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TMI Blog1962 (9) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... ies. The Income-tax Officer disallowed this amount on the ground that this amount was lost on speculation in gunnies and speculation was not the assessee's line of business, so that the loss could not be set off against any profits. As I have stated above, the assessee carried on an extensive business in gunnies. In a statement filed on behalf of the assessee company which is set out at pages 25 and 26 of the paper-book, it has been stated that in the early part of the year 1952, in the usual course of business, the assessee company had entered into forward contracts in gunnies for the purpose of export through brokers of the Indian Jute Mills Association. Such contracts were in Form A of the said association. In view of certain difficulties caused by a certain notification of the Controller of Exports in regard to export of jute goods to Pakistan, and the gradual decline in the international market price of jute goods, the assessee company entered into a number of settlement contracts. The result of such settlement contracts was that at the beginning the company made profit in some cases but later on consistently suffered loss and the total of such losses amounted to S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 6. That section lays down the heads of income chargeable to income-tax, e.g., salaries, income from property and profits and gains of business, profession or vocation . In this case, we are concerned with the head, profits and gains of business . The next section to be considered is section 10. Sub-section (1) to section 10 lays down that the tax relating to business shall be payable by an assessee under the head profits and gains of business, profession or vocation , in respect of the profits or gains of any business, profession or vocation carried on by him. This is the general provision. Sub-section (2) lays down the method of making certain allowances in computing such profits or gains. It has now been held that these are not exhaustive by themselves in the computation of business income. The next section is section 24, which deals within the right to set off losses in computing the aggregate income of an assessee. The relevant part thereof runs as follows: 24. Set-off of loss in computing aggregate income.--(1) Where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in section 6, he shall be entitled to have the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uently, this loss cannot be allowed, because there is no non-speculative transaction against which this particular loss could be set off. It appears to me that the reasoning has been simply put and is correct. The view finds support from decisions of this High Court, as also the Bombay High Court, the Punjab High Court, the Madras High Court and the Madhya Pradesh High Court. Everywhere, it has been held that the interpretation made by the Tribunal is the correct interpretation. In their book on Income-tax, Messrs. Kanga and Palkhivala have however made certain observations in which doubt has been thrown upon the point. In my opinion, the point of view taken by the learned authors is not correct and cannot be accepted. I do not propose to go into each and every authority and consider all the arguments and reasonings given therein. I shall consider certain points argued before us by Mr. Mitra in this case. He argued that section 24(1) allows a set-off between several headings of income as laid down under section 6. It is then said that the proviso provides for the setting off of profits and gains under the heading of speculative transactions only against profits and gains in o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion, is well within the province of a proviso. While sub-section (1) gives the right to set off a loss under one head against a profit and gain under another head, the proviso prevents such a set-off in respect of loss under the heading appropriate to a speculative transaction. In the case of a loss sustained in a speculative transaction, the right of set-off is severely limited to the profits and gains in other speculative transactions. If Explanation 2 was not there, we would have to consider what the expression speculative transaction meant under the general law. These transactions would be similar to the head of Gambling and wagering transactions under the law of contract. It is not always easy to decide as to whether a transaction is of a gambling and wagering nature under the ordinary law of contract. One of the factors to be taken into consideration is the initial intention of the parties to deliver or not to deliver the goods contracted for. I have already mentioned that the Appellate Tribunal said that, in the facts and circumstances of this case, the initial intention was not relevant. What was relevant was delivery. Now, if the matter rested on the ordinary law of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich are in the nature of a business . He argues that if you have a business including a number of transactions of the same nature, then if you are going to single out certain specified transactions as speculative transactions they must form a distinct or separate group. He argues that, in the present case, the facts are otherwise. In other words, in a series of transactions in gunnies, some transactions were non-speculative and others were speculative. Under such circumstances, the proviso does not apply. I must admit that I am unable to understand the logic of this argument. Perhaps, it is putting forward the views of Messrs. Kanga and Palkhivala in another form. I must point out that if that was so, the introduction of Explanation 1 would have been utterly superfluous. Explanation 1 says that where speculative transactions carried on are of such a nature as to constitute a business, the business shall be deemed to be distinct and separate from any other business. In considering the proviso, we are considering the profits and gains of a business. Other headings do not enter into the picture. But the proviso does not contemplate that the speculative transactions should form a separ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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