Sabyasachi Mukharji, J.
1. This reference under Section 256(1) of the I.T. Act, 1961, poses before us the following question ;
' Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that by virtue of the provisions of Section 10(27) of the Income-tax Act, 1961, the losses on account of breeding of horses and pigs amounting to Rs. 74,065 and Rs. 19,918 respectively are not admissible deductions in computing the total income ?'
2. The reference relates to the assessment year 1965-66. The assessee, M/s. Royal Calcutta Turf Club, claimed a loss of Rs. 74,065 in Broodmares Account and Rs. 19,918 in Pig Account. The ITO, however, did not allow these losses because according to him the incomes from these two heads were exempt under Section 10(27) of the I.T. Act, 1961. It may be instructive to refer to the fact how the ITO had dealt with this aspect in the assessment order. In the assessment year dealing with the computation of business he has added certain amount and one of the additions made by him was as follows :
Rs.
'Lossclaimed in Brood-mares Account disallowed in view of section 10(27): of theAct, 1961, as inserted by Act 5 of 1964
74,065
and the other head was asfollows :
'Lossclaimed in Pig a/c. disallowed in view of section 10(27) of the Act asinstituted by Act 5 of 1964
19,918'
3. He thus arrived at the total income of Rs. 8,96,232 after taking into consideration the business income of Rs. 5,79,577 and other income.
4. The assessee, being aggrieved, went up in appeal before the AAC. The AAC after examining all the facts and circumstances of the case came to the conclusion that since the income derived from the business of livestock breeding, poultry and dairy farming was exempt, it was quite natural that the loss should not also be allowed to be set off against the other income. He, therefore, upheld the order of the ITO.
5. There was a further appeal before the Tribunal. The Tribunal examined the whole position and referred to certain decisions. The Tribunal also referred to several rival contentions and observed, inter alia, as follows :
' We have considered the rival submissions and are of the opinion that the arguments of the departmental representative are well founded. We do not find ourselves in agreement with the arguments advanced by the learned counsel for the assessee. There is no doubt that the assessee has got a right to have the loss allowed but this has got to be within the legally imposed limits under the I.T; Act. The I.T, Act nowhere provides that the loss from breeding of livestock will be allowed in the computation of income under other heads. There is also no doubt that the statute or any section thereof will be construed in such a way that in case of doubt the benefit will go to the taxpayer. Sections 70 to 80 of the I.T, Act, 1961, also do not provide that all the losses will be allowed whatever may be the circumstances. The language of Section 10(27) is very clear and there is no room for any ambiguity whatsoever. Further, the authorities cited by the learned representative of the assessee are not applicable to the facts and circumstances of the case. The most appropriate authority is of the Patna High Court in Dalmia fain & Co. Ltd. v. CIT : [1967]65ITR408(Patna) . The facts of this case are that a private limited company borrowed certain sum of money for the construction of a house which was begun in April, 1950, and completed in April, 1952. The company paid interest of Rs. 79,265 on capital borrowed by it. The rent received was only Rs. 12,000 after deducting the statutory repairs and interest. There was a loss as the construction of the building was begun and completed between January 1st, 1946, and March 31st, 1956, the income therefrom was not chargeable for a period of two years from the date of completion under Section 4(3)(xii) of the Indian I.T. Act, 1922. The assessee set off the loss against other income.
On these facts it has been held that:
' As the income from the building in question should not be included in the total income of the assessee either for purposes of taxing or even for the purpose of determining the rate, the question of computation or determination of income or loss from the property in question under Section 9 of the Indian I.T. Act, 1922, did not arise and the loss, if any, in respect of the property cannot be set off under any other head chargeable to income-tax.' If the above principle is applied to the facts of the case then it will become crystal clear that the two items of losses on account of breeding of horses and pigs are not admissible deductions. '
6. Out of the aforesaid order of the said Tribunal, the question as indicated above, has been referred to this court. The question before us is whether under Section 10(27) read with Section 70 of the I.T. Act, 1961, was the assessee entitled to set off the losses on the two heads, namely, Broodmares Account and the Pig Account, against its income of other sources under the head ' Business '. In order to appreciate this question it would be relevant to refer to the provisions of Section 10(27) of the I.T. Act, 1961, as it stood in the relevant assessment year. Section 10 stipulates that in computing the total income of the previous year of any person any income falling within the different categories mentioned in different clauses of Section 10 should not be included and Sub-section (27) provided for non-inclusion of ' any income derived from a business of livestock breeding or poultry or dairy farming '. Section 70 upon which reliance was placed on behalf of the assesseeand upon which set-off was being claimed in the instant cage provides as follows:
' 70. Set-off of loss from one source against income from another source under the same head of income.--(1) Save as otherwise provided in this Act, where the net result for any assessment year in respect of any source, falling under any head of income other than ' Capital gains ' is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head.
(2) (i) Where the result of the computation made for any assessment year under, Sections 48 to 55 in respect of any short-term capital asset is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset.
(ii) Where the result of the computation made for any assessment year under Sections 48 to 55 in respect of any capital asset other than a short-term capital asset is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset not being a short-term capital asset. '
7. In this connection it may not be wholly inappropriate to refer to the provisions of Section 24 of the Act of 1922 which provided for set-off of loss in computing the aggregate income. Sub-section (1) of Section 24 of the 1922 Act stipulates that where an assessee sustained a loss of profits or gains in any year under any of the heads mentioned in Section 6, he should not be entitled to have the amount of loss set off against his income, profits or gains under any other head in that year. We are not concerned with the several provisions under the head. Section 71 of the 1961 Act provides for set off of loss from one head against income of another head. Section 72 of the 1961 Act provides for carry forward and set off of business losses on certain conditions. In this case it is important to bear in mind that set-off is being claimed under Section 70 of the 1961 Act which permits set off of any income falling under any head of income other than the capital gain which is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head. We have noticed that in the instant case the exclusion has been conceded in computing the business income or the source of income from the head of business and in computing that business income, the loss from one particular source, that is, broodmares account and the pig account, had been excluded contrary to the submission of the assessee. The assessee wanted these losses to be set off. The Revenue contends that as the sources of the income are not to be includedin view of the provisions of Clause (27) of Section 10 of the 1961 Act, the loss suffered from this source could also not merit the exclusion. Under the I.T. Act, there are certain incomes which do not enter into the computation of the total income at all. In this connection we have to bear in mind the scheme of the charging section which provides that the incomes shall be charged and Section 4 of the Act provides that the Central Act enacts that the incomes shall be charged for any assessment year and in accordance with and subject to the provisions of the 1961 Act in respect of the total income of the previous year or years or whatever the case may be. The scheme of ' total income ' has been explained by Section 5 of the Act which provides that subject to the provisions of the Act, the total income of the previous year of a person who is a resident includes all income from whatever source it is derived. In computing the total income, certain incomes are not included under Section 10 of the Act. It depends on the particular case where certain income, in respect of which the Act is made inapplicable to the scheme of the Act, and in such a case, the profit and loss resulting from such a source do not enter into the computation at all. But there are other sources which for certain economic reasons are not included or excluded by the will of the Legislature. In such a case we must look to the specific exclusion that has been made. The question is in this case whether Section 10(27) is a source which does not enter into the computation at all or is a source the income in respect of which is excluded in the computation of total income. How this question will have to be viewed, has been looked into by the Supreme Court in several decisions to some of which our attention was drawn. We may first refer to a decision upon which reliance was placed on behalf of the Revenue. Before we do so we must also notice the definition of the total income as provided in Section 245 of the 1961 Act which stipulates that ' total income ' means the total income referred to in Section 5 as computed in the manner laid down in the Act. Section 5 defines the scheme of ' total income ' as we have set out hereinbefore.
8. The first decision to which our attention was drawn is the case of C1T v. Indo-Mercantile Bank Ltd. : [1959]36ITR1(SC) . There the question was whether in an assessment to income-tax under the Travancore Income-tax Act of the profits and gains of a business carried on by an asses-see in the State of Travancore as well as the State of Cochin, the assessee was entitled to set off the losses incurred in the State of Cochin against the profits made in the State of Travancore. There was nothing in Sections 13 and 32(1) of the Travancore Income-tax Act which distinguished between business in the State of Travancore and business in the State of Cochin.
9. According to the Supreme Court the object of the main Section 24 of the Indian I.T. Act, 1922, was to allow the set off of loss of profits or gainsunder one head against income; profits or gains under any other head and there was nothing in (the first proviso to that section which would favour the disintegration of the head ' Business ' and compel the application of the proviso to the same head.
10. The Supreme Court held that Section 10 of the Indian I.T. Act, 1922, did not distinguish between business in British India and business in an Indian State or so divide ' business '.
11. The Supreme Court on the computation of business profits and gains made certain observations with which we are not concerned.
12. The Supreme Court further held that the proper function of a proviso was that it qualified 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 was 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 was foreign to the main enactment.
13. Reliance was, however, placed on certain observations of the Supreme Court at p. 5 where the Supreme Court held that under Section 2(15) of the Act ' total income ' was defined to mean 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. This decision, in our opinion, does not really help us in the solution of the implementation of the problem with which we are faced.
14. Reliance was also placed on certain observations of the Supreme Court in the case of A. V. Femandez v. State of Kerala, : [1957]1SCR837 , wherein at p. 574, the Supreme Court dealt with certain provisions of the Act or certain legislature for certain transactions in particular cases being provided to be not coming within the purview of the Sales Tax Act and if it was so provided then the transactions in respect of those sales could not come within the purview of this Act. This is a well-settled proposition. The question, however, arises as to what is the effect of a particular enactment or whether the effect of a particular enactment in an Act is not made applicable to certain income source or whether the income arising from certain source is not Included to the computation of the total income.
15. In this connection on behalf of the assessee reliance was placed on a decision of the Supreme Court in the case of CIT v. Karamchand Premdiand, Ud. : [1960]40ITR106(SC) . There the assessee which held the managing agency of a company in British Inc a and also carried on a pharmaceutical business in the native State of Baroda outside British India,during the relevant chargeable accounting periods, showed a profit in the managing agency business but incurred losses in the pharmaceutical business in the native State. The question was whether in ascertaining the business profits of the assessee for the purpose of the Business Profits Tax Act, 1947, the losses incurred in the native State reduced the British Indian profits of the assessee.
16. It was held that the third proviso to Section 5 of the Business Profits Tax Act took out of the ambit of the Act merely the ' income, profits or gains ' of a business in an Indian State and did not exclude the business itself. The loss suffered by the assessee in the pharmaceutical business carried on in the State of Baroda had to be deducted in computing the business income of the assessee for the purpose of the business profits tax.
17. The Supreme Court further held that the expression ' income, profits or gains ' in the third proviso to Section 5 of the Business Profits Tax Act, in its context, did not include losses.
18. It may not be inappropriate to set out Section 5 of the Business Profits Tax Act which is as follows :
'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 Sub-section (1) of Section 4 of the Indian Income-tax Act, 1922, or of Clause (c) of that sub-section ;
Provided that this Act shall not 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.'
19. The Supreme Court after noting the said proviso noted that on behalf of the assessee the argument was that in its true scope and effect the third proviso had merely the effect of exempting the income, profits or gains of the Baroda business except when they were received or brought into India, but the business itself was not excluded from the purview of the Act: the business was still one to which the Act applied under the substantive part of Section 5 and as the third proviso exempted income, profits or gains only, the losses of the Baroda business could be set off against the profits of the business in India.
20. After noting the rival contentions of the Revenue, the Supreme Court proceeded to examine the assessee's contentions. It was contended on behalf of the assessee that such a construction resulted in this anomaly that if the income, profits or gains were not brought into India, they escaped tax and yet the losses of a business which was outside India were taken into consideration in computing the profits, etc., in India.
21. The Supreme Court noted the decision of CIT v. Indo-Mercantile Bank Ltd, : [1959]36ITR1(SC) , which we have discussed before and observed that we should read the third proviso as a whole and in the context in which it occurred, in order to find out what it meant. So read it was difficult to hold that it had the effect of excluding the Baroda business except in so far as the profits thereof were brought into the taxable territories. What it said in express terms was that the Act should not apply to any income, profits or gains of business accruing or arising in an Indian State, etc. The Supreme Court noted that the proviso did not say that the business itself was excluded from the purview of the Act.
22. The Supreme Court observed at p. 116 of the report (40 ITR) as follows:
' 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 Section 5 of the Act is similar to that of Section 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 Section 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 Section 5 of the Act, because, firstly, it uses the expression ' the Act 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 Section 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 Section 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 Section 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 Section 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 provisos to Section 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 II 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 Rule 2 A of the Rules in Schedule II and it has been rightly pointed out that no difficulty really arises by reason of Rule 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, Section 6 will apply with regard to relief on the ground of deficiency of profits. It isunnecessary to consider here any hypothetical difficulty which-may arise in the application of Section 6.
The appellant relies on the third proviso to Section 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 ii 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.'
23. In our opinion, in the context of our present expression, the aforesaid observations of the Supreme Court are relevant to the provisions with which we are faced.
24. It appears to us that Clause (27) of Section 10 excludes in express terms only ' any income derived from a business of livestock breeding or poultry or dairy farming '. It does not exclude the business of livestock breeding or poultry or dairy faming from the operation of the Act.
25. Great reliance was, however, placed on behalf of the assessee on certain observations of the Supreme Court in the case of CIT v. Harprasad & Co. P. Ltd. : [1975]99ITR118(SC) . There during the accounting period ending April 30, 1954, relevant to the assessment year 1955-56, the assessee sold certain shares at a loss of Rs. 28,662, which it claimed as revenue loss. Both the ITO and the AAC rejected the claim on the ground that the loss was capital loss. On appeal, the Appellate Tribunal accepted the contention of the assessee raised for the first time that the capital loss of Rs. 28,662 should be carried forward and set off against capital gains, if any, in the future, even though tax was not chargeable under Section 12B of the Indian I.T. Act, 1922, on capital gains derived during April 1, 1948, to March 31, 1956. On a reference, the High Court held that if capital loss was incurred in a year in which capital gains did not attract tax under Section 12B such loss would still be loss under the head ' Capital gains ' and it could be carried forward and set off against capital gains in a subsequent year.
26. On appeal to the Supreme Court by the Commissioner, the Supreme Court held, reversing the decision of the High Court, that the capital loss could not be determined and the assessee was not entitled to the carry forward of the loss of Rs. 28,662.
27. The Supreme Court further held that if the loss was from a source or head of income not liable to tax or congenitally exempt from income-tax, neither the assessee was required to show the same in the return, nor was the ITO under any obligation to compute or assess it much less for the purpose of ' carry forward '.
28. The Supreme Court noted, during the long period, (when) Section 12 did not make income under the head ' Capital gains ' chargeable, an assessee was neither required to show income under that head in his return, nor entitled to file a return showing 'capital losses ' merely for the purpose of getting the same computed and carried forward. Sub-section (2A) of Section 22 would not give him such a right because the operation of that sub-section is, in terms, confined to, (i) a loss which is sustained under the head ' Profits and gains of business, profession or vocation' and would ordinarily have been carried forward, under Sub-section (2) of Section 24, and (ii) to income which falls within the definition of ' total income '.
29. The Supreme Court observed as follows (p. 124) :
'From the charging provisions of the Act, it is discernible that the words ' income ' or ' profits and gains' should be understood as including losses also, so that, in one sense 'profits and gains' represent ' plus income ' whereas losses represent ' minus income '. In other words, loss is negative profit. Both positive and negative profits are of a revenue character. Both must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee. Although Section 6 classifies income under six heads, the main charging provision is Section 3 which levies income-tax, as only one tax, on the 'total income ' of the assessee as defined in Section 2(15). An income in order to come within the purview of that definition must satisfy two conditions. Firstly, it must comprise the ' total amount of income, profits and gains referred to in Section 4(1)'. Secondly, it must be 'computed in the manner laid down in the Act'. If either of these conditions fails, the income will not be a part of the total income that can be brought to charge.'
30. This passage must be understood in the context in which the aforesaid observations were made in view of the fact as pointed out by the Supreme Court that 'capital gains' were neither intrinsically nor congenitally of income character.
31. In the case of Hughes v. Bank of New Zealand [1936] 21 TC 472 at page 523 ; [1938] 6 ITR 636, the House of Lords could find no warrant in the language of the statute to give effect to the, contention of the Crown and observed that when the statute said that interest was to be exempt it was quite unable to read it as meaning that in giving effect to thatexemption by implication, some repercussion was to fake place on a different provision of the Act altogether. Therefore, if the statute said what income was to be exempted that did not make that the source was to be excluded from the operation of the Act. In that case interest paid by the bank on capital borrowed in the course of its business and utilised in buying tax-free securities had to be deducted in arriving at the taxable profits of the business notwithstanding that the interest earned by the bank on the tax-free securities could not be taxed.
32. The Supreme Court in the case of CIT v. Indian Bank Lid. : [1965]56ITR77(SC) , observed, in the language of Section 10 of the Indian I.T. Act, 1922, from which it could be fairly implied that an expenditure or allowance falling within the section must fulfill some other condition before it could be allowed. In construing several clauses of the section one should adhere closely to the language of the Act. The Supreme Court emphasized that in allowing a deduction which was permissible one need not look beyond the expenditure and see whether it had the quality of directly or indirectly producing taxable income. There in that case the assessee, banking company, in the course of its business, invested a large sum in securities including securities, the interest on which was exempt from tax. Profits and losses on the purchase and sales of such securities were duly taken into account in computing the business income of the assessee. It was held by the Supreme Court that the interest paid by the assessee on moneys borrowed from its various depositors had to be allowed in its entirety under Section 10(2)(iii) of the Indian I.T. Act, 1922, and there was no warrant for disallowing a proportionate part of the interest referable to moneys borrowed for the purchase of securities whose interest was tax-free. Our attention was drawn to certain observations of the Supreme Court in the case of CIT v. Maharashtra Sugar Mills Ltd, : [1971]82ITR452(SC) . Inasmuch as the decision of the Supreme Court rested mainly on 'the finding of fact that the expenditure was incurred in respect of certain integrated business we need not detain ourselves with that decision in great detail.
33. Reliance was placed on the decision in the case of Rajapalayam Mills Ltd v. CIT : [1978]115ITR777(SC) . There, the Supreme Court had to deal with Section 15C of the I.T. Act. 1922. According to the Supreme Court, it was to set at rest the controversy whether the expression ' the profits or gains derived from the new industrial undertaking ' in Sub-section (1) of Section 15C of the Indian I.T. Act, 1922, meant commercial profits or gains or profits or gains chargeable to tax or had some other connotation that Sub-section (3) was enacted to the effect that the profits or gains of the new industrial undertaking should be computed in accordance with the provisions of Section 10. Section 15C(3) did not enact any legal fiction providing that the profits or gains of the new industrial undertaking should he computed as if the new industrial undertaking were the only business of the assessee from the date of its establishment or as if the past year's depreciation or development rebate had not been set off against other income of the assessee. The new industrial undertaking was not retrospectively quarantined or isolated from the other income producing activities of the assessee for determining its profits or gains for the purpose of applicability of Sub-section (1) of Section 15C. What Sub-section (3) of Section 15C did was merely to lay down the same rule of computation for the profits or gains of a new industrial undertaking as in respect of any other business and, therefore, neither depreciation allowance nor development rebate in respect of the new industrial undertaking for the past assessment years could be allowed as deduction in computing the profits or gains for the assessment year in question, except where and to the extent for those assessment years and had remained unabsorbed. There was nothing in Sub-section (3) of Section 15C or in any other provision of the Act which required that in computing the profits or gains of a new industrial undertaking under Section 10, depreciation allowance or development rebate in respect of the new industrial undertaking for the past assessment years should be taken into account, even if it had been set off fully against the profits or gains of any other business carried on by the assessee or against income under any other head and there was no unabsorbed depreciation allowance or development rebate to be carried forward. The main importance of this decision is that the stress that is laid for the purpose of giving special exemption should not be over-emphasised and the other aspect on which the Supreme Court emphasised was about the settled law that though the profits of each distinct business carried on by the assessee had to be computed separately in accordance with the provisions of Section 10, the tax was chargeable under that section, not separately on the profits of each business but on the aggregate of the profits of all the businesses carried on by the assessee. It followed, therefore, that where the assessee carried on several businesses he was entitled under Section 10 to set off loss in one business against the profits in another.
34. Our attention was drawn to certain observations of the Division Bench of this court in the case of Indian City Properties Ltd. v. CIT : [1965]55ITR262(Cal) . But the observations by the Division Bench of this court were entirely in a different context and it is not necessary for us to deal with the same in great detail. Reliance was placed oh the decision of the Allahabad High Court in the case of Ramjilal Rais v. CIT : [1965]58ITR181(All) . But the question involved in that decision was also entirely different and it is not, therefore, necessary for us to deal with the same decision in detail. But, on behalf of the Revenue, great reliance was placed on the decision of the Madras High Court in the case of CIT v. S. S. Thiagarajan : [1981]129ITR115(Mad) . It is true that the observations made by the court at pp. 120-121 of this decision support the contention of the assessee. There the Madras High Court observed that the provisions of Sections 70 and 71 relating/to set off of loss from one head against income from another contemplated loss from a source, the income from which was liable to tax. If income from a source was altogether exempt from tax, loss from that source could not be set off, against income from a different source or income under a different head. There, the assessee was maintaining race horses for the purpose of running them at horse races, winning stake money and breeding race horses. He was spending money on feeding the horses and training them in training establishments run commercially. The horses were sent by the assessee to the stud for being reared. He also bet on horses occasionally but the result thereof was a small loss. In respect of the racing activities, the assessee incurred losses during the assessment years 1963-64, 1964-65, 1965-66 and 1966-67, and claimed deduction of the loss from his income from other sources. This claim was disallowed by the officer on the ground that the assessee was indulging in the racing activity only as a hobby or sport and not as a business proposition. The Tribunal, however, held that the income referable to this activity would be income from other sources and hence the losses may be set off against the income arising from other sources in each of the years. The Madras High Court on reference held that though the receipts arising from betting and racing would be income falling under the head ' Other sources ', they would be of a casual and non-recurring nature exempt from taxation during the relevant years under Section 10(3) as it stood in the relevant assessment years. Since the income was not taxable, the losses arising from such activity could not also be set off against income from a different source or under a different head. In view of the language used under Section 10(27) of the I.T. Act, 1961, as it stood in the relevant year and in view of the ratio of the decision of the Supreme Court in the case of CIT v. Kammchand Premchand Ltd. : [1960]40ITR106(SC) , with great respect, we are unable to agree.
35. In that view of the matter, it appears to us that the Tribunal was in error in coming to its conclusion that the losses on account of breeding of horses and pigs amounting to Rs. 74,065 and Rs. 19,918 respectively were not entitled to set off in the facts and circumstances of the case which we have set out hereinbefore. In the premises, the question is answered in the negative and in favour of the lessee.
36. The parties will pay and bear their own costs.
Suhas Chandra Sen, J.
37. I agree.