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Issues Involved:
1. Whether loss incurred by a registered firm in speculative business is liable to be apportioned amongst the partners. 2. Whether a registered firm is entitled to carry forward speculative business losses and set them off against profits in subsequent years. Issue-wise Detailed Analysis: 1. Apportionment of Speculative Business Losses: The primary legal question was whether the loss incurred by a registered firm in speculative business should be apportioned among the partners or if the firm is entitled to carry it forward and set it off against future speculative profits. The court examined the interpretation of section 24 of the Income-tax Act, particularly focusing on the first and second provisos to section 24(1). The court referred to the decision of the Bombay High Court in Keshavlal Premchand v. Commissioner of Income-tax [1957] 31 ITR 7, which held that speculative losses should not be taken into account except to the extent of profits from other speculative businesses. This interpretation was supported by other High Courts, including Madhya Pradesh, Punjab, Madras, Andhra Pradesh, and Calcutta. The court concluded that speculative losses are not included in the total income of the firm for the purpose of apportionment among partners. Therefore, speculative losses cannot be apportioned among the partners under the second proviso to section 24(1). 2. Carry Forward and Set-Off of Speculative Losses: The court analyzed whether the registered firm could carry forward speculative losses and set them off against future speculative profits. The court examined section 24(2) of the Income-tax Act, which allows for the carry forward of losses under certain conditions. The court noted that section 24(2) applies to speculative losses, allowing them to be carried forward and set off against future speculative profits. This interpretation was consistent with the legislative amendments made to section 24(2) over time, which included speculative losses within its scope. The court rejected the contention that speculative losses should be apportioned among partners under the second proviso to section 24(1), as this would contradict the main enactment of section 24(1) and the purpose of section 24(2). Conclusion: The court held that speculative losses incurred by a registered firm are not liable to be apportioned among the partners. Instead, the firm is entitled to carry forward these losses and set them off against future speculative profits. The court's interpretation harmonized the provisions of section 24(1) and section 24(2), ensuring that speculative losses are appropriately accounted for in the computation of taxable income. The court's decision was in line with the established legal principles and supported by precedents from various High Courts.
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