TMI Blog1965 (3) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... re here concerned, there was a speculation profit, which was computed at ₹ 2,38,777. The assessee contended before the Income-tax Officer that the said speculation loss amounting to ₹ 2,60,128 suffered by it in the earlier year, i.e., in the assessment year 1958-59, should be carried forward and set off against the said speculation profit of ₹ 2,38,777. The Income-tax Officer rejected this contention and apportioned the profits amongst the partners under section 23(6) in the same manner as he had apportioned the losses in the earlier assessment year 1958-59. The assessee appealed to the Appellate Assistant Commissioner and reiterated its contentions. It was argued before the Appellate Assistant Commissioner that the assessee-firm was entitled to carry forward the speculation loss of the earlier years under sub-section (2) of section 24 of the Act. This contention was not accepted by the Appellate Assistant Commissioner. The assessee took a further appeal before the Tribunal, and the same contention was reiterated on behalf of the assessee before the Tribunal. The Tribunal accepted the contention raised on behalf of the assessee. The view taken by the Tribunal in i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f section 24, and on a true construction of the relevant provisions of sub-sections (5) and (6) of section 23 and section 24 of the Act, the registered firm is not entitled to carry forward the speculation losses of the earlier years and have them set off against the speculation profits of the year of assessment. The speculation losses of the earlier years have to be apportioned to the respective shares of the partners in those very assessment years themselves. Mr. Mehta, on the other hand, contends that a registered firm is entitled to carry forward speculative losses of earlier year and set it off against the speculative profits earned in the year of assessment under sub-section (2) of section 24 of the Act. According to Mr. Mehta, the speculative losses do not get apportioned amongst the partners of a registered firm. They remain out of the apportionment and are available to a registered firm for being set off against speculative profits of the following year. Mr. Mehta stated before us that he adopts the decision of the Gujarat High Court in Commissioner of Income-tax v. Kantilal Nathuchand [1964] 53 I.T.R. 420, as his argument in support of the contention. It is indeed true ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This is the practice of this court, and, as we have already stated, it has been generally followed by this court, barring certain exceptions like where inadvertently the decision was not brought to its notice or where in the decision of the other courts some relevant provision of law had been omitted to be considered. The decision of the Gujarat High Court is a very elaborate one, considering all the relevant provisions of law. This is, therefore, not a case in which we should depart from the aforesaid policy of this court. The answer, therefore, will have to be against the Revenue. However, it should not be understood that, in our opinion, the contentions raised on behalf of the Revenue are without merit. Had the matter to be decided for the first time we might have agreed with the construction canvassed for on behalf of the Revenue, inasmuch as in our opinion, it is in harmony with the general intention of the legislature expressed in the Act in respect of the assessment of a registered firm. The relevant provisions in an enactment have to be construed as a whole. We may briefly state our reasons: Section 3, which is a charging section, charges to tax the total income ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anner provided in the Act. All the provisions of the Income-tax Act ultimately are directed towards the ascertainment of the total income, bringing it to tax, and the recovery of tax from persons liable to pay the tax. The proceedings ultimately culminate in an assessment under section 23 of the Act, under which the amount of total income is computed and the amount of tax payable by an assessee is quantified. The first stage, therefore, is determination of the income, either profit or loss, under the various heads. The second stage is adjustments and the results obtained under the different heads for determination of the aggregate amount of total income, and the last stage is determination of the amount of total income and quantification of the tax on the amount of total income so determined. Section 24 which relates to set-off of loss under one head against profits of another head for purposes of determination of total income thus comes into play after determination of the income under different heads, and the levy of tax under section 23 would be the final stage after the determination of the total income. The provisions of sections 24 and 23 are thus closely interconnected. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits and gains in the business of a registered partnership. After the said amount of total income is determined, the Income-tax Officer has to determine the tax payable by an individual partner on the basis of his total income inclusive of his share of profits in the partnership business. Proviso to sub-section 5(a) makes it clear that loss suffered by an individual partner in the business of the partnership enters his personal assessment, and he has a right to set off that loss against his income from other sources as well as to carry it forward and set off the unabsorbed loss against income of subsequent year in accordance with the provisions of section 24. The scheme of section 23(5) thus is that except a nominal tax levied on the registered firm in respect of its income in certain cases, the liability to pay tax thereon in substance is of its partners. The positive result of computation of total income of a registered firm, i.e., profits, or the negative result, i.e., loss, enters the assessment of the individual partners in proportion to their respective shares therein and is taken in account in the computation of their respective total income. No exception in respect of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm and where the assessee is a registered firm, any loss which cannot be set off against other income, profits and gains of the firm shall be apportioned between the partners of the firm and they alone shall be entitled to have the amount of the loss set off under this section. Explanation 1.--Where the speculative transactions carried on are of such a nature as to constitute a business, the business shall be deemed to be distinct and separate from any other business..... (2) Where any assessee sustains a loss of profits or gains in any year, being a previous year.....in any business, profession or vocation, and the loss cannot be wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no other head of income shall be carried forward to the following year, and (i) where the loss was sustained by him in a business consisting of speculative transactions, it shall be set off only against the profits and gains, if any, of any business in speculative transactions carried on by him in that year;..... Provided that--..... (c) nothing herein contained shall entitle any assessee, being a registered firm, to ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r speculative transactions. The question then is whether the speculative loss can be apportioned as amongst the partners of a registered firm. If they get apportioned amongst the partners under the second proviso to sub-section (1), it is clear that proviso (c) to sub-section (2) of section 24 provides that they are not available to the registered firm for being set off against its future income. Now, the argument advanced by Mr. Mehta in brief is that the first consequence of the aforesaid decision in Keshavlal's case [1957] 31 I.T.R. 7 is that the total income of an assessee registered firm chargeable to tax would not include loss in speculative business and the second consequence would be that the loss in speculative business would not be included in the income from business in respect of which a set-off can be claimed under section 24(1), and would not form part of the subject-matter of that section. As speculative loss does not form part of the subject-matter of sub-section (1) of section 24, it therefore does not form part of the subject matter of the loss which gets apportioned under the second proviso to section 24(1). Consequently, the speculative loss is available to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to computation of profits and gains under section 10 of a business, profession and vocation , but that does not mean that the said proviso has no connection whatsoever with the substantive provisions of sub-section (1) of section 24, or does not act as a proviso thereto. In our opinion, but for the first proviso, the speculative loss would have been available to an assessee for being set off against his income from other heads. Speculative transactions in the nature of a business carried on by an assessee are, by reason of the Explanation to section 24(1), deemed to be a distinct and separate business other than his other business. Speculative loss would, therefore, be a loss of profits and gains sustained by an assessee in a business which is distinct and separate from his other business. It may be that the said speculative loss is not taken into account in computing profits and gains of the business of an assessee other than the business in speculative transactions. But that only means that in the case of an assessee, carrying on business in speculative transactions as well as carrying on business other than speculative transactions, computation of profits and gains would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e head may not get set off against profits under another for reasons more than one. If there be no profits under other heads or no sufficient profits under other heads, the loss in its entirety or part cannot be set off. Similarly, loss, if it is a speculative loss, cannot be set off against the income of other heads by reason of the first proviso. It is such a loss which cannot be set off for one reason or another that is spoken of in sub-section (2) as well as in the second proviso to sub-section (1). If the speculative loss is not spoken of at all in or does not form part of the substantive provisions of sub-section (1), we find it difficult how it can be taken to sub-section (2). The clause in sub-section (2) is: and the loss cannot be wholly set off under sub-section (1), so much of the loss as is not so set off . It would be reasonable to assume that the language indicates that the loss which can be carried forward has capacity or quality of being set off under the substantive provisions of sub-section (1) of section 24, but are not set off on account of the other provisions in the section itself. If the speculative loss does not enter the substantive provisions of sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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