1968 (8) TMI 1 - SC - Income Tax

Whether speculative losses can be set off against profits from any other business activity under s. 10 - Held No - Revenue s appeal allowed

Summary

Issues:
1. Whether speculative losses can be set off against profits from any other business activity under section 10 in spite of the first proviso to section 24(1) of the Income-tax Act, 1922.

Detailed Analysis:
The judgment delivered by the Supreme Court addressed the issue of whether speculative losses can be set off against profits from any other business activity under section 10 despite the first proviso to section 24(1) of the Income-tax Act, 1922. The case involved an individual assessee deriving income from property, shares in joint stock companies, commission agency business, and shares in partnership firms during the accounting year relevant to the assessment year 1953-54. The assessee had returned a net profit in the personal business of commission agency, which included a share of loss from a partnership firm. The Income-tax Officer initially ignored the loss figure, prompting the matter to be taken up before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner directed the exclusion of a portion of the loss for setting it off against the income from speculative dealings in subsequent years. However, the Tribunal rejected the contention to set off the loss against profit from other business, citing precedent from Keshavlal Premchand v. Commissioner of Income-tax. The High Court disagreed with the decision in Keshavlal Premchand's case, leading to the appeals before the Supreme Court.

The judgment extensively discussed the relevant provisions of the Income-tax Act, particularly sections 6, 7, 8, 9, and 10, which outline the heads of income chargeable to tax. Section 24 of the Act allows for the set off of losses against income, profits, or gains under any other head in the same year. The judgment highlighted the proviso to section 24(1), which restricts the set off of losses sustained in speculative transactions against profits and gains under the head "Profits and gains of business, profession or vocation." The court delved into the interpretation and application of this proviso in light of previous case law, including Keshavlal Premchand's case, Commissioner of Income-tax v. Ramgopal Kaniyalal, and other decisions by various High Courts.

The Supreme Court referenced Commissioner of Income-tax v. Kantilal Nathuchand to emphasize the significance of the proviso to section 24(1) in computing total income. The court clarified that the proviso limits the applicability of the principal clause of section 24(1) and governs the computation of the assessee's total income. The judgment rejected arguments seeking to distinguish the observations in Kantilal Nathuchand's case, asserting that the proviso's language is clear and unequivocal in its restriction on setting off speculative losses against profits from other businesses. The court emphasized the importance of adhering to the explicit language of the proviso and the accompanying explanation regarding the treatment of speculative transactions as a separate business entity.

In conclusion, the Supreme Court ruled against the assessee in both appeals, affirming that speculative losses cannot be set off against profits from other business activities as per the provisions of section 24(1) and its proviso. The appeals were allowed with costs, and the decision favored the department.