) [1955] 2 S.C.R. 483, 493. (3) (1944) L.R. 71 I.A. 113, 122. 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 Toronto 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 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

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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. 32, 37. 268 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  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. (2).  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 (4)  and Raghunath Parshad v. Commissioner of Income-tax (5).   There it was held that s. 10 of the Indian Act had to be read with s.  14(2)  (e)  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. (3)[1901] A.C. 26. (2)(1936) L.R. 63 I.A. 457. (4)[1950] 18 I.T.R. 75. (5) [1955] 28 I.T.R. 45. 269 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 I 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

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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. 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. 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. 270