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TMI Blog1973 (8) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... em set off against profits made in a subsequent year, also from speculation business. Each of the four assessees in these four references is a registered firm and we will refer to the facts in Income-tax Reference No. 5 of 1971 only by way of illustration. In this reference the assessee is a registered firm. It was also registered in the preceding years. Besides other business activities, the assessee carried on speculation business. For the year 1962-63, it suffered a loss of Rs. 26,947 in speculation business. In assessment year 1963-64, the firm made a profit of Rs. 93,598 in speculation and it incurred a loss of Rs. 34,275 in other business. The Income-tax Officer determined the total income of the assessee for the assessment year 1963-64 at Rs. 59,323, that is, profit made in the year 1963-64, from speculation less the loss incurred in that same year from his other business. The assessee contended before the Income-tax Officer that the speculation loss for the year 1962-63, namely, Rs. 26,947, should be set off against the speculation profit for the year under reference. This plea was rejected by the Income tax Officer who held that the speculation profit had to be allocated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y forward and set off of business losses. It is to be borne in mind that sections 70 and 71 apply only to set off of loss in the same assessment year whereas sections 72, 73 and 74 deal with losses in speculation business and losses under the head " Capital gains " and carry forward and set off of losses under each of these three specific heads. Section 72 deals with carry forward and set-off of business losses in any business other than speculation business and it provides that where for any assessment year, the net result of the computation under the head " Profits and gains of business or profession" is a loss to the assessee, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been set off or, where the assessee has income only under the head " Capital gains " or where he has no income under any other head, the whole loss shall, subject to the other provisions of Chapter VI, be carried forward to the following assessment year, and such carried forward loss can in the subsequent assessment year be set off again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets can be carried forward for eight years and from capital assets other than short-term capital assets can be carried forward for four assessment years. Then comes section 75 which is the most material section for the purposes of this judgment and we will reproduce it in full : "75. Losses of registered firms.-(1) Where the assessee is a registered firm, any loss which cannot be set off against any other income of the firm shall be apportioned between the partners of the firm, and they alone shall be entitled to have the amount of the loss set off and carried forward for set off under sections 70, 71, 72, 73 and 74." We are not concerned with the reference to section 74A which is at present in section 75(1) since that portion was inserted by the Finance Act of 1972. "(2) Nothing contained in sub-section (1) of section 72, sub-section (2) of section 73 or sub-section (1) of section 74 shall entitle any assessee, being a registered firm, to have its loss carried forward and set off under the provisions of the aforesaid sections." Since we are concerned in each of these four references with assessees which are registered firms, it is not necessary for us to refer to the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cond proviso to section 24(1) of the 1922 Act. Section 24(2) of the 1922 Act dealt with carrying forward and setting off of losses. Sub-section (2) of section 24 of the 1922 Act provided that where any assessee sustains a loss of profits or gains in any year, being a previous year not earlier than the previous year for the assessment for the year ending on the 31st day of March, 1940, in any business, profession or vocation, and the loss cannot be wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no other head of income, shall be carried forward to the following year and then provision is made for set off of carried forward losses in speculative transactions against profits and gains, in subsequent years from speculative transactions and losses sustained in any other business, profession or vocation to be set off against profits fom any business, profession or vocation at the first instance and then to be carried forward. This provision of section 24(2) so far as the first clause is concerned corresponds to section 73 of the 1961 Act. Section 75, sub-section (2), corresponds to the proviso to the clause (c) in se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss " in the first part and " any loss " in the second part of the second proviso to section 24(1) of the 1922 Act referred to the loss computed for the purpose of the main part of section 24(1) taken together with the first proviso thereto and did not comprise within their connotation the loss in speculative business which is not to be taken into account under the first proviso. The Supreme Court held that speculation loss of a registered firm kept apart under the first proviso to section 24(1) in computing its total income for one year could not be apportioned between the partners and the registered firm could claim to carry forward such loss and have it set off against speculation profits of the firm of a later year in accordance with section 24(2). We have already referred to the provisions of section 24 and we have pointed out that under the second proviso to section 24(1), if the assessee was a registered firm, any loss which could not be set off against other income, profits and gains of the firm were required to be apportioned between the partners of the firm and they alone were entitled to have the amount of the loss set off under section 24(1). Under clause (c) of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there is very little difference between the provisions of the 1922 Act and the 1961 Act regarding carrying forward and set off of losses carried forward from previous years. In V. S. Sundaram's Law of Income-tax in India, tenth edition, volume 1, under section 75, the commentary runs: " This reproduces in an amplified form, but without any change of substance, part of proviso in old section 24(2). A registered firm will set off its own current profits against its current losses and apportion the net loss or gain as the case may be to its partners and then drop out of the picture. Thereafter only the partners will be in the picture. They can set off their share of net income or net loss in the firm against their other loss or income, subject of course to the other provisions in this Chapter and similarly carry forward the unadjusted losses to be set off against other income in later years. Sub-section (2) merely expands the significance of the word ' alone ' in sub-section (1). Having apportioned the losses, the firm cannot carry forward the loss itself. Apportionment under sub-section (1) is obligatory. The firm has no choice. This sub-section nullified certain rulings which, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinct heads carried forward and set off, had been made available to the registered firm. But that is a matter of legislative policy with which we have nothing to do. We are merely interpreting the sections as they stand and in view of the scheme of sections which we have set out, the only conclusion is that the provisions of section 75(2) must be applied in the case of all registered firms and the benefit of having the losses carried forward and set off under the provisions of sections 71, 72 and 73 is not available to a registered firm. We may point out that under section 182 which deals with assessment of registered firms, provision is made for assessment of the total income of the firm. Under sub-section (1), in the case of a registered firm, after assessing the total income of the firm, the income-tax payable by the firm itself shall be determined and the share of each partner in the income of the firm shall be included in his total income and assessed to tax accordingly. Under sub-section (2) of section 182, if such share of any partner is a loss it shall be set off against his other income or losses carried forward and set off in accordance with the provisions of sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. This argument of Mr. Patel would have been tenable if the 1961 Act had adopted the scheme of the 1922 Act so far as carrying forward and setting off of losses was concerned. But, since there is a clear departure from the scheme of the 1922 Act in the provisions of section 75(2), this argument of Mr. Patel cannot be accepted and is, therefore, rejected. Under these circumstances, in our opinion, the only, conclusion which we have reached is that the decision of the Supreme Court in Commissioner of Income-tax v. Kantilal Nathutchand Sami , which interpreted the scheme of section 24 is not applicable to the scheme of sections 70 to 75 and particularly to the provisions of section 75(2). It is, therefore, obvious that a registered firm cannot have its losses from speculation business in one year carried forward and set off from speculation profits in another year in view of the clear-cut provisions of section 75(2). We may mention that the Kerala High Court in M. O. Devassia & Co. v. Commissioner of Income-tax also reached the same conclusion as we have done and it has held that the decision of the Supreme Court in Commissioner of Income-tax v. Kantilal Nathuchand Sami has no app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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