1. We are concerned with the assessment year 1945-46, the corresponding accounting year being Samvat Year 2000, and in the return which the assessee made of his income, he showed first the income which he had received in British India and that income was Rs. 71,620 for business, Rs. 88 for interest on securities, Rs. 16,092 for property and Rs. 28,619 for dividends and Rs. 2,308 from other sources. The total of this income was Rs. 1,18,727.

2. Now, the assessee had also business in a Part B State and in the business which he carried on in the Part B State there was a loss of Rs. 52,432. He also received dividends on shares in the Part B State in the sum of Rs. 66,045. Therefore the result was that as the assessee was a resident he had to show in his total income not only the income which he had received in the taxable territories but also the income which had accrued to him anywhere else, and his total income on a proper computation came to Rs. 1,32,592. In computing this total world income of Rs. 1,32,592 the loss which he had incurred in his business in the Part B State, viz., Rs. 52,432, was set off against the profits which he had made in the business in the taxable territories. Therefore as far as the head of the business was concerned in the total world income what was shown was a profit of Rs. 19,188.

3. Now, the dispute as to the assessment of the assessee briefly is this. The contention of the department is that under Section 14(2)(c) the exemption to which the assessee is entitled is only Rs. 13,865 being arrived at by computing the total income of the assessee in the Part B State by deducting the loss of Rs. 52,432 from the dividend income of Rs. 66,045. As against that the contention of the assessee is that he is entitled to exemption with regard to the whole of the dividend income, viz., Rs. 66,045.

4. Now, in the first place let us try and understand as sympathetically as we can the case put forward before us by the assessee. Strong reliance is placed on our decision in Commissioner of Income-tax, Bombay City v. Murlidhar Mathurawalla Mahajan Association [[1948] 16 I.T.R. 146.].

5. In that case we laid down that :

"Different business do not constitute different heads under the Income-tax Act. All business wherever carried on constitute one head which falls under Section 10 of the Act and in order to determine what are the profits and gains of a business under Section 10 an assessee is entitled to show all his profits and set off against those profits losses incurred by him in the same head."

6. We further held that :-

"Section 24 only deals with the right of an assessee who has made a loss under one head enumerated in Section 6 to set off that loss against a profit made by him under a different head under Section 6. Section 24 cannot be construed in the light of the first proviso to that section."

7. Now, Mr. Kolah says that if we accept the principle underlying this decision, then the only result that must logically follow is that he is entitled to exemption with regard to the whole of the dividend income, viz., Rs. 66,045. Mr. Kolah has drawn our attention to the decisions of several other High Courts which have accepted the principle underlying this decision. We reaffirm the principle which we enunciated in that case, and that principle really comes to this, that if an assessee carries on a business in the taxable territories and another business in a Part B State, for the purposes of income-tax both the businesses constitute one business and the income under the head "business" must be computed by either totalling the profits made by both the business or if there is a loss in one business by setting off the loss in one business against the profit of the other. It must be borne in mind that in that case the assessee had no other source of income in the Part B State except this business and in the other decisions to which our attention has been drawn the same position obtained. The case that we are now dealing with is a different case and an entirely different question arises for our consideration. Here the assessee has not only a business in a Part B State but he has also another source of income and the result of his having two sources of income is that there is a loss from one source and a profit from the other resulting in a net profit or gain or income of Rs. 13,865, and it is under these circumstances that the question arises for our consideration.

8. Now, the real section that we have to consider and apply is Section 14(2)(c). Before we construe that section let us once again see what the scheme of the Act is. Section 3 and 4 are the charging sections and the charge is in respect of the total income of an assessee. Section 6 lays down the various heads of income which are chargeable to income-tax and the following sections deal with the mode of computation of income arising under each one of these heads. Section 14 deals with exemptions and that section lays down in respect of which income, profits or gains included in the total income of the assessee tax shall not be paid. Therefore, in the first instance the assessee has got to submit a return of his total income and he had then to claim exemption in respect of certain portions of the income included in his total income. In this case by a proper mode of computation his total world income is shown as Rs. 1,32,592. In computing his total world income the principle laid down in Commissioner of Income-tax, Bombay v. Murlidhar Mathurawalla Mahajan Association [[1918] 16 I.T.R. 146.] has been strictly applied because under the head business the loss sustained in the Part B State is set off against the profit made in the taxable territories. The two businesses are not looked upon as separate entities but the two business are looked upon as one source in respect of which income or loss has to be ascertained. Therefore it is no use Mr. Kolah's appealing to us to be loyal to our own decision in Commissioner of Income-tax, Bombay City v. Murlidhar Mathurawalla Mahajan Association [[1943] 16 I.T.R. 146.] because the taxing department has given effect to the principle of that decision in computing the total world income of the assessee. But having ascertained the total income at Rs. 1,32,592 the question then arises as to what is the exemption to which the assessee is entitled, and the exemption as clearly stated in Section 14(2)(c) is in respect of income, profits or gains accruing or arising to him within a Part B State. Considering this return of the assessee before us the very simple question that we have to ask ourselves is "What is the income, profits or gains which accrued to the assessee in the Part B State ?" In our opinion the only possible, the only conceivable, answer that can be given to that question is that the income, profits or gains that accrued to the assessee in the Indian State was Rs. 13,865. Mr. Kolah says the proper legal answer to that question is that the income, profit or gains that accrued to the assessee under Section 14(2)(c) was not Rs. 13,865 but Rs. 66,045. It is difficult to understand how that answer can be the proper or the legal answer. In support of the suggested answer what Mr. Kolah says is that under Section 14(2)(c) exemption is granted because of the place of accrual and the exemption is taken away only where any particular income, profits or gains under any of the heads is brought into or received in the taxable territories. Mr. Kolah's contention is that any income, profits or gains under Section 14(2)(c) means income, profits or gains only under one head and it is not permissible to apply Section 24(1) and set off the loss under one head against the profits of another and therefore it is urged that only the dividend income of Rs. 66,045 accruing or arising in the Part B State should be taken into consideration as the loss of Rs. 52,432 has been wiped off by a set-off against the profit of more than that amount in the taxable territories and therefore such loss of Rs. 52,432 cannot be taken into consideration for the purpose of Section 14(2)(c). It is also argued that under the Indian Income-tax Act what is taxed is each head of income. The dividend head is different from the business head and the business head having already been adjusted and there being no income accruing to the assessee under that head, you must only look to the head which resulted in an income to the assessee and that head is the dividend head and therefore it is only the dividend head which must be looked at for the purposes of giving exemption to the assessee under Section 14(2)(c). When you are determining the income, profits or gains of an assessee in an Indian State you can only determine that income not by looking at one particular head of income but by arriving at a conclusion from looking at all the heads and determining whether the resultant of all the heads is an income or a profit or a loss. The clear fallacy underlying Mr. Kolah's argument is that for the purposes of Section 14(2)(c) you have not to confine yourselves to the Indian State income but you have also to take into consideration what reaction the income from the taxable territories had upon his income in the Indian State, because he wants us to wipe out the loss of Rs. 52,432 which in his submission has been merged in the profits made in the taxable territories. But for the purposes of Section 14(2)(c) all that we have got to look at is the income, profits or gains accruing to the assessee in the Part B State; and the only two relevant figures for the purposes of deciding what the income, profits or gains accruing or arising to the assessee in the Part B State are the loss of Rs. 52,432 in business and the gain under the head dividends of Rs. 66,045. In our opinion the expression "any income, profits or gains" used in Section 14(2)(c) means the resultant income, profits or gains after taking into account all the heads. In putting this construction we are not importing the principle underlying Section 24(1), but we are giving to the expression its plain natural meaning.

9. Let us look at the matter from another point of view. The income which accrues to an assessee in a Part B State is exempt, but the exemption disappears, if the income is received or deemed to be received in or is brought into the taxable territories. In other words, if the profits made in Indian States are remitted to the taxable territories then a tax can be levied on the remittance. Now, can it be suggested in this case that if the assessee had remitted to the taxable territories any sum more than Rs. 13,865 that sum could have been considered to be a remittance out of profits made by the assessee because the only remittance that is liable to tax is not any remittance made by the assessee but a remittance out of the profits which he had made in an Indian State and from the point of view of the remittance it is clear that the only profit that he made in the relevant year is Rs. 13,865 and not Rs. 66,045. The dividend income which he received of Rs. 66,045 cannot constitute his income or his profit or his gain because. Rs. 52,432 out of it went to pay off the loss which he made in his business. Therefore, the result of his activities in the Indian State was that he only benefited or earned profit to the extent of Rs. 13,865 But if Mr. Kolah's contention were to be accepted then the result would be that to the extent of Rs. 52,432 that sum would never be subjected to tax because although he claims Rs. 66,045 as a legitimate exemption under Section 14(2)(c) if this amount were to be brought into the taxable territories the obvious answer that the assessee would give is that the remittance liable to tax is Rs. 13,865 and not any sum over and above that sum of Rs. 13,865.

10. Mr. Kolah then contends that if the view we take is the correct view, serious difficulties would arise with regard to the computation of tax. Mr. Kolah says that there are different rates of tax with regard to income from business and income from dividends, and if he is to be given exemption only in the sum of Rs. 13,865 whereas his dividend income in the Indian State had been Rs. 66,045 he would get exemption at a lower rate than he would be entitled to. Now, the answer to this difficulty is clearly to be found in Section 17(2) of the Act and Section 17(2) lays down the mode of computation where there is a total income and a part of that income falls within the category of exempted income. That is exactly the position here. The total income is Rs. 1,32,592 and the exempted income is Rs. 13,865 and the mode of computing tax on the exempted income of Rs. 13,865 is the mode laid down in Section 17(2).

11. In our opinion, therefore, the Tribunal was right in the view that it took and we will answer the question submitted to us by the Tribunal that the assessee is required to pay the tax on Rs. 1,18,727 and not on Rs. 66,295. The assessee to pay the costs.

12. Reference answered accordingly.