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TMI Blog2013 (8) TMI 552X X X X Extracts X X X X X X X X Extracts X X X X ..... speculative business loss of Rs. 1,66,63,443/- (which should be at Rs.1,67,08,443/-) and set off of carried forward non-speculative business loss of Rs.2,17,46,489/- (which should be Rs. 2,17,01,489/-) of the earlier years, is not allowable from current year's speculative business profit in view of section 72(1). 2. BECAUSE while disallowing the set-off of current year business loss of Rs.1,67,08,443/- (non-speculative) and earlier years carried forward business loss of Rs.2,17,01,489/- (non- speculative) from the current year's speculative profit of Rs.3,84,09,932/-, the Ld. CIT(A) has wrongly interpreted the provision of section 72(1) without appreciating that such a set-off of business loss is allowable under section 70(1) read with sections 71(1) and 72(1) and there is no prohibition under the law that business loss (non-speculative) can not be set-off against speculative profit. 3. BECAUSE the computation of Income filed-by the appellant as under: - Income from speculative business Rs.3,84,09,932.00/- Less: Set off of current year's non speculative Business loss Rs.1,67,28,443 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1998-99 and 2002-03 as evidenced from records is non-speculative business loss. However, a perusal of the assessment order for assessment year 2005-06 under appeal shows that there is speculation income to the extent of Rs.3,84,09,932/- computed by the AO as per discussion in para 6 of the assessment order reproduced in the foregoing paragraphs in para 10 of this order. The business loss of the appellant during the year is (-) Rs.1,66,63,443/- as computed by AO. However, the computation of the AO is suffers from serious mistake which is being corrected as follows:- The business loss of the current year to the extent of Rs.1,66,63,443/-. The said business loss is not liable to be set off from the profit of speculation business to the extent of Rs.3,84,09,932/-. The provisions of carry forward and set off of business loss as contained in section 70, 71 and 72 of the I.T. Act do not provide for setting of business loss against the speculation income of the current year. Further, it is also not covered for setting off of for being in the nature of speculation income. Section 73 of the I.T. Act separately provides for loss in speculation business. Further more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,932/-." 4. The assessee is not satisfied and is in appeal before us. 5. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position. 6. We find that so far as the question of speculation business being a distinct business, for the purpose of computation of business results i.e. profits/losses, is concerned, the scheme of the Income Tax Act envisages that losses in speculation business cannot be set off against other business profits. However, this bar does not operate the other way round. Section 73(1) specifically provides that any loss in speculation business cannot be set off except against profits and losses of another speculation business. Section 73(2) further provides that if speculation losses are carried forward, such losses can only be set off against profits and gains of speculation business. It is only in this context that Explanation 2 to section 28, which treats speculation business as distinct from other businesses, is relevant. No doubt, by the virtue of Explanation 2 to Section 28, when speculative transactions carried on by the assessee are of such a nature as to const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between losses in speculation and non-speculation business. It was only with effect from 1st April 1953 that the distinction between speculation business and non-speculation business was introduced by introducing a proviso to Section 24(1) of Income Tax Act, 1922, which is broadly in pari materia with the provisions of Section 73(1) and 73(2) of the present Income Tax Act, which stated that "Provided further that in computing the profits and gains chargeable under the head 'Profits and gains of business, profession or vocation', any loss sustained in speculative transactions which are in the nature of a business shall not be taken into account except to the extent of the amount of profits and gains, if any, in any other business consisting of speculative transactions". Elaborating upon the scope of this statutory provision, Hon'ble Supreme Court, in the case of CIT v. Jagannath Mahadeo Prasad [1969] 71 ITR 296, observed as follows: 'The answer to the question referred to the High Court obviously depends on the interpretation of the second proviso to section 24(1) of the Act. In interpreting this provision, the purpose of section 24(1) and (2) has to be ke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termine the tax under section 23 of the Act. On the other hand, losses in speculative business are not to be taken into account when computing the total income, except to the extent to which they can be set off against profits from other speculative business. The first proviso, thus, clearly limits the applicability of the principal clause of section 24(1); and, when applied, it governs the manner in which the total income of the assessee is to be computed. In the case before us, the Income-tax Officer was clearly right in the assessment years 1958-59 and 1959-60 in not setting off the losses in the speculative business against the income earned in those years either from property or from ready business in kappas.' (Emphasis, by underlining, supplied by us) 9. Clearly, therefore, there was a differentiation in approach towards profits and losses of the speculation business inasmuch as while its profits were to be taken into account for computation of overall income or losses, its losses were to be ignored for the said purpose. This position having been accepted by Hon'ble Supreme Court in the aforesaid case, we have no reasons to take any other view of the matter. The same princip ..... X X X X Extracts X X X X X X X X Extracts X X X X
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