TMI Blog1973 (8) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... d not by the provisions of the Indian Income-tax Act, 1922. The assessment years are different in each case and the figure of carried forward loss is different in each case but the question of law which has been referred is the same, namely, whether a registered firm can carry forward losses incurred in speculation business and have them set off against profits made in a subsequent year, also from speculation business. Each of the four assessees in these four references is a registered firm and we will refer to the facts in Income-tax Reference No. 5 of 1971 only by way of illustration. In this reference the assessee is a registered firm. It was also registered in the preceding years. Besides other business activities, the assessee carried on speculation business. For the year 1962-63, it suffered a loss of Rs. 26,947 in speculation business. In assessment year 1963-64, the firm made a profit of Rs. 93,598 in speculation and it incurred a loss of Rs. 34,275 in other business. The Income-tax Officer determined the total income of the assessee for the assessment year 1963-64 at Rs. 59,323, that is, profit made in the year 1963-64, from speculation less the loss incurred in that sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e other than " Capital gains " is a loss and the assessee has no income under the head " Capital gains ", he shall, subject to the provisions of Chapter VI, be entitled to have the amount of such loss set off against his income, if any, assessable for that assessment year under any other head. Under section 72, provision is made for carry forward and set off of business losses. It is to be borne in mind that sections 70 and 71 apply only to set off of loss in the same assessment year whereas sections 72, 73 and 74 deal with losses in speculation business and losses under the head " Capital gains " and carry forward and set off of losses under each of these three specific heads. Section 72 deals with carry forward and set-off of business losses in any business other than speculation business and it provides that where for any assessment year, the net result of the computation under the head " Profits and gains of business or profession" is a loss to the assessee, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made between " profits from short-term capital assets" and " profits from capital assets other than short-term capital assets " and the carried forward loss has to be set off against the appropriate profits from short-term capital assets and assets other than short term capital assets and the carried forward loss from short-term capital assets can be carried forward for eight years and from capital assets other than short-term capital assets can be carried forward for four assessment years. Then comes section 75 which is the most material section for the purposes of this judgment and we will reproduce it in full : "75. Losses of registered firms.-(1) Where the assessee is a registered firm, any loss which cannot be set off against any other income 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 and carried forward for set off under sections 70, 71, 72, 73 and 74." We are not concerned with the reference to section 74A which is at present in section 75(1) since that portion was inserted by the Finance Act of 1972. "(2) Nothing contained in sub-section (1) of section 72, sub-section (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the section. Section 75, sub-section (1) of the 1961 Act, corresponds to this portion of the second proviso to section 24(1) of the 1922 Act. Section 24(2) of the 1922 Act dealt with carrying forward and setting off of losses. Sub-section (2) of section 24 of the 1922 Act provided that where any assessee sustains a loss of profits or gains in any year, being a previous year not earlier than the previous year for the assessment for the year ending on the 31st day of March, 1940, 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 then provision is made for set off of carried forward losses in speculative transactions against profits and gains, in subsequent years from speculative transactions and losses sustained in any other busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atio of the decision in Commissioner of Income-tax v. Kantilal Nathuchand Sami would not apply to the scheme of the sections in the 1961 Act. We have already noted one material departure from the scheme of 1922 Act and that departure is set out in section 75, sub-section (2), of the 1961 Act. The Supreme Court held that the expression " any such loss " in the first part and " any loss " in the second part of the second proviso to section 24(1) of the 1922 Act referred to the loss computed for the purpose of the main part of section 24(1) taken together with the first proviso thereto and did not comprise within their connotation the loss in speculative business which is not to be taken into account under the first proviso. The Supreme Court held that speculation loss of a registered firm kept apart under the first proviso to section 24(1) in computing its total income for one year could not be apportioned between the partners and the registered firm could claim to carry forward such loss and have it set off against speculation profits of the firm of a later year in accordance with section 24(2). We have already referred to the provisions of section 24 and we have pointed out that un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this departure that we will have to consider the effect of section 75(2) apart from the decision or without relying upon the decision of Commissioner of Income-tax v. Kantilal Nathuchand Sami. It is true, that Mr. Patel for the assessee, in each of these cases, pointed out to the commentaries on the Income-tax Act. He refereed to comments that there is very little difference between the provisions of the 1922 Act and the 1961 Act regarding carrying forward and set off of losses carried forward from previous years. In V. S. Sundaram's Law of Income-tax in India, tenth edition, volume 1, under section 75, the commentary runs: " This reproduces in an amplified form, but without any change of substance, part of proviso in old section 24(2). A registered firm will set off its own current profits against its current losses and apportion the net loss or gain as the case may be to its partners and then drop out of the picture. Thereafter only the partners will be in the picture. They can set off their share of net income or net loss in the firm against their other loss or income, subject of course to the other provisions in this Chapter and similarly carry forward the unadjusted l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsequent years under the provisions of sections 72, 73 and 74, as the case might be, is not available to a registered firm. Hence, necessarily it will have to pay a higher tax in the particular year in which a registered firm makes a profit under any of these three heads than the tax that it would have paid if the benefit of having the losses under three distinct heads carried forward and set off, had been made available to the registered firm. But that is a matter of legislative policy with which we have nothing to do. We are merely interpreting the sections as they stand and in view of the scheme of sections which we have set out, the only conclusion is that the provisions of section 75(2) must be applied in the case of all registered firms and the benefit of having the losses carried forward and set off under the provisions of sections 71, 72 and 73 is not available to a registered firm. We may point out that under section 182 which deals with assessment of registered firms, provision is made for assessment of the total income of the firm. Under sub-section (1), in the case of a registered firm, after assessing the total income of the firm, the income-tax payable by the firm i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he registered firm. He contended that sub-sections (1) and (2) of section 75 are two sides of the same coin, namely, section 75(1) which deals with apportionment of losses amongst the partners of a registered firm whereas sub-section (2) deals with the registered firm not being able to carry forward losses which have been actually apportioned between the partners. This argument of Mr. Patel would have been tenable if the 1961 Act had adopted the scheme of the 1922 Act so far as carrying forward and setting off of losses was concerned. But, since there is a clear departure from the scheme of the 1922 Act in the provisions of section 75(2), this argument of Mr. Patel cannot be accepted and is, therefore, rejected. Under these circumstances, in our opinion, the only, conclusion which we have reached is that the decision of the Supreme Court in Commissioner of Income-tax v. Kantilal Nathutchand Sami , which interpreted the scheme of section 24 is not applicable to the scheme of sections 70 to 75 and particularly to the provisions of section 75(2). It is, therefore, obvious that a registered firm cannot have its losses from speculation business in one year carried forward and set off ..... X X X X Extracts X X X X X X X X Extracts X X X X
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