TMI Blog1966 (10) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... pretation that can be placed on the words " any such loss " in this part of the second proviso is that this expression refers to the loss as determined for purposes of the principal clause of section 24(1) read with the first proviso, and, thus, does not comprise within it loss incurred in speculative business referred to in the first proviso. The fact that proviso (c) to section 24(2) envisages the existence of loss which has not been apportioned between the partners clearly strengthens our view that the second proviso to section 24(1) does not cover loss in speculative business, and, consequently, does not permit that loss to be apportioned between the partners. Thus, section 24(2) also leads to the same conclusion which we have arrived at above on the interpretation of the language of section 24(1).Appeal dismissed. - - - - - Dated:- 11-10-1966 - Judge(s) : V. RAMASWAMY., J. C. SHAH., V. BHARGAVA JUDGMENT The judgment of the court was delivered by BHARGAVA J.---The respondent is a firm which, for purposes of assessment under the Income-tax Act (hereinafter referred to as " the Act "), was registered under section 26A of the Act during the assessment years 1958-59, 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set off against the profit from speculation business under clause (i) of section 24(2). This plea was rejected by the Income-tax Officer whose order was upheld by the Appellate Assistant Commissioner. On further appeal, the Income-tax Appellate Tribunal, however, accepted the plea of the respondent and held that the speculation losses sustained by the respondent in the two preceding assessment years must be adjusted against the profit earned in the account year in question in speculation business. Thereupon, at the request of the Commissioner of Income-tax, the following question of law was referred by the Tribunal for opinion to the High Court of Gujarat : " Whether, on the facts and in the circumstances of the case, and on a true interpretation of the various provisions of the Indian Income-tax Act, 1922, the Tribunal was correct in holding that speculation losses of the respondent-firm (assessee-firm) for the assessment years 1958-59 and 1959-60 should be set off against its speculation profit of Rs. 6,19,784 in its assessment for the assessment year 1960-61?" The High Court upheld the view of the Tribunal and answered the question in favour of the respondent. This appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... except to the extent that they will be set off against profits and gains in any other business which itself consists of speculative transactions. The effect of the proviso is that if there are profits in speculative business, those profits are added to income under the other heads mentioned in section 6 for purposes of computing the total income of the assessee in order to determine the tax under section 23 of the Act. On the other hand, losses in speculative business are not to be taken into account when computing the total income, except to the extent to which they can be set off against profits from other speculative business. The first proviso, thus, clearly limits the applicability of the principal clause of section 24(1) ; and, when applied, it governs the manner in which the total income of the assessee is to be computed. In the case before us, the Income-tax Officer was clearly right in the assessment years 1958-59 and 1959-60 in not setting off the losses in the speculative business against the income earned in those years either from property or from ready business in kappas. Then comes the second proviso, and it is clear from the language of this proviso that it does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t proviso is that when setting off the loss of profits and gains under one head against income, profits and gains under any other head in accordance with the principal clause, the loss suffered in speculative business is not to be taken into account and is to be kept apart. If the word " loss " in the first part of the second proviso were to be interpreted as including the loss in speculative business also, the result would be that the loss excluded under the first proviso would be included in the assessment of total income under the second proviso. In the circumstances, the only interpretation that can be placed on the words " any such loss " in this part of the second proviso is that this expression refers to the loss as determined for purposes of the principal clause of section 24(1) read with the first proviso, and, thus, does not comprise within it loss incurred in speculative business referred to in the first proviso. Then comes the second part of the second proviso which prescribes the personality of the assessee to which the provisions of section 24 are to be applied in cases where the assessee is a registered firm. Under this part, the loss, which cannot be set off agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loss incurred by a registered firm in speculative business which is not to be taken into account when computing the total income of the registered firm under section 23(1), (3) and (4) of the Act. Section 23(5)(a) clearly applies only to the total income of the firm which has been assessed under sub-section (1), sub-section (3) or sub-section (4) of section 23, and does not apply to any other income or loss. If speculative business of a firm has resulted in profit, that profit, as we have indicated earlier, would be taken into account when determining the total income of that firm. But if there be a net loss in all speculative businesses taken together, that loss is not to be taken into account when computing the total income, and, consequently, that loss would be outside the scope of section 23(5)(a) also. The first proviso to section 23(5)(a) cannot be, therefore, held to be applicable to loss in speculative business kept apart under the first proviso to section 24(1). Coming to sub-section (2) of section 24, on which reliance was placed by learned counsel for the Commissioner, we find that, instead of supporting the interpretation sought to be put on behalf of the Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich loss has been apportioned between the partners under the proviso to section 24(1). That loss would be the loss taken into account in computing the total income under section 23 in view of the principal clause of section 24(1) read with the first proviso to it and will, thus, exclude the speculative loss which is not taken into account. The language of this part of the proviso clearly envisages that there could be loss which has not been apportioned between the partners of a registered firm, so that the registered firm can claim to have it carried forward and set off in future years. Clearly, that can only be the loss in speculative business of the registered firm which is not taken into account, when computing the total income of the firm under section 23, in view of section 24(1). No question could have arisen of the legislature recognising the possibility of a firm claiming set-off of any loss incurred in an earlier year if, as contended on behalf of the Commissioner, even the loss in speculative business were to be apportioned between the partners under the second proviso to section 24(1). On the interpretation sought to be placed on behalf of the Commissioner, loss, other t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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