JUDGMENT
LEACH, C.J. – The assessee who is a resident of Pallathur in the Madras Presidency owns a saw mill at Gyothingauk in Burma. In the account year, that is the year commencing from the 1st April 1936, the saw mill business resulted in a loss of Rs. 8,663 and her income consisted solely of interest received from investments. For the purpose of assessment of income-tax she sought to set off the loss sustained in the saw mill business against the profits from her investments. The Income-tax Officer refused to allow her to do so on the ground that on the 1st April 1937 Burma had ceased to be part of British India, and the loss having been sustained outside British India it could not be set off. On these facts the Commissioner of Income-tax has referred to the Court the following question :- “Whether the decision of the Assistant commissioner that the loss of Rs. 8,663 incurred by the Petitioner in Burma in the year of account 1936-37 is not allowable as a deduction in the year of assessment 1937-38 is correct in law ?”
In order to appreciate the arguments advanced on behalf of the Income-tax authorities it is necessary to refer to the provisions of section 3 and of section 4(1) of the Indian Income-tax Act. Section 3 is the charging section and it provides that where any Act of the Central Legislature enacts that income-tax shall be charged for any year at any rate or rates applicable to the total income of an assessee, tax at the rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, the Act in respect of all income, profits and gains of the previous year of every individual, Hindu undivided family, company, firm and other association of individuals, Section 4(1) states :-
“Save as hereinafter provided, this Act shall apply to all income, profits or gains, as described or comprised in Section 6, from whatever source derived, accruing or arising or received in British India or deemed under the provisions of this Act to accrue, or arise, or to be received in British India.”
It is said that as the Income-tax Act does not come into operation in any year until the Finance Act has been passed, the Income-tax Act must be treated as a statute which is passed every year and the words “British India” must be deemed to mean British India as it stands at the time of the passing of the Finance Act and not what it was in the previous year. We do not accept this argument. It is true that the Income-tax Act cannot be applied in any year until the Finance Act has been passed but the Act cannot be treated enactment but it may not be enforced in any particular year until the finance Act has been passed. Section 4 cannot be divorced from Section 3, and as Section 3 charges the tax on the income of the previous year it must, be consider, be charged on the income received in what was British India during the previous year. In Commissioner of Income-tax, Madras v. Karuppiah Kangani alias Kumaravelu Ambalam a Full Bench of this Court held that under the Act the income of the year previous to the year of assessment is not to be taken as merely a guide to the ascertainment of the income to be taken as merely a guide to be ascertainment of the income of the year of assessment but as the actual sum which is subject to taxation. This decision followed a decision of the Calcutta High court to the same effect – In re Behari Lal Mullick.
when the assessee in this case sustained the loss on the working of her saw mill in Burma, Burma was part of British India, and if section 3 and section 4(1) are to be read together, as in our opinion they must be, the loss must be deemed to have been sustained in British India. Therefore, the answer we give to the question referred is that the decision of the Assistant Commissioner in not allowing the deduction is not correct in law. the assessee is entitled to her costs Rs. 250 and to the refund of her deposit of Rs. 100.
Reference answered in favour of assessee.
