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HIGH COURT OF ALLAHABAD
C.S.P. SINGH, R.M. SAHAI, JJ.
Commissioner Of Income-Tax - Appellant
Versus
Mangiram Gopi Chand - Respondent
Income-tax Reference 635 of 1972
Decided on : Apr 16, 1976
INCOME TAX - Speculative losses - Carry forward and set-off - Registered firm - Whether speculative losses of assessment years 1959-60, 1960-61 and 1961-62 could be carried forward and adjusted against the speculation profits of the assessee-firm for the assessment year 1964-65.
Fact of the Case:
The assessee, a registered firm, incurred speculation losses in the assessment years 1959-60 to 1961-62. In the assessment year 1964-65, the firm claimed that these losses should be set off against the speculation profits of that year. The Income-tax Officer disallowed the claim, but the Appellate Assistant Commissioner allowed it. The department appealed to the Tribunal, which upheld the order of the Appellate Assistant Commissioner.
Finding of the Court:
The Tribunal held that the assessee was entitled to carry forward and set off the speculation losses of earlier years against the speculation profits of the assessment year 1964-65, relying on the decision of the Supreme Court in Commissioner of Income-tax v. Kantilal Nathuchand Sami [1967] 63 ITR 318.
Issues: Whether the assessee was entitled to carry forward and set off the speculation losses of earlier years against the speculation profits of the assessment year 1964-65.
Ratio Decidendi: The court held that the assessee was not entitled to carry forward and set off the speculation losses of earlier years against the speculation profits of the assessment year 1964-65. The court distinguished the decision in Commissioner of Income-tax v. Kantilal Nathuchand Sami [1967] 63 ITR 318 on the ground that it was decided under the Income-tax Act, 1922, which was repealed by the Income-tax Act, 1961. The court held that Section 75 of the 1961 Act specifically provides that the losses of a registered firm cannot be set off against any other income of the firm and that they must be apportioned between the partners of the firm. The court also held that Section 6(c) of the General Clauses Act, which provides that the repeal of an enactment does not affect any right, privilege, obligation or liability acquired, accrued or incurred under the repealed enactment, did not apply in this case because Section 297(2) of the 1961 Act contains a self-contained code in respect of the operation of the old Act and the rights which might have been created under it.
Final Decision: The court answered the question referred to it in the negative, in favor of the department and against the assessee.
1. THE Income-tax Appellate Tribunal, 'B' Bench, Allahabad, has in compliance with the direction issued by this court under Section 256(2) of the Income-tax Act, 1961, referred the following question for our opinion :
"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the speculative losses of assessment years 1959-60, 1960-61 and 1961-62 could be carried forward and adjusted against the speculation profits of the assessee-firm for the assessment year 1964-65?"
2. THE assessee is a registered firm. In its assessment years 1959-60 to 1963-64, losses from speculative business were determined aggregating to Rs. 37,199 as under :
1959-60 Rs. 6,499
1960-61 Rs. 14,057
1961-62 Rs. 8,663
1962-63 Rs. 6,942
1963-64 Rs. 1038
Total Rs. 37,199
In the assessment year for 1964-65, the firm claimed that the above speculation losses which had not been allowed to be set off against the income of the regular business for the relevant years should be set off against speculation profits of that year. The Income-tax Officer did not allow the claim. On appeal, the Appellate Assistant Commissioner allowed the claim and directed the Income-tax Officer to allow the set-off of the speculation losses of earlier years against speculation profits of 1964-65 and to carry forward the balance of losses to be set off similarly in subsequent years. The department filed an appeal against this order before the Tribunal. The Tribunal upheld the order of the Appellate Assistant Commissioner and now the Commissioner has come up to this court.
3. COUNSEL for the department has contended that inasmuch as the claim for set-off was being made in the assessment year 1964-65, i.e., after the Income-tax Act, 1961, had come into force, the set-off could only be allowed in accordance with the provisions of Section 75 of the Act. It has been contended that under Section 75 of the Act, the losses have to be apportioned between the partners and they alone are entitled to have the amount of loss set off and carried forward under Section 73 of the Income-tax Act, 1961. It will be noticed that the periods 1959-60, 1960-61 and 1961-62 relate to a period anterior to the enforcement of the 1961 Act. The periods 1962-63 and 19-63-64, relate to a period of time when the 1961 Act was enforced. In order to appreciate the contentions raised in this reference, it will be useful to set out Sections 73 and 75 of the 1961 Act as also Sections 24(1) and 24(2) of the 1922 Act:
"73. (1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business.
(2) Where for any assessment year any loss computed in respect of a speculation business has not been 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 income from any other speculation business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and--
(i) it shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year ; and
(ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on.
(3) In respect of allowance on account of depreciation or capital expenditure on scientific research, the provisions of Sub-section (2) of Section 72 shall apply in relation to speculation business as they apply in relation to any other business.
(4) No loss shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed."
"75. (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,
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