The proviso to s. 24(1) of the Indian IT Act is a substantive enactment that restricts the set off of speculation losses against speculation profits only.

G.K.MITTER, J.

1. IN this reference under s. 66(1) of the INdian IT Act, the point of law involved is whether loss incurred by the assessee in a speculative business can be set off towards profits and gains of his other business not of a speculative nature arising to him in the same year under s. 24(1) of the Act read with the first proviso thereto. The relevant portion of s. 24(1) with the proviso is as follows :

"24 (1) Where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in s. 6, he shall be entitled to have the amount of the loss set off against his income, profits or gains under any other head in that year : Provided 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."

2. THE assessment year of the assessee-company for the purpose of this reference is 1953-54, the corresponding accounting year being the financial year ending on 31st March, 1953. During the relevant period the assessee carried on business in managing agency, money-lending, etc. It also carried on a speculative business in sales and purchases of gunny bags, the loss whereof was computed at Rs. 57,750. The assessee claimed to set off the same towards its business income from managing agency, moneylending, etc., in the year showing a net profit of Rs. 59,289. The ITO added back the loss of Rs. 57,750 and this was upheld both by the AAC and the Tribunal. The question which has been referred to us is :

"Whether, on the facts and in the circumstances of the case, the loss arising in the speculation business could be set off against the other business income falling under s. 10 of the Act ?"

The contention of the assessee is that profits and gains of its businesses, profession or vocation carried on during the year in question must be computed under s. 10. As it has several businesses each business must be computed separately deducting allowances permissible under the section and the net result thereof is to be taken either as its profits and gains or as its loss for the relevant year. In support of this, reliance was placed on the judgment of the Privy Council in Arunachalam Chettiar vs. CIT (1936) 4 ITR 173 (PC) : TC33R.539. The Judicial Committee there approved of the judgment of the Madras High Court in CIT vs. Arunachalam Chettiar (1924) ILR 47 Mad 660 where it had been held that a person carrying on two different trades, one individually and the other as a member of an unregistered firm, was entitled to set off for purposes of income-tax the loss incurred by him in respect of the partnership trade against profits made by him in his individual trade. Reliance was also placed on the very clear words of the Bombay High Court in CIT vs. Murlidhar Mathurawalla (1948) 16 ITR 146 (Bom) : TC45R.53 :

"Different businesses do not constitute different heads under the IT Act. All businesses wherever carried on constitute one head which falls under s. 10 of the Act and in order to determine what are the profits and gains of a business under s. 10, an assessee is entitled to show all his profits and set off against those profits, losses incurred by him under the same head. It is only when he proceeds to set off a loss under business against a profit under some other head that s. 24 comes into operation and various considerations will arise whether he is entitled to such a set-off or not."

The proviso set out above was not embodied in the Act at the time when Murlidhar Mathurawalla's case was heard and naturally Chagla C.J. who delivered the judgment in the above case, did not have to deal with effect of the proviso.

3. ACCORDING to the assessee the purpose of a proviso is to carve out something which would othe