Commissioner Of Income-Tax, Ahmedabad vs Karamchand Premchand Ltd., Ahmedabad

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 304 of 1958

Decision Date: 28 April 1960

Coram: S.K. Das, J.L. Kapur, M. Hidayatullah

In this case, the Supreme Court of India heard an appeal filed by the Commissioner of Income‑Tax, Ahmedabad, against Karamchand Premchand Ltd., Ahmedabad. The appeal was decided on 28 April 1960 by a Bench consisting of Justice S.K. Das, Justice J.L. Kapur and Justice M. Hidayatullah. The citation of the judgment is 1960 AIR 1175 and 1960 SCR (3) 727.

The petitioner, the Commissioner of Income‑Tax, Ahmedabad, challenged the order dated 7 September 1956 of the Bombay High Court in Income‑tax Reference No. 19 of 1956. The respondent, Karamchand Premchand Ltd., was a private limited company that acted as the managing agency of the Ahmedabad Manufacturing and Calico Printing Co. Ltd. and also operated a pharmaceutical business in the Baroda State, which at the relevant time was an Indian State. The business carried on in British India generated profits that were assessable under the Business Profits Tax Act, 1947 (Act No. XXI of 1947). In contrast, the business conducted in Baroda incurred losses during the chargeable accounting periods between 1946 and 1949.

The respondents argued before the Income‑tax authorities that the loss incurred by the Baroda business should be allowed as a deduction in computing their business income liable to tax under the Business Profits Tax Act. The authorities rejected this claim, holding that although section 5 of the Act, taken alone, would apply to the Baroda business, the third proviso to that section excluded the Baroda business from the Act’s purview except to the extent that its income, profits or gains were received or deemed to be received in or brought into British India.

The Court examined the effect of the third proviso to section 5 of the Business Profits Tax Act, 1947. It held that the proviso merely exempted the income, profits and gains of the Baroda business when such amounts were not received in or brought into British India. However, the proviso did not remove the Baroda business from the substantive coverage of section 5. Consequently, the business itself fell within the scope of the Act, and its losses could be set off against the profits earned by the same assessee from its business in British India.

The judgment therefore affirmed that the losses of the Baroda business were permissible to be set off against the profits of the business in British India, despite the limitation imposed by the third proviso. The Court set out the relevant provisions of the Act and confirmed that the respondent was entitled to the set‑off of losses against its assessable profits.

The Court noted that the dispute concerned the Business Profits Tax Act, 1947 (Act No. XXI of 1947), which it referred to simply as the Act. The appellant was identified as the Commissioner of Income‑tax for Ahmedabad, while the respondent was a private limited company named Karamchand Premchand Ltd., Ahmedabad, which the Court subsequently called the assessee. The factual background disclosed that the assessee managed the Ahmedabad Manufacturing and Calico Printing Co. Ltd. and also owned a pharmaceutical undertaking situated in the Baroda State, an Indian State then operating under the name Sarabhai Chemicals. For the purposes of the judgment the term “India” was used to denote British India, thereby distinguishing it from an Indian State. The assessee’s operations within India generated business profits that fell within the scope of the Act, whereas the Baroda venture incurred losses during four distinct chargeable accounting periods: from 1 April 1946 to 31 December 1946; from 1 January 1947 to 31 December 1947; from 1 January 1948 to 31 December 1948; and from 1 January 1949 to 31 March 1949. The assessee argued that these losses should be allowed to offset its assessable Indian income, thereby reducing the tax liability. The Income‑tax Officer rejected this claim, holding that the Act did not extend to a business situated in an Indian State unless the profits or gains of that business were actually received, deemed received, or brought into India. Upon appeal, the Appellate Assistant Commissioner reversed the officer’s decision, upheld the assessee’s contention, and allowed the appeal. The Department then appealed to the Appellate Tribunal, which interpreted the relevant proviso to section 5 of the Act to mean that neither profits nor losses of a business in an Indian State could be considered unless they were received or deemed received in or brought into India. Consequently, the Tribunal set aside the Assistant Commissioner’s order and reinstated the Income‑tax Officer’s original finding. Following this, the assessee filed four separate applications—one for each of the chargeable periods—seeking a declaration from the Tribunal that a legal question arose from its order. These applications were consolidated. Satisfied that a question of law did indeed arise in the matters numbered 85, 86, 87 and 88 of 1953‑54, the Tribunal referred the issue to the Bombay High Court, phrasing the question as: “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

The High Court answered the reference in the affirmative, holding that the assessee was permitted to deduct the losses it incurred in its Baroda business and to set those losses off against the profits earned in the taxable territories. After that decision, the appellant proceeded to move the High Court for a certificate of fitness. The certificate was granted, and on the basis of that certificate the present appeal was brought before this Court. The appellant’s principal contention is that the High Court erred in its interpretation of the true scope and effect of the third proviso to section 5 of the Act. To determine whether that contention has merit, it is necessary to refer to several provisions of the Act in order to grasp its overall scheme. In 1940 the Central Legislature enacted the Excess Profits Tax Act, 1940 (Act No. XV of 1940) to impose a tax on excess profits arising from certain businesses. The judgment will later refer to specific provisions of that Act as required. For the purposes of the 1940 Act, the term “chargeable accounting period” was defined to mean (a) any accounting period that fell entirely within the period commencing on 1 September 1939 and ending on 31 March 1946, and (b) where an accounting period straddled the boundaries of that period, the portion of the period that fell within the said dates was deemed the chargeable accounting period. It is noteworthy that the original period covered only from 1 September 1939 to 31 March 1941, but successive annual Finance Acts extended it step‑by‑step until it finally covered up to 31 March 1946. In the legislation enacted in 1947, the definition of “chargeable accounting period” was revised to mean (a) any accounting period falling wholly within the term beginning on 1 April 1946 and ending on 31 March 1949, and (b) where an accounting period fell partly inside and partly outside that term, the part that lay within the term was to be treated as the chargeable accounting period. The 1947 Act applied throughout the whole of India. Section 2(3) of the Act defines the word “business” to include any trade, commerce, manufacture or similar activity, the profits of which are chargeable under section 10 of the Indian Income‑Tax Act, 1922. Two provisoes follow that definition; the second proviso provides that all businesses to which the Act applies and that are carried on by the same person shall be treated as a single business for the purposes of the Act. The expression “taxable profits” is defined in section 2(17) as the amount by which the profits for a chargeable accounting period exceed the “abatement” for that period, the term “abatement” itself being defined in section 2(1). The charging provision is found in section 4, and the relevant portion of that section may be read as follows to understand the general scheme of the tax imposed: “S. 4. Charge of tax‑Subject to the provisions of this Act, there shall”.

Section 4 of the Act provided that, for any business to which the Act applied, a tax called “business profits tax” must be charged, levied and paid on the amount of taxable profits earned during each chargeable accounting period. The term “taxable profits” referred to the amount by which the profits for the period exceeded the abatement defined in the Act. For any chargeable accounting period that ended on or before 31 March 1947, the tax rate was fixed at sixteen and two‑thirds per cent of the taxable profits. For any chargeable accounting period beginning after that date, the rate was to be the percentage of taxable profits that the annual Finance Act subsequently fixed. In short, the statutory scheme required that a business falling within the scope of the Act pay a levy known as business profits tax on its taxable profits, at a rate of sixteen and two‑thirds per cent for periods ending on or before 31 March 1947, and at whatever percentage the Finance Act prescribed for later periods.

Section 5 dealt with the application of the Act. It declared that the Act would apply to every business of which any part of the profits made during a chargeable accounting period was chargeable to income‑tax by virtue 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 subsection. The first proviso stated that the Act would not apply to any business whose whole profits accrued or arose outside the taxable territories when the business was carried on by, or on behalf of, a person who was resident but not ordinarily resident in those territories, unless the business was controlled in India. The second proviso provided that where only a part of a business carried on by a person who was not resident or not ordinarily resident accrued or arose in the taxable territories, or was deemed to have accrued there under the Indian Income‑tax Act, 1922, the Act would apply only to that part, and that part would be treated as a separate business for all purposes, except where the business of a resident but not ordinarily resident person was controlled in India. The third proviso clarified that the Act would not apply to any income, profits or gains of a business accruing or arising within any part of India to which the Act did not extend, unless such income, profits or gains were received in, brought into, or assessable under Section 42 of the Indian Income‑tax Act, 1922, in any chargeable accounting period.

The Court observed that the provision states that income, profits or gains are taxable when they are brought into the taxable territories in any chargeable accounting period or when they are assessable under section 42 of the Act. The Court noted that the expression “taxable territories” in the provisoes replaced the earlier term “British India” by virtue of the Adaptation of Laws Order of 1950. The third proviso originally spoke of any income, profits or gains of business accruing or arising within “an Indian State”. Subsequently the phrase “a Part B State” was substituted, and later the Adaptation of Laws (No 3) Order of 1956 introduced the present wording “any part of India to which this Act does not extend”. The Court held that for the purpose of the present appeal these successive changes do not affect the outcome, and therefore the third proviso may be understood as referring to any income, profits or gains of a business that accrue or arise in an Indian State. The Court further explained that Section 6 provides for relief in the event of a “deficiency of profits”, an expression defined in section 2(7) of the Act. The remaining provisions of the Act, which deal with the issuance of notices of assessment, assessment procedures, profits escaping assessment, penalties, appeals and related matters, were noted as not being directly relevant to the issues before the Court in this appeal.

The Court then turned to sections 4 and 5 of the Act and explained that these sections make clear that the unit of taxation is the “business”, meaning any business to which the Act applies. It was further explained that where a person carries on more than one business that falls within the ambit of the Act, all such businesses carried on by the same person are to be treated as a single business for the purposes of the Act. In the substantive part of section 5, the Court described the test for determining to which business the Act applies. The section provides that the Act applies to every business of which any part of the profits earned during the chargeable accounting period is chargeable to income‑tax under 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 under clause (c) of that sub‑section. By referring to those provisions of the 1922 Act, the Court observed that section 5, in its substantive part, brings the assessee’s Baroda business within the scope of the Act irrespective of whether the profits accrued or arose in India or in Baroda, even though the Act itself extends only to India. The Court noted that counsel for the appellant conceded that even without the provisoes, section 5 alone would have captured the Baroda business within its wide ambit, thereby making the Act applicable to that business. Nevertheless, the appellant’s contention was that the third proviso operates to exclude the Baroda business from the purview of the Act, except to the extent that the income, profits or gains of that business are received in or brought into India.

In this appeal, the assessee’s counsel argued that the third proviso of section 5 should be read only as an exemption of the income, profits or gains of the Baroda business to the extent that such amounts were received in, deemed to be received in, or brought into India. According to that construction, the business itself was not removed from the operation of the Act; rather, the substantive part of section 5 continued to apply to the Baroda enterprise, and consequently the losses incurred by that business could be set off against the profits of the assessee’s Indian operations. The appellant put forward this view as one of the two principal rival submissions that required consideration. The other rival submission, advanced by the respondent, maintained that the third proviso operated to exclude the Baroda business entirely from the reach of the Act unless its income, profits or gains were actually received in, deemed to be received in, or brought into the taxable territories during a chargeable accounting period. To assist the Court in resolving the issue, it examined the operative provisions of sections 4 and 5 of the Indian Income‑tax Act. Section 4 was identified as the charging provision that imposed tax on the amount of taxable profits for any chargeable accounting period arising from any business to which the Act applied. The Court noted that the corresponding provision in the Excess Profits Tax Act, 1940, was also section 4, which levied tax on the excess of profits over standard profits for the same type of business. Both statutes therefore treated the “unit” of taxation as the business itself. Section 5, in its substantive part, extended the applicability of the Act to every business whose profits were chargeable to tax under the relevant sub‑clauses of section 4, thereby bringing the Baroda business within the ambit of the statute.

The Court then framed the precise question that required answer: whether the third proviso to section 5 excluded the Baroda business except for the portions of income, profits or gains that were received, deemed received, or brought into the taxable territories, or whether the proviso merely removed the income, profits or gains from the scope of the Act while leaving the business itself subject to sections 4 and 5. If the former interpretation were correct, the appellant would have been entitled to succeed, because the losses of the Baroda business could be set off against Indian profits. If the latter interpretation prevailed, the High Court’s judgment would have been affirmed. The High Court had observed that, irrespective of the approach adopted, the wording of the third proviso created certain difficulties, and that any ambiguity in the language should be construed in favour of the assessee. The Court concurred with that reasoning, noting that the language of the proviso, when read in its entirety, led to the same conclusion reached by the High Court, and therefore upheld the High Court’s answer to the contested issue.

In this matter, the Court concurred with the High Court that the question presented was not entirely free from difficulty, yet, based on the wording of the third proviso as it stands, the answer arrived at by the High Court was considered correct. The appellant did not argue that the first and second provisos to section five were applicable to the facts of the case. Nevertheless, the Court found it important to examine the specific language of those two provisos and to compare them with the language used in the third proviso. The first proviso, as it is phrased, provides: “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.” This formulation is straightforward and clearly excludes the business described therein from the scope of the Act. In a similar manner, the second proviso excludes, under certain circumstances, a portion of a business and uses precise language to give effect to that exclusion. By what may be described as a legal fiction, the second proviso separates a business into two distinct parts, treating one part as excluded from the Act while permitting the Act to apply to the other part only. In contrast, the third proviso does not employ language that outright excludes any business. Rather, it merely removes from the ambit of the Act the “income, profits and gains” of a particular business. Consequently, the wording of the third proviso appears more suited to create an exemption from tax of income, profits, or gains, instead of excluding the entire business from the Act’s reach.

The appellant contended that this construction produced an anomaly: when income, profits or gains are not brought into India, they escape taxation, yet the losses of a business situated outside India are still taken into account when calculating profits within India. The appellant argued that such an outcome could not have been the legislature’s intention when drafting the third proviso to section five. The appellant further maintained that the purpose of the third proviso was to exclude a business located in an Indian State, together with its income, profits and gains, unless such profits were received in or brought into India. This line of argument, while not lacking plausibility, required careful consideration by the Court. The Court therefore referred to the relevant provisions of the Excess Profits Tax Act, 1940. In that earlier statute, the substantive part of section five and its first and second provisos were drafted in identical language, whereas the third proviso to section five of the Excess Profits Tax Act, 1940, was phrased quite differently from the third proviso to section five of the present Act. The third proviso of the 1940 Act 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…” This distinct wording in the earlier statute highlighted a clear intent of exclusion, prompting the Court to examine why the legislature chose a different expression for the third proviso in the current statute.

The Court reproduced the wording of the third proviso to section five of the Act, which stated that when a part of a business earned its whole profits in a Part B State, that part was to be treated, for the purposes of the provision, as a separate business whose entire profit accrued or arose in a Part B State, while the remaining part of the business was to be treated, for all purposes of the Act, as a separate business. The Court observed that this language was clearly an expression of exclusion, indicating that the Excess Profits Tax Act did not apply to a business whose profits accrued or arose in a Part B State. The Court then asked why the legislature had employed different language in the third proviso to section five of the Income‑Tax Act. Counsel for the appellant submitted that the alteration in wording was intentional and aimed to render 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 were brought into India, whereas under the third proviso of the Excess Profits Tax Act the same income would not become taxable even when brought into India. Counsel for the assessee, on the other hand, argued that the change in language was motivated by a different purpose. The counsel pointed out that the third proviso to section five of the Excess Profits Tax Act, 1940, and section fourteen paragraph two clause c (now deleted) of the Indian Income‑Tax Act, 1922, were enacted at roughly the same time and that the broad object of both provisions was to exclude from taxation the profits of a business carried on in an Indian or Part B State. However, under the Excess Profits Tax Act, 1940, such profits were not taxable even if received in or brought into India, whereas under section fourteen paragraph two clause c of the Indian Income‑Tax Act, those profits became taxable if received in or brought into India. The counsel for the assessee maintained that the change in language removed this discrepancy and moreover aligned the position under the new proviso with that under section fourteen paragraph two clause c, meaning that although profits of a business in an Indian State could not be taxed unless they were brought into the taxable territories, losses incurred by such a business could still be set off against the overall profit of the business. To support this view, the counsel relied on the Supreme Court’s decision in Commissioner of Income‑Tax, Mysore, Travancore‑Cochin and Coorg v. Indo‑Mercantile Bank Ltd.; on the Bombay High Court decisions in Commissioner of Income‑Tax, Bombay City v. Murlidhar Mathurawalla Mahajan Association; and in Commissioner of Excess Profits Tax, Bombay City v. Bhogilal H. Patel, Bombay. The Court noted that the first two authorities examined the effect of section twenty‑four paragraph one of the Indian Income‑Tax Act, 1922, particularly with reference to its first proviso.

The Court examined the provisions as they existed at the relevant time and considered their effect on section ten of the Income‑tax Act. It held that sub‑section (1) of section twenty‑four dealt only with the set‑off of a loss under one head against profits under any other head. Consequently, the old first proviso to that sub‑section applied and barred the right of set‑off only where a loss incurred in an Indian State was sought to be set off against Indian profits that fell under a different head. However, when the assessee attempted to set off his loss incurred in an Indian State against his Indian profits that were charged to the same head – for example, the loss from 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. In such a case the assessee was entitled to the set‑off under section ten, as affirmed in the authorities reported in [1959] Supp. 2 S.C.R. 256, [1948] 16 I.T.R. 146 and [1952] 21 I.T.R. 72 of the Indian Income‑tax Act.

Learned counsel for the assessee submitted that the same principle should apply to the third proviso of section five of the Act. He argued that, under section ten of the Income‑tax Act, different businesses are treated as one head, and to determine the profits and gains of a business the assessee may set off, within that head, all losses incurred against the total profits. By analogy, counsel contended that the Baroda business of the assessee falls within the ambit of section five, even though the income, profits or gains of that business are excluded by the third proviso unless they are received or brought into India. He further pointed out that the position under the Excess Profits Tax Act was different, as explained in the case of Bhogilal H. Patel. In that case the learned Chief Justice observed that the contention raised by Mr Kolah relied on the language of the proviso stating that “this Act shall not apply to any business the whole of the profits of which accrue or arise in an Indian State”. The Chief Justice held that this statement does not mean that the Act is inapplicable to the profits themselves; rather, it means that the Act does not apply to any business whose entire profits arise in an Indian State. The expression “the whole of the profits of which accrue or arise in an Indian State” therefore describes the nature of the business that is excluded from the Act’s purview. Counsel emphasized that the third proviso to section five uses this precise phrasing, not the wording employed in the Excess Profits Tax Act, and that, according to the Chief Justice’s interpretation, this difference in language is decisive.

Counsel for the assessee contended, and the Court found the argument persuasive, that the legislature was fully aware of the wording employed in section 14(2)(e) of the Indian Income‑tax Act and of the effect of those provisions when it drafted the third proviso to section 5 of the Act. The counsel asserted that if the legislature’s intention had been to exclude the business itself from the scope of the statute while still taxing the profits that were brought into the taxable territories, then the language it chose actually failed to accomplish that purpose. On behalf of the appellant, it was highlighted that the third proviso states: “Provided further that the Act shall not apply to any income, profits or gains of a business, etc.” The argument was that this phrasing – that the Act shall not apply – is suitable to exclude from the Act a business whose profits accrue or arise in an Indian State, except to the extent that such profits are brought into the taxable territories. To support this position, reference was made to section 4(3) of the Indian Income‑tax Act as it existed prior to 1939, and reliance was placed on the decisions in Commissioner of Income‑tax, Madras v. M. P. T. K. M. M. S. M. A. B. Somasundaram Chettiar and Commissioner of Income‑tax, Bombay v. The Provident Investment Co. Ltd. It was observed that the earlier section 4(3) expressly provided that the Act (meaning the Indian Income‑tax Act, 1922) would not apply to certain classes of income, and that in the cited cases the courts interpreted the word “business” to mean a business whose profits were being assessed in the year under consideration, thereby denying any deduction of expenses incurred by a foreign business. However, the Court was not persuaded that the expression “the Act shall not apply” alone was decisive in this matter. The Court emphasized that the third proviso must be read in its entirety and within the context in which it appears in order to ascertain its meaning. Consequently, it was concluded that it would be difficult to hold that the proviso excludes the Baroda business except insofar as its profits are brought into the taxable territories. The wording expressly provides that the Act shall not apply to any income, profits or gains of a business accruing or arising in an Indian State, and it does not state that the business itself is excluded from the Act’s purview. Therefore, the third proviso must be construed together with the substantive portion of section 5, which incorporates the Baroda business, and with the language of the first and second provisos, which clearly employ the expression of excluding the business itself.

In this case, the Court examined a citation to (1931) 1 L. R. 56 Bom. 92 and considered the language that excluded the business mentioned in that precedent. The Court observed that the third proviso of section 5 does not contain the same wording of exclusion. Counsel for the appellant attempted to reinterpret the proviso so that it would appear to exclude a business whose income, profits or gains arise in an Indian State. The Court found this approach untenable because the third proviso does not expressly state such an exclusion; rather, it employs language that merely exempts from tax those income, profits or gains unless they are received in, or brought into, India. The Court then turned to the meaning of the phrase “income, profits or gains.” Within the context of the third proviso, the expression cannot be read to include losses, since the latter part of the proviso specifies that exemption applies only “unless such income, profits or gains are received … into the taxable territories.” Losses, unlike income or profits, cannot be brought into the taxable territories except in a purely accounting sense, and therefore the phrase must be understood uniformly throughout the proviso. Consequently, the Court concluded that the appellant could not argue that the third proviso excludes the business altogether, because such an interpretation would remove not only income, profits or gains but also the losses of the business from the scope of the Act. The appellant further contended that, although the wording of the third proviso to section 5 resembles that of section 14(2)(c) of the Indian Income‑tax Act, the two provisions are not identical and their effects should not be regarded as substantially the same. The Court noted that section 14(2)(c) provides an exemption only for income, profits or gains accruing in an Indian State, while still treating those amounts as part of “total income” for aggregation purposes, allowing the normal set‑off of profits and losses wherever they arise. Counsel for the appellant argued that the situation differed under the third proviso to section 5 because it uses the expression “the Act shall not apply” and, according to that argument, there is no provision for exempting profits from tax while still including them in “total income.” The Court agreed that the complication of excluding profits from tax while counting them for total income does not arise under the third proviso to section 5, but held that the argument was essentially the same as one previously considered. The discussion therefore returned to the fundamental question of whether the third proviso to section 5 merely exempts the income, profits or gains, rather than excluding the business itself.

The Court examined whether the third proviso to section 5 excluded the Baroda business entirely or merely exempted the income, profits or gains of that business. It observed that if the proviso excluded the business, the appellant’s contention that the effect of the proviso differed from the effect of section 14(2)(c) of the Income‑Tax Act would be correct. Conversely, if the proviso merely exempted the income, profits or gains of a business to which the Act otherwise applied, then the effect would be the same as under section 14(2)(c). The Court emphasized that any exclusion must be considered with reference to the business, which is the unit of taxation. It noted that the first and second provisos to section 5 operate in that manner, whereas the third proviso does not operate in the same way.

The Court then considered the argument that the construction adopted by the High Court could lead to consequences that the legislature could not have intended. This argument was raised in two respects: (a) the computation of capital under the rules in Schedule 11 when an assessee company sustained a loss in an Indian State; and (b) the relief for deficiency of profits when the assessee earned profits in an Indian State but sustained a loss in India. Regarding the first point, the High Court had examined rule 2A of the Schedule 11 rules and correctly pointed out that rule 2A created no difficulty. The Court was also not satisfied that any real difficulty arose with respect to relief for deficiency of profits in the second situation. It observed that the Act would not apply to such profits unless they were brought into India, and if they were brought into India, section 6 would provide the appropriate relief on the ground of deficiency of profits. Accordingly, the Court found it unnecessary to consider any hypothetical difficulty that might arise from the application of section 6.

The appellant relied on the third proviso to section 5 in support of the contention that the proviso excluded the Baroda business of the assessee, thereby preventing the losses of that business from being set off against the profits of the Indian business. The appellant could succeed only by establishing that the proviso clearly and without ambiguity excluded the Baroda business. The Court agreed with the High Court that any ambiguity in language must be resolved in favour of the assessee. However, after examining the wording of the proviso, the Court concluded that the proviso does not exclude the Baroda business; it merely exempts the income, profits or gains of that business unless they are received or deemed to be received in, or brought into, India. Accordingly, the Court held that the High Court had correctly answered the question of law referred to it. The appeal was dismissed with costs.