THE COMMISSIONER OF INCOME-TAX, MYSORE, TRAVANCORE-COCHIN AND COORG, BANGALORE versus THE INDO MERCANTILE BANK, LIMILED

Citation: [1959] SUPP. 2 S.C.R. 256 · Decided: 23-02-1959 · Supreme Court of India · Bench: NATWARLAL HARILAL BHAGWATI · Disposal: Dismissed

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Judgment (excerpt)

I959 
February 23. 
256 SUPREME COURT REPORTS [1959] Supp. 
THE COMMISSIONER OF INCOME-TAX, 
MYSORE, 
TRAV ANCORE-COCHIN AND COORO, 
BANGALORE 
v. 
THE INDO MERCANTILE BANK, Lli\H'l'ED 
(and connected appeal) 
(N. H. BrrAGWATI, B. P. SINHA and 
J. L. KAPUR, JJ.) 
Inconie Tax-Business Loss-Set off-Profits niade in Travan-
corc State-Losses inc1'rrcd o1'tside the Statc--Scopc of tile proviso 
to the 111ain cnactn1e1it-Travancore Inco1ne-tax Act, II2I (Travancorc 
XXIII of II2I), SS. 4, 9, IJ, I8, 32(I), first proviso-Indian 
Income-tax Act, I922 (XI of I922), ss. 3, 4, 6, IO, I4, 24(I), first 
proviso. 
Section 32(1) of the Travancore Income-tax Act, which corres-
ponds to s. 24(1) of the lndian Income-tax Act, 1922, provided : 
"Where any assessee sustains a loss of profits or gains in any 
year under any of the heads mentioned in Section 9 [s. 6 of the 
Indian Act] he shall be entitled to have the amount of loss set 
off against this income, profits or gains under any other head in 
that year: 
Provided that where the loss sustained is a loss of profits or 
gains which 'vould but for the loss have accrued or arisen \vithin 
British India or in an Indian State and would under the provi-
sions of clause (c) of sub-section (2) of Section 18 [corresponding 
to s. 14 of the Indian Act] have been exempted from tax, such 
loss shall not be set off except against profits or gains accruing c1r 
arising within British India or in an Indian State and exc1npt 
fro1n tax under the said provisions ". 
The assessees were companies having their head offices in 
the erstwhile State of Cochin with branches in the erstwhile 
State of Travancore and in other places outside the latter State. 
They made profits in 1~ravancore State but incurred losses in 
Cochin State and other places, and for the purposes of assessment 
to income-tax they sought to deduct this lo>s from the profits 
made in Travancore State. The Income-tax Officer acting under 
the provisions of the Travancore Income-tax Act, determined the 
assessable inco1ne representing only the profits made in Travan-
core State and under s. 32(1), first proviso of the Travancore 
Income-tax Act [which corresponds to the first proviso to s. 24(1) 
of the Indian Income-tax Act, 1922] refused to allow a deduction 
of the losses incurred. The assessees claimed that the business 
(2) S.C.R. 
SUPREME COURT REPOHTS 
257 
which they were carrying on was one and indivisible for the pur-
pose of determining the amount assessable to income-tax and 
that they were entitled to a deduction of the losses incurred out-
side 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-
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 head "business" in the 
two respective territories, as the words used therein are "where 
the loss sustained is a loss of profits or gains " and the word 
"income" is not mentioned therein, and (4) that the word "busi-
ness" in s. 13 of the Tra van core Act corresponding to s. IO of 
the Indian Act, must mean business in Travancore State under 
s. 13 of that Act and "business in British India" under the Indian 
Act, because before 1939 income was not chargeable under the 
two Acts, unless it was received or accrued in Travancore State 
or British India, as the case may be, and profits and gains of 
business in territories outside Travancore or in an Indian State 
were exempted from payment of income-tax in Travancore State 
or in British India, as the case may be. 
Held: (1) Under s. 24(1) of the Indian Income-tax Act, 1922 
[s. 32(1) of the Travancore Income-tax Act] a set off can be 
claimed only when the loss arises under one head and the income, 
profits and gains against which it is sought to be set off arises 
under a different head. In cases where profits and losses arise 
under the same head they have to be adjusted against each other 

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