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1973 (8) TMI 26 - HC - Income TaxCarry Forward and Set Off - Whether, on the facts and in the circumstances of the case, the assessee-firm was entitled to the set-off of speculation loss of Rs. 26,947 determined for the assessment year 1962-63, against speculation profit made in the year under reference ? - we answer the question referred to us in each of these four references in the negative and against the assessee
Issues Involved:
1. Entitlement of a registered firm to set off speculation losses from previous years against speculation profits in subsequent years under the Income-tax Act, 1961. 2. Comparison of the provisions of the Income-tax Act, 1961, with the Indian Income-tax Act, 1922. 3. Applicability of the Supreme Court decision in Commissioner of Income-tax v. Kantilal Nathuchand Sami under the new Act. 4. Legislative intent and policy regarding the treatment of losses for registered firms. Detailed Analysis: 1. Entitlement of a Registered Firm to Set Off Speculation Losses: The primary issue is whether a registered firm can carry forward losses incurred in speculation business and set them off against profits made in a subsequent year from the same type of business. The court examined the provisions of sections 70 to 75 of the Income-tax Act, 1961. Section 73(1) specifies that any loss from speculation business can only be set off against profits from another speculation business. Section 75(2) explicitly states that a registered firm cannot carry forward and set off its losses under sections 72, 73, and 74. This provision creates a clear ban on registered firms from carrying forward and setting off such losses, distinguishing them from other types of assessees. 2. Comparison with the Indian Income-tax Act, 1922: The court compared the provisions of the 1961 Act with those of the 1922 Act. Under the 1922 Act, section 24 allowed for the carry forward and set off of losses, including speculation losses, with a proviso that registered firms could not carry forward losses apportioned among partners. The 1961 Act, however, introduced a significant departure by explicitly prohibiting registered firms from carrying forward and setting off losses under section 75(2). This change indicates a legislative intent to treat registered firms differently under the new Act. 3. Applicability of the Supreme Court Decision: The court considered the applicability of the Supreme Court's decision in Commissioner of Income-tax v. Kantilal Nathuchand Sami, which was based on the provisions of the 1922 Act. The Supreme Court had held that speculation losses of a registered firm could be carried forward and set off against future speculation profits. However, the court noted that the 1961 Act's section 75(2) represents a clear legislative departure from the 1922 Act, rendering the Supreme Court's decision inapplicable under the new Act. The court emphasized that the explicit prohibition in section 75(2) overrides any previous interpretations under the 1922 Act. 4. Legislative Intent and Policy: The court acknowledged that the legislative policy under the 1961 Act imposes a greater burden on registered firms compared to unregistered firms regarding the carry forward and set off of losses. The court noted that this policy decision is reflected in the clear language of section 75(2), which must be applied as it stands. The court rejected arguments suggesting that the provisions of section 78 or the scheme of section 182 implied any different treatment for registered firms. Conclusion: The court concluded that a registered firm cannot carry forward and set off its speculation losses from one year against speculation profits in another year due to the explicit prohibition in section 75(2) of the Income-tax Act, 1961. The court answered the referred question in the negative and against the assessee, affirming that the legislative changes in the 1961 Act must be upheld. The assessees were ordered to pay the costs of the reference to the Commissioner.
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