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. 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
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
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
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.
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,
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
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
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
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.