TMI Blog1977 (2) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by GOSWAMI J.-- This appeal by certificate is from the judgment of the Gujarat High Court in an income-tax reference under section 66(1) of the Indian Income-tax Act, 1922 (briefly " the Act "). The two questions which were earlier referred by the Tribunal to the High Court at the instance of the Commissioner of Income-tax, Gujarat-III, are as follows : " (1) Whether, on the facts and in the circumstances of the case, the assessee was entitled to set off hedging loss of Rs. 31,745 against other profits of the previous year ? (2) Whether, on the facts and in the circumstances of the case, the assessee was entitled to carry forward the speculation loss of Rs. 41,603 to the next year ? " The following facts appear from the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellate Assistant Commissioner affirmed the order of the Income-tax Officer. The Appellate Assistant Commissioner, however, bifurcated the loss into two categories as follows : Rs. (1) Loss incurred in hedging transactions in the banned items 31,745 (2) Loss incurred in speculative transactions (other than hedging transactions) in the banned items 41,603 Total 73,348 The Appellate Assistant Commissioner held that the assessee was not entitled to the set-off of the loss against the assessee's other business under section 24(1) of the Act and also that such loss could not be carried forward to the following year under section 24(2) of the Act. On a second appeal by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n be subjected to tax as 'profits' under section 10(1) of the Act of 1922. The tax collector cannot be heard to say that he will bring the gross receipts to tax. He can only tax profits of a trade or business. That cannot be done without deducting the losses and the legitimate expenses of the business. " This court, however, held that the High Court was in error in considering that any set-off could be allowed in that case under the first proviso to section 24(1). This court observed : " The contract contemplated by Explanation 2 to the first proviso to section 24(1) of the Indian Income-tax Act, 1922, has to be an enforceable contract and not an unenforceable one by reason of any taint of illegality resulting in its invalidity. Set-o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermissible under section 10(2) of the Act because it is only by setting off of the loss of the particular business in groundnut seeds that true profit with regard to that particular business can be computed under section 10(2). There is, therefore, no reason to remit this case as the course earnestly suggested by Mr. Hathi for the respondent. In Kothari decision [1971] 82 ITR 794 (SC) it was observed by this court while remitting the case that " enough attention was not devoted to the business which the assessee was doing and in which the profit of Rs. 2,19,046 was made and the loss of Rs. 3,40,443 was sustained ". Such an uncertainty, however, is not present in the instant case. The submission of Mr. Hathi, therefore, cannot be accepted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained by him in any other business, profession or vocation, it shall be set off against the profits and gains, if any, of any business, profession or vocation carried on by him in that year : provided that the business, profession or vocation in which the loss was originally sustained continued to be carried on by him in that year ; and (iii) if the loss in either case cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following year and so on but no loss shall be so carried forward for more than eight years... " In the instant case there is no dispute about the following findings of facts : The assessee sustained losses in the relevant accounting year amounting to Rs. 73,348. This fig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wful and enforceable contracts. The assessee carrying on a lawful speculative business in the following year cannot derive benefit by carrying forward and setting off a loss from an illegal speculative business of the earlier year. Law will assume an illegal business to die out of existence with all its losses to the assessee in the year of loss itself. The assessee can derive no benefit on account of the unlawful business in the following year. The matter will be different if a lawful speculative business after incurring loss is discontinued and loss therefrom is carried forward for set off against any other lawful speculative business in the following year. This is the true legal effect of section 24(2)(i) of the Act in this case. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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