1979 (5) TMI 1 - SC - Income Tax

Whether Tribunal was correct in holding that a registered firm was not entitled to have its losses in speculation business carried forward for set off against future profits in speculation business - held that where the assessee is a registered firm for the purpose of set off and carry forward of the loss apportionment between the partners of the firm has got to be made and they alone are entitled to have the amount of the loss set off and carried forward for set off u/s 73

Summary

Issues:
Assessment of losses in speculation business for a registered firm under the Income-tax Act, 1961.

Analysis:
The Supreme Court heard six appeals concerning the assessment of a registered firm's speculation business losses for various assessment years. The firm operated in Kerala and engaged in both regular trade and speculation. The Income Tax Officer (ITO) determined losses and profits for different years. The firm argued that the speculation losses should be carried forward and set off against future profits, but the ITO disagreed. The Appellate Authority Commission (AAC) ruled in favor of the firm, citing a previous court decision. The Income-tax Appellate Tribunal, however, allowed the department's appeal based on distinctions between the Indian Income Tax Act of 1922 and the 1961 Act. The Tribunal referred a question to the High Court regarding the firm's entitlement to carry forward losses in speculation business. The High Court of Kerala ruled in favor of the revenue, leading to appeals in the Supreme Court.

In a similar case from 1967, the Supreme Court had considered the set off of speculation losses against future profits under the 1922 Act. However, the current case under the 1961 Act raised different considerations. Sections 73 and 75 of the 1961 Act govern the set off of speculation losses for registered firms. Section 73 specifies that speculation losses can only be set off against profits from another speculation business and can be carried forward for up to 8 years. Section 75 further clarifies that losses of registered firms must be apportioned among partners and cannot be set off under certain provisions. The Supreme Court affirmed the High Court's decision, stating that the firm's losses cannot be carried forward and set off under the 1961 Act, contrary to the previous ruling under the 1922 Act.

The Supreme Court dismissed all appeals, upholding the decisions of the Tribunal and the High Court. The court emphasized that the provisions of the 1961 Act, particularly sections 73 and 75, do not allow registered firms to carry forward speculation losses for set off against future profits. This interpretation aligns with decisions from other High Courts, reinforcing the inapplicability of previous rulings under the 1922 Act to assessments under the 1961 Act. The appeals were dismissed with costs, and the court awarded a hearing fee for one set only.