The judgment of the court was delivered by
UNTWALIA J.--These six appeals have been heard together as
a common question of law in relation to the assessment of the same assessee
arises in them. Civil Appeals Nos. 2716-2718 of 1972 relate to the assessment
years 1964-65, 1965-66 and 1966-67. The assessee-appellant is a registered firm
carrying on business at several places in the State of Kerala. Apart from its
regular trade in various commodities, the assessee was also carrying on a
business in speculation. Apropos the speculation business of the assessee the
ITO determined a loss of Rs. 40,510, a loss of Rs. 598 and a profit of Rs.
1,36,264 for the assessment years 1964-65, 1965-66 and 1966-67, respectively.
In apportioning the assessee's income amongst its partners
under s. 67 of the I.T. Act, 1961, hereinafter referred to as " the Act
", he also apportioned the losses in speculation business in the two
assessment years 1964-65 and 1965-66. The profit in speculation business as
computed for the assessment year 1966-67 was also apportioned by the ITO amongst
the partners. The assessee contended before the ITO that the losses in the
speculation business could not be apportioned between the partners but should be
carried forward and set off against the profit in the said business made in the
assessment year 1966-67. The ITO rejected this contention. But the AAC in
appeal, following the decision of this court in CIT v. Kantilal Nathuchand Sami
[1967] 63 ITR 318; [1967] 1 SCR 813,
accepted the assessee's stand. The department took the matter in second appeal
before the Income-tax Appellate Tribunal. The Tribunal pointed out the
distinction between the provisions of s. 24 of the Indian I.T. Act, 1922, under
which the case of Kantilal Nathuchand Sami had been decided and those of ss. 73
and 75 of the 1961 Act. It, therefore, allowed the department's appeal. On being
asked by the assessee to state a case and make a reference to the High Court,
the Tribunal referred the following question of law for its opinion :
" Whether, on the facts and in the circumstances of
the case and on a true interpretation of the various provisions of the
Income-tax Act, 1961, the Tribunal was correct in holding that a registered firm
was not entitled to have its losses in speculation business carried forward for
set off against future profits in speculation business ? "
The High Court of Kerala on a consideration of the
relevant provisions of the Act contained in Chap. VI has answered the reference
in favour of the revenue and against the assessee. The decision of the High
Court is reported in M. O. Devassia & Co. v. CIT [1973] 90 ITR 525 (Ker). Civil Appeals Nos. 2716 to 2718 of 1972 have been filed in
this court by special leave.
Identical questions arose in respect of the assessment
years 1967-68, 1968-69 and 1969-70. The High Court answered the references made
in respect of those three years also against the assessee by its judgment and
order dated the 24th May, 1977. Civil Appeals Nos. 365 to 367 of 1978 have been
preferred from the said decision of the High Court.
In the case of Kantilal Nathuchand [1967] 63 ITR 318 (SC), the question for consideration was whether on a true
interpretation of the various provisions of the Indian I.T. Act, 1922,
speculation losses of the assessee-firm for the assessment years 1958-59 and
1959-60 should be set off against its speculation profit in its assessment for
the assessment year 1960-61. The provisions contained in s. 24(1) and the two
provisos appended thereto were not very clear and some apparent conflict arose
between the first and the second provisos. On a consideration of the same, this
court held that speculation losses of a registered firm kept apart under the
first proviso to s. 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 losses and have it set off against speculation profits of the
firm of a later year in accordance with s. 24(2).
But the provisions of law contained in Chap. VI of the Act
have made a considerable departure from the corresponding provisions of the 1922
Act. In these cases, we are only concerned with the question of set off of
speculation losses against the profits of any other speculation business. In
this connection, it would suffice to read only the relevant provisions of ss. 73
and 75 as they stood at the relevant time. They are as follows :--
" 73. Losses in speculation business.--(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
assesssment 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...... "
" 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.
(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. "
On reading the above provisions of s. 73, it is manifest
that the assessee's loss in speculation business cannot be set off except
against profits and gains, if any, of another speculation business. For the
purposes of set off it is permissible to carry forward the losses to the
following assessment year or years subject to the limit of 8 years as provided
in sub-s. (4) of 73. But it is to be noticed that the provision contained in
sub-s. (2) is " subject to the other provisions of this Chapter ",
which includes s. 75. In the latter section, it is clearly provided that where
the assessee is a registered firm, for the purpose of set off and carry forward
of the loss apportionment between the partners of the firm has got to be made
and they alone are entitled to have the amount of the loss set off and carried
forward for set off under s. 73. The matter is put beyond any pale of doubt and
challenge in sub-s. (2) of s. 75 when it says that nothing contained in sub-s.
(2) of s. 73 shall entitle any assessee, being a registered firm, to have its
loss carried forward and set off under the provisions of s. 73(2). The Tribunal
and the High Court, therefore, were right in holding that the ratio of the
decision of this court in Kantilal Nathuchand's case [1967] 63 ITR 318 (SC) cannot be applied in respect of the assessments made under
the Act. Identical views have been expressed by the High Court of Gujarat in CIT
v. Dhanji Shamji [1974] 97 ITR 173 and
the High Court of Punjab and Haryana in Choudhary Cotton Ginning and Pressing
Factory v. CIT [1977] 109 ITR 6.
For the reasons stated above, we dismiss all the appeals
with costs. Hearing fee one set only.
Appeals dismissed,
