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Issues Involved:
1. Whether the assessee is entitled to set off and carry forward illegal speculation losses against other business income. Detailed Analysis: 1. Entitlement to Set Off and Carry Forward Illegal Speculation Losses Against Other Business Income: In all three references, the core issue revolves around whether the assessee can set off and carry forward illegal speculation losses against any other business income, based on the Supreme Court decision in Commissioner of Income-tax v. S. C. Kothari. Facts and Findings: - The assessee, an oil mill, incurred losses from forward contracts where no actual delivery of goods occurred, which were deemed illegal speculative transactions by the Income-tax Officer. The losses were disallowed for deduction against other income. - The Appellate Assistant Commissioner allowed the set-off of speculative losses against speculative profits, following the decision in Commissioner of Income-tax v. S. C. Kothari. - The Tribunal upheld this view, noting that all transactions were recorded in the same books of accounts and related to the same business, and that the income-tax department failed to establish that the businesses were distinct. Revenue's Argument: - The Tribunal misinterpreted the Supreme Court decision in S. C. Kothari's case. The revenue argued that illegal speculative losses cannot be set off against other business income, as such losses are not enforceable and thus not deductible under Explanation 2 to section 24. - The revenue contended that allowing such set-offs would result in an unfair advantage for those engaging in illegal activities over those conducting legal business. Assessee's Argument: - The assessee argued that the Tribunal correctly applied the Supreme Court's decision, which allows the set-off of illegal speculative losses against other business income under section 10(1), emphasizing that the real income should be brought to tax. Supreme Court Decision in S. C. Kothari's Case: - The Supreme Court held that losses from illegal business must be deducted to compute the true profits for taxation under section 10(1). However, it clarified that illegal speculative losses could not be set off under section 24(1) unless the transactions were part of the same business. - The Supreme Court directed the High Court to determine whether the profits and losses were from the same business, indicating that only if they were part and parcel of the same business, the losses could be deducted from the profits. High Court's Conclusion: - The High Court concluded that the Tribunal misinterpreted the Supreme Court's decision. The Supreme Court did not establish a broad principle allowing the set-off of illegal speculative losses against any other business income. - The High Court emphasized that the Supreme Court's ruling was specific to whether the illegal and legal transactions were part of the same business. - The High Court ruled that allowing set-off of illegal speculative losses against other business income would result in an unfair advantage and was not the intention of the Supreme Court. Judgment: - The High Court answered the questions in the negative, ruling against the assessee in all three references. The assessee is not entitled to set off illegal speculative losses against other business income. Costs: - No order as to costs was made, considering the facts and circumstances of the case.
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