TMI Blog1961 (11) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... ther profits computed under section 10 and that the first proviso to sub-section (1) of section 24 of the Income-tax Act did not control the terms of the former section. At the instance of the Commissioner of Income-tax, the Tribunal has referred the following question to us for opinion under section 66(1) of the Act: Whether on a true interpretation of section 10 and sub-section (1) of section 24 and the first proviso thereto, the assessee was entitled to claim a set-off of the loss suffered by it in speculation business against the profits of the assessee in a business other than a business consisting of speculative transaction? The second proviso to section 24 which was inserted by section 3 of the Finance Act, 1953, is as follows: Provided further that in computing the profits and gains chargeable under the head 'Profits and gains of business, profession or vocation', any loss sustained in speculative transactions which are in the nature of a business shall not be taken into account except to the extent of the amount of profits and gains, if any, in any other business consisting of speculative transactions. Its ambit and scope came up for considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proviso meaningless and the proviso in question can be given due meaning and effect by confining its operation to the substantive part of section 24(1). This is so with regard to cases where the assessee claims to set off a business loss against income under any other head under sub-section (1) and the effect of the proviso is to prevent the set-off in such a loss in speculative transactions in the case of business against income under any other head. On the other hand another learned author, namely, V.S. Sundaram, in his work The Law Of Income-tax in India, eighth edition, states at page 780: Speculative transactions.--In 1953 a proviso to section 24(1) was inserted to restrict the set-off of speculative losses. It modifies, to the extent set out in the proviso, the computation under section 10 itself. The speculative transactions in the nature of business are separated (their profits or losses however being arrived at in accordance with section 10) and the net loss if any 'shall not be taken into account'. That need not however mean that this balance of speculative loss cannot be carried forward and set off against the speculative profit of the next year and so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee on Commissioner of Income-tax v. Indo-Mercantile Bank Ltd. [1959] 36 I.T.R. 1, 7 (S.C.), where the proviso appearing in section 32(1) of the Travancore Income-tax Act was almost similar to another proviso to section 24(1) of the Indian Income-tax Act. An argument was examined where a section framed as a proviso to a preceding section may sometimes contain matter which is in substance a fresh enactment adding and not merely qualifying that which goes before, this being based on Rhondda Urban District Council v. Taff Vale Railway Co. [1909] A.C. 253 At page 7 of the following observations were made: The proper function of a proviso is that it qualifies 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 is 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 is foreign to the main enactment. Although the Bombay bench was alive to the true functions of a proviso but it must be said with respect that the other provisions contained in section 24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulative losses in order to reduce their profits and clearly the legislature was aiming at that mischief and that mischief could only be removed by preventing the assessee from reducing his profits by these speculative losses, and that was what was exactly done by the legislature in enacting the proviso. The Bombay decision was followed by the Madhya Pradesh High Court in Commissioner of Income-tax v. Ramgopal Kaniyalal [1960] 38 I.T.R. 193. Indeed, a division bench of this court consisting of my Lord Falshaw and Chopra J. in Manohar Lal Munshi Lal v. Commissioner of Income-tax [1962] 41 I.T.R. 618, 620 accepted the reasoning of Chagla C.J. in the Bombay case and followed the same view. There also the question was whether the assessee firm which had earned profits in its trading accounts but had lost a sum of ₹ 20,206 in certain speculative transactions could set off that loss against the profits earned in the other business. After referring to the provisions of sections 6 and 10 and the scheme of Chapter III of the Act followed by Chapter IV and sub-section (1) of section 24 together with the proviso, the question was considered whether the proviso comes into operation onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income-tax v. Indo-Mercantile Bank Ltd. [1959] 36 I.T.R. 1 (S.C.) made the following observations at page 7 which are noteworthy: The territory of a proviso therefore is to carve out an exception to the main enactment and exclude something which otherwise would have been within the section. It has to operate in the same field and if the language of the main enactment is clear it cannot be used for the purpose of interpreting the main enactments or to exclude by implication what the enactment clearly says unless the words of the proviso are such that that is its necessary effect (vide also Corporation of the City of Toronto v. Attorney-General for Canada [1946] A.C. 32). Adverting to the comment in Kanga and Palkhivala's book (page 600) it is necessary to set out in the words of the learned authors the true interpretation of section 24(1) read with the proviso: In cases where the assessee claims to set off a business loss against income under another head under sub-section (1), it is clear that the first proviso applies and its effect is to prevent the set-off of such a loss in speculative transactions in the course of business against income unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d counsel for the assessee has endeavoured to show that the proviso if convinced to section 24(1) is not meaningless and if that be so, its scope should not be extended nor should it be treated as a substantive provision. Even if this suggestion can be substantiated by certain illustrations which were sought to be given but which were not clear and cogent, the question still is what was the intention of the legislature in enacting the proviso. If the intention clearly was to make a substantive provision for the purpose of computing the profits and gains chargeable under head (iv) of section 6, namely, profits and gains of business, profession or vocation , it would not be open to the courts to confine the operation of the proviso to section 24(1) alone. The reasons given by Chagla C.J. in his judgment for the insertion of the proviso by section 3 of the Finance Act, 1953, and the mischief that was sought to be remedied are weighty and must be borne in mind while interpreting the language of the proviso in question. It is well settled by now that it is legitimate to take into consideration for the purpose of interpretation of a statute the evil which was sought to be remedied. If t ..... 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