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PETITIONER: COMMISSIONER OF INCOME TAX, GUJARAT

       Vs.

RESPONDENT: M/S.  S. C. KOTHARI

DATE OF JUDGMENT05/10/1971

BENCH: GROVER, A.N. BENCH: GROVER, A.N. HEGDE, K.S.

CITATION:  1972 AIR  391            1972 SCR  (1) 950  CITATOR INFO :  RF         1977 SC1142  (8)  F          1980 SC1271  (6)

ACT: Income  tax  act (11 of 1922) ss 10 (1) and (2)  and  s.  24 (1)--Scope of. Forward  Contracts (Regulation) Act, 1952 s.  15(4)-Contract in violation of-If illegal

HEADNOTE: Section  15(4)  of the Forward Contracts  (Regulation)  Act, 1952  is conceived in the larger interest of the  public  to protect them against the malpractices indulged in by members of  recognised  associations in respect of  transactions  in which  their duties as agents come into conflict with  their personal   interest.    Parliament  had  made   a   writing, evidencing or confirming the consent or authority of a  non- member,  as  a condition of the contract if the  member  has entered  into  a contract on his own account.   So  long  as there was no such writing there was no enforceable contract. Under the Act, there is not only an express prohibition  but also punishment for contravention of that prohibition. The  assessee,  a  registered  firm, was  a  member  of  the Saurashtra Oil and Oilseeds Association, and was carrying on the business of commission agency and general merchants.  It was also doing forward business.  During the assessment year 1958-59  it incurred a loss in certain transactions.   Those transactions  were in contravention of the provisions of  s. 15(4)  of  the  Forward  Contracts  (Regulation)  Act.   The assessee claimed that the loss was allowable under s.  10(1) of  the  Income-tax Act, 1922, as a  deduction  against  its other  business income even if the losses were  incurred  in illegal  transactions.  The Income-tax Officer rejected  the contention  of the assessee, and also held that  the  losses incurred  in  illegal business could not  be  deducted  from speculative profits under s. 24 of the Income-tax Act.   The Appellate  Assistant Commissioner confirmed the order.   The Tribunal  held that the assessee could not set off the  loss against  the other income under s. 10(1) of  the  Income-tax Act but was entitled to do so under s. 24. On  the  questions referred to the High Court namely  :  (1) Whether  the loss was in respect of illegal  contracts,  (2) Whether  the loss was a result of  speculative  transactions

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and therefore could be set off under s. 24 of     the Income-tax  Act, and (3) whether even if the loss was  as  a result of illegal transactions the assessee was entitled  to set off the loss under s.     10(1)  of the Income-tax  Act, the  High Court did not answer the first question  but  held that the losses could be set off both under s. 10 and s.   24 of the Income-tax Act. In appeal to this Court, HELD:(1)  It is well settled that contracts  which  are prohibited by statute, the prohibition being either  express or  implied, would be illegal and unenforceable if they  are entered  into in contravention of the  statute.   Therefore, the  contracts in the present case, were  illegal  contracts and the loss was in respect of such illegal contracts.  [955 C-D] Sunder  Lal  v.  Bharat Handicrafts  [1968]  1  S.C.R.  608, followed. 951 (2)Under Explanation 2 of s. 24 a speculative  transaction means  a  transaction in which a contract for  purchase  and sale of any commodity is periodically or ultimately  settled otherwise than by actual delivery etc.; but the contract has to  be an enforceable contract and not an unenforceable  one by reason of any taint or illegality.  In the present  case, the  contracts were illegal and unenforceable on account  of the  contravention  of  s. 15(4) of  the  Forward  Contracts (Regulation) Act.  The High Court was therefore in error  in considering that set off could be allowed under s.     24(1) of the Income-tax Act. [959 D-F] (3)While  s. 10(1) of the Income-tax Act imposes a  charge on  profits or gains of a business it does not  provide  how those profits are to be computed.  Section 10(2)  enumerates various  items which are admissible as deductions  but  they are not exhaustive.  The profits and gains which are  liable to  tax  under s. 10(1) are what are understood to  be  such under ordinary commercial practice.  The loss for which  the deduction is claimed must be one that springs directly  from the  carrying  on of the business and is incidental  to  it, that is, the profit was earned and the loss was sustained in the  same  business.  If this is established  the  deduction must be allowed provided that there is no provision  against it.  If the business is illegal, neither the profits  earned nor the losses incurred would be enforceable in law but that does not take the profits out of the taxing statute.   Simi- larly,  the  taint  of illegality  of  the  business  cannot detract   from  the  loss  being  taken  into  account   for computation  of the amount which can BE subjected to tax  as profits.   Cases  which deal with payment of a  penalty  for infraction of law or the execution of some illegal  activity stand on a different footing, because, an expenditure is not deductible unless it is a commercial loss in trade and  such a penalty cannot be described as such. [956 G-H. 957 A-B, D- E, G-H; 959 H; 960 A-B] [Since in the present case no finding was given by the  High Court that the two businesses in which profits were made and losses were sustained were the same, the matter was remanded to the High Court for decision on this point.] Raj  Woollen  Industries  v. C.I.T., Simla,  43  I.T.R.  36, Chandrika Prasad Ram Swarup v. C.I.T., U.P. & C.P., 7 I.T.R. 269, Badridas Daga v. Commissioner of Income-tax, 34  I.T.R. 10,  Haji Aziz & Abdul Shakhor Bros v. C.I.T., Bombay  City, 41  I.T.R.  350 and Allen v. Fraquharson Bros. 17  T.C.  59, referred to.

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JUDGMENT: CIVIL  APPFLLATE  JURISDICTION: Civil Appeals Nos.  1993  of 1968 and 1173 of 1971. Appeals  by certificate/special leave from the judgment  and order  dated August 3, 4, 1967 of the Gujarat High Court  in Income-tax Reference No. 18 of 1966. S.  T.  Desai,  R. N.  Sachthey and B. D.  Sharma,  for  the appellant (in both the appeals). V.S.  Desai,  K.  L.  Hathi and  P.  C.  Kapur,  for  the respondent (in both the appeals). The Judgment of the Court was delivered by Grover,  J.  This  is ,in appeal from  a  judgment  of  the Gujarat High Court.  Originally an appeal (C.A. 1993/68) had 952 been  brought by certificate but that certificate was  found to  be  defective  as no reasons  were  stated  therein  for granting it.  A Petition for special leave, was,  therefore, filed and the same has been granted.  Both the appeals shall stand  disposed  of  by this judgment.  The  assessee  is  a registered  firm and carried on the business  of  commission agency   and  general  merchants.   It  also  does   forward business.  It is a member of the Saurashtra Oil and Oilseeds Association Ltd., Rajkot.  During the assessment year  1958- 59 the corresponding accounting period being the samvat year 2013  the assessee claimed to have incurred a loss of Rs.  3 40,443/- in certain transactions entered into with different people  for the supply of groundnut oil.  The  transactions, according  to  the  assessee,  were  non-transferable  ready delivery  contracts  entered into with  non-members  of  the Association.  It was expected that these contracts would  be performed but owing to certain reasons some of the contracts could  not  be  performed and differences had  to  be  paid. According  to  the assessee it had acted as a  Pucca  Artia. The  assessee claimed that the aforesaid loss was  allowable under  s. 10(1) of the Income Tax Act, 1922 as  a  deduction against  its other business income.  The Income tax  Officer came  to  the conclusion that the transactions  in  question were  hit  by  the  provisions  of  the  Forward   Contracts Regulation  Act, 1952, hereinafter called the ’Act’ and  the Rules  and  Regulations of the Saurashtra Oil  and  Oilseeds Association Ltd.  In particular the transactions were hit by the  provisions of sub-ss. (1) and (4) of s. 15 of  the  Act and  were not saved by s. 18.  The losses were held to  have been  incurred  in illegal transactions.   He  rejected  the contention of the assessee that even on the assumption  that the losses were incurred in illegal transactions they  could be allowed in the computation of the income.  The Income tax Officer  further  held that the losses incurred  in  illegal business could not be deducted from the speculative  profits under s. 24 of the Indian Income tax Act, 1922,  hereinafter called   the  "Act  of  1922".   The   Appellate   Assistant Commissioner confirmed the order of the Income-tax  Officer. In  the  appeal  before the Tribunal it was  held  that  the transactions in question were not illegal contracts but were contracts which had been, validly entered into under the Act and the bye-laws etc.  The Tribunal thereafter proceeded  to examine  the question whether the losses incurred  could  be allowed  on  the  assumption  that  the  transactions   were illegal.   It  was of the view that the  assessee  would  be entitled  to a set off under s. 24 even if the  losses  were incurred in illegal transactions.  The Tribunal remanded the matter   for   a  report  from   the   Appellate   Assistant Commissioner  as to the applicability of the proviso  to  s. 24(1) (read with the Explanation) of the Act of 1922.  After

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the  remand  report  was  received  the  Tribunal  gave  the following   two   findings  :  (1)   the   contracts   under consideration were all 953 non-transferable  specific  delivery  contracts  where   the intention ab initio was either to give or take delivery  (2) the  contracts were entered into either for the purchase  or sale  and  later  on the same quantity was  either  sold  or purchased  back  by  the  assessee on  behalf  of  the  same constituents at the market rates prevailing at the  material time  i.e.  they were squared up by corresponding  sales  or purchases as the case might be.  After referring to  certain decisions of High Courts the Tribunal held that the loss  of Rs. 3,40,443 had been incurred in speculative  transactions. The   Tribunal   next   proceeded   to   consider    whether notwithstanding  that  the  losses  had  been  incurred   in speculative  transactions the assessee could set  off  those against the other income under s. 10(1) of the Act of  1922. Purporting  to follow the view of the majority of  the  High Courts, the Tribunal held that such a loss could not be  set off against the other income.  But according to the Tribunal the  assessee  was certainly entitled to set  off  the  loss against the profits in speculative transactions and to  that extent  the contention of the assessee was  accepted.   Both the  assessee and the Commissioner of Income tax  moved  the Tribunal  for  submitting  a  case  and  referring   certain questions  of  law  to  the High Court.   Thus  in  all  the following four questions were referred by the Tribunal               (1)   Whether   on  the  facts  and   in   the               circumstances  of  the case the  contracts  in               respect of which the loss of Rs. 3,40,443  was               claimed  were illegal contracts and  were  not               validly   entered  into  under   the   Forward               Contracts Regulation Act 1952 ?               (2)   Whether  even assuming the  transactions               in  which  the  loss  of  Rs.  3,40,443/-  was               incurred,   were  illegal  transactions,   the               assessee  would be entitled to the set off  of               the said loss ?               (3)   Whether   on  the  facts  and   in   the               circumstances  of  the case  the  transactions               resulting  in  a  loss of  Rs.  3,40,443  were               speculative transactions for the purpose of s.               24 of the Indian Income tax Act 1922 merely on               the ground that The assesses had not performed               the contracts by giving delivery and had  paid               damages  in  settlement  of  the   obligations               contracted for ?               (4)   Whether   on  the  facts  and   in   the               circumstances  of  the case  the  assessee  is               entitled  to set off the balance of the  loss               of Rs. 1,21,397/- against the assessee’s other               income ?" The  High  Court did not consider that it was  necessary  to answer  the  first  question.   The  answer  to  the  second question was that 954 even though the disputed contracts were not validly  entered into  in accordance with the provisions of S. 15(4)  of  the Act the loss ,of Rs. 3,40,443/- was liable to be taken  into account  in computing the business income, of  the  assessee under S. IO of the Act of 1922 and the assessee was entitled to  set  it off against the profits  fro  other  speculative transactions.   The  third  question  was  answered  in  the affirmative with the result that the transactions  resulting

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in  the loss of Rs. 3,40,443/- were held to  be  speculative for  the  purpose of s. 24 of the Act of 1922.   The  fourth question  was  answered  in the  negative  and  against  the assessee.   It is the Commissioner of Income tax  alone  who has appealed. So  far as the first question is concerned we are unable  to comprehend  why the High Court did not decide it.  A lot  of debate  took  place before us on the  question  whether  the contravention  of  S.  15 (4) of the Act  would  render  the contracts illegal.  According to that provision no member of a  recognised  Association shall, in respect  of  any  goods specified  in the notification under sub-s. (1), enter  into any contract on his own account with any person other  than, a member of the recognised Association unless he has secured the,  consent or authority of such person and  disclosed  in the note memorandum or agreement of sale or purchase that he has  bought or sold the goods as the case may be on his  own account.   It is not necessary to refer to the proviso.   It is common ground and has been admitted before us that  there was  a clear contravention of the provisions of S. 15(4)  so far   as  the  transactions  in  question  were   concerned. According  to  S.  20(e)  any person  who  enters  into  any contract  in  contravention of the provisions  of  S.  15(4) among  other sections shall on conviction be punishable  for the first offence with imprisonment which may extend to  one year or with fine of not less than Rs. 1,000/- or with both. It is wholly incomprehensible how such a contract would  not fall directly within the ambit of the first part of s. 23 of the  Indian Contract Act which deals with  consideration  or object  of  an agreement which is forbidden  by  law.   Such consideration  or object would be unlawful according to  the provisions   of  that  section  and  the   agreement   would consequently  be ’void.  The High Court did not  decide  the point whether the contracts which contravened the provisions of S. 15(4) of the Act were illegal.  It did not consider it material  to  decide  whether the  impugned  contracts  were illegal.   In  its opinion what was material  was  that  the impugned contracts had been entered into unlawfully and  the question  was  whether the loss sustained  in  the  unlawful business  could  be  taken into  account  in  computing  the business income of the assessee.  We consider that the first question  which  was  referred  to  the  High  Court  stands concluded by the law laid down by this Court in Sunderlal  & Son v. 955 Bharat  Handicrafts (P) Ltd..(1) It was laid down  that  the prohibition imposed by s. 15 (4) of the Act was not  imposed in the interest of revenue.  That provision was conceived in the  larger interest of the public to protect  them  against the  malpractices  indulged  in  by  members  of  recognised associations  in  respect  of transactions  in  which  their duties  as  agents came into conflict  with  their  personal interest.   Parliament  had made a  writing,  evidencing  or confirming  the consent or authority of a non-member,  as  a condition  of the contract if the member has entered into  a contract  on  his  own account.  So long  as  there  was  no writing  as  was contemplated by s. 15 (4)  or  its  proviso there was no enforceable contracts It  is well settled that contracts which are  prohibited  by statute  the  prohibition being either  express  or  implied would be illegal and unenforceable if they are entered  into in  contravention of the statute.  Under the  provisions  of the Act there is not only an express prohibition (s., 15 (4) ) but punishment is also provided for contravention of  that prohibition, (s’ 20).  Such contracts could not possibly  be

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regarded as having been validly entered into under the  Act. The  answer ’to the first question, therefore,  should  have been in the affirmative and against the assessee. Coming to the second question, the language thereof is some- what ambiguous and the question was not framed properly.  It appears  that there were two aspects which had come  up  for consideration   before  the  departmental  authorities   the Tribunal  and the High Court.  The first aspect  related  to the deduction of the loss of Rs. 3.40,443/- incurred in  the aforesaid  illegal transactions while computing the  profits of the assessee’s speculative business under s. 10(1).   The other  was  the  set off which can  be  allowed  within  the relevant parts of s. 24 of the, Act of 1922.  The High Court referred  to  various  English decisions as  also  to  Wheat croft’s  Law  of  Income  tax and  Simon’s  Income  tax  for supporting  the ’View that even where a trade is illegal  it would still be a trade within the meaning of income tax  law and if any profits are derives from such trade they would be assessable  to  tax.   The High Court  did  not  accept  the contention urged on behalf of the Revenue that although  the profits  from  an,  illegal I trade  or  business  would  be exigible  to tax the losses from such business could not  be taken Court observed               "There is in principle no distinction  between               profits  and losses of a business and  if  the               profits of an illegal business are  assessable               to tax, equally the losses arising               (1)   [1968] 1 S.C.R. 608.               956               from  illegal  business  must be  held  to  be               liable  to be taken into account in  computing               the income of the assessee’. The High Court was not inclined to accede to the  submission on  behalf of the Revenue that the same principle  would  be applicable as has been applied in certain cases in which the question  which  came up for determination  was  whether  an expenditure,  incurred  on  an  illegal  activity  would  be deductible under S. 10 (2) (xv) of the Act of 1922.  One  of such  cases, is a decision of the Punjab High Court  in  Raj Woollen Industries v. Commissioner of Income tax,  Simla(1). In that case the real question was whether a certain  amount which was paid to achieve what was prohibited by law,  viz., the  export  of  wool without having  the  requisite  export licence  was  an amount which the assessee was  entitled  to deduct under S. 10 (2) (xv) of the Act of 1922.  It was held that  according to principle and authority such a  deduction could  not  be claimed.  It was also observed  that  such  a deduction  would  not be permissible even  under  S.  10(1). Following observations may be referred to : .lm15 "Profits  had  to be ascertained according to  the  accepted principles  of commercial accountancy and if S.  10(2)  (xv) did not permit deduction of an item of expenditure which was laid  out  or  expended  for carrying  on  the  business  in contravention  of  the  law, then such  an  outgoing  though otherwise properly admissible, as set off against the  gross receipts  on the principles of commercial accountancy  could not be taken into consideration in computing the profits". On the other hand according to the decision of a full  bench of the, Allahabad High Court in Chandrika Prasad Ram  Swarup v.  Commissioner  of  Income tax, U.P.  &  C.P.  (2)  income assessable to tax is the actual income of an individual or a firm  irrespective  of the manner in which  the  income  was derived.    Legality  or  illegality  of   the   transaction culminating in profits or losses, was, therefore, foreign to

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the scope of an inquiry into the income of an individual  or a firm for the purpose of income tax. Now  while s. 10(1) of the Act of 1922 imposes a  charge  on the  profits or gains of a business it does not provide  how these profits are to be computed.  Section 10(2)  enumerates various items which are admissible as deductions.  They are, however, not exhaustive of all allowances which can be  made in  ascertaining the profits of a business taxable under  S. 10(1).  It is undoubtedly true that profits and gains  which are liable to be taxed under (1) 43 I.T.R. 36.                      (2) 7 I.T.R. 269. 957 s.10(1) are what are understood to be such under ordinary commercial principles.  The loss for which the deduction  is claimed must be one that springs directly from the  carrying on  of  the business and is incidental to it.   If  this  is established  the  deduction must be  allowed  provided  that there  is no provision against it express or implied in  the Act  : (See Badridas Daga V. Commissioner of Income  tax(1). In  that  case loss sustained by the business by  reason  of embezzlement  by  an employee was held to be  an  admissible deduction under s. 10(1) although it did not fall within  s. 10(2)  (xi)  of the Act of 1922.  Indeed profits  cannot  be computed without deducting the loss and permissible expenses incurred for-the purpose of the business. The  approach of the high Court in the present case has been that in order to arrive at the figure of profits even of  an illegal  business  the  loss  must be  deducted  if  it  has actually been incurred in the carrying on of that  business. It is the net profit after deducting the out goings that can be brought to tax.  It certainly seems to have been held and that view has not been shown to be incorrect that so far  as the admissible deductions under s. 10(2) are concerned  they cannot  be  claimed by the, assessee if such  expenses  have been incurred in either payment of a penalty for  infraction of  law  or the execution of some illegal  activity.   This, however,  is based on the principle that an  expenditure  is not deductible unless it is a commercial loss in trade and a penalty imposed for breach of the law during the  course  of the trade cannot be described as such.  Penalties which  are incurred for infraction of the law is not a normal  incident of business and they fall on the assessee in some  character other than that of a trader; (See Haji Aziz & Abdul  Shakoor Bros v. Commissioner of Income tax, Bombay City(2).  In that case  this Court said quite clearly that a  disbursement  is deductible only if it falls within s. 10(2) (xv) of the  Act of  1922 and a penalty cannot be regarded as an  expenditure wholly and exclusively laid for the purpose of the business. Moreover  disbursement or expense of a trader  is  something "which  comes  out  of his pocket. ,  A  loss  is  something different.   That  is  not  a  thing  which  he  expends  or disburses.   That is a thing which comes upon  him  abextra" (Finlay J., in Allen v. Farquharson Brothers & Co.) (3).  If the ’business is illegal neither the profits earned nor  the losses incur-red would be enforceable in law.  But that does not take the profits. out of the taxing statute.   Similarly the taint of illegality of the business cannot detract  from the  losses being taken into account for computation of  the amount which can be subjected to tax as "profits" under s. 1 0 ( 1 ) of the Act of (1)34 I.T.R. 10. (3) 17 T.C. 59. (2) 41 I.T.R. 350. 958 1922.  The tax collector cannot be heard to say that he will

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bring the gross receipts to tax.  He can only tax profits of a trade or business.  That cannot be done without  deducting the losses and the legitimate expenses of the business.   We concur in the view of the High Court that for the purpose of s.10(1)  the  losses which have actually  been  incurred  in carrying  on a particular illegal business must be  deducted before the true figure relating to profits which have to  be brought  to tax can be computed or determined.   This  will, however,  not conclude the answer to question No. 2  because it seems to have been framed with the other aspect  relating to "set off" under s.24 of the Act. The  High  Court  found  that the  transactions  were  of  a speculative  nature.  It was thus held that the loss of  Rs. 3,40,443/- sustained in the impugned contracts was liable to be  set off against ,the profit of Rs. 2,19,046/- which  was admittedly  a  profit from speculative,  transactions.   The concluding portion of the judgment of the High Court may  be reproduced  because to Our mind it creates a certain  amount of difficulty.               "The  loss of Rs. 3,40,443/- sustained in  the               impugned  contracts was, therefore, liable  to               be  set  off only against the  profit  of  Rs.               2,19,046/-  which was admittedly  profit  from               speculative  transactions and the  balance  of               Rs.  1,21,397/-  after such set  off  was  not               liable to be set off against the other  income               of  the assessee in view of the first  proviso               to  s.  24(1).  We may make it clear  that  in               taking  this view we have proceeded  upon  the               basis  (that  the  impugned  contracts   which               resulted   in   the  loss  of   Rs.   3,40,443               constituted a separate business distinct  from               the business of forward contracts resulting in               the  profit  of Rs.  2,19,046/-.   The  result               would,  however,  be  the  same  even  if  the               impugned contracts which resulted in the  loss               of   Rs.  3,40,443/-  did  not  constitute   a               separate  business but were part of  the  same               business  of forward contracts which  resulted               in  the profit of Rs. 2,19,046/- for  in  that               event the loss of Rs. 3,40,443 would be liable               to  be taken into account in  determining  the               profits from such business under section 10".               Section  24, to the extent it is material  for               our purposes, is set out below :               "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 amount of the               959               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;               Explanation    1.   Where   the    speculative               transactions  carried on are of such a  nature               as  to  constitute a  business,  the  business

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             shall  be deemed to be distinct  and  separate               from any other business.               Explanation 2. A speculative transaction means               a,   transaction  in  which  a  contract   for               purchase  and sale of any commodity  including               stocks   and   shares   is   periodically   or               ultimately  settled otherwise than  by  actual               delivery  or.  transfer of  the  commodity  or               scripts;" In order to claim the set off the meaning of the speculative transaction has to be first looked at.  Under Explanation  2 such  a transaction means a transaction in which a  contract for  the purchase and sale of any commodity is  periodically or ultimately settled otherwise than by actual delivery etc. Now  the contract has to be an enforceable contract and  not an  unenforceable one by reason of any taint  of  illegality resulting  in its invalidity.  It has already been found  by us   that  the  contracts  in  question  were  illegal   and unenforceable on account of contravention of s. 15(4) of the Act.   The High Court was in error in considering  that  any set off could be allowed in the present case under the first proviso to s. 24(1) which must be read with Explanation 2. There  would  have been no difficulty in  disposing  of  the matter  finally  after  the above  discussion.   But  enough attention was not devoted to the business which the assessee was  doing and in which the profit of Rs. 2,19,046 was  made and  the  loss of Rs. 3,40,443 was sustained.  It  has  been found  to be of a speculative nature but the High Court  has not clearly found that it was the same business in which the amount of the profit and the loss mentioned above was earned and  sustained  in  which case alone  a  deduction  will  be possible  of  the  loss  under s.  10(1).   The  High  Court proceeded  on  the basis that if the business in  which  the profit  was  made  and the business in which  the  loss  was incurred  were  separate a set off could be claimed  by  the assessee under s. 24(1).  If, however, the business was  the same then the loss would be liable to be taken 960 into  account while computing the profits under s.10(1).  As we  have  come to the conclusion that no set  off  could  be allowed under S. 24(1) of the Act of 1922 it will have to be determined whether the profits and losses were incurred  in’ the  same  business even though that business  involved  the entering  into contracts some of which were, in the  eye  of the  law,  illegal.   If  the trade  or  the  business,  for instance,  the  business  of commission  agency  or  forward business was the same in which the profits were made and the loss  was  incurred then in order to arrive  at  the  figure which  can  be  subjected to tax the loss will  have  to  be deducted from the profit.  For this purpose we shall have to remit the matter to the High Court to decide this point  and if necessary, after calling for a supplementary statement of the case. In  the result our answer to the first question is that  the contracts  were  illegal.  on  the  third  and  the   fourth questions  there  is  no dispute nor has-  any  appeal  been preferred by the assessee relating to them that the  answers returned  by  the High Court in the affirmative and  in  the negative  respectively  were  not  correctly  answered.   As regards  question No. 2 the High Court will have  to  answer the  same  in the light of our judgment.   Th.-,  appeal  by special  leave (i.e. C.A. 1173/71) shall stand  disposed  of accordingly  and the other appeal by certificate (i.e.  C.A. 1993/68) is hereby dismissed.  There will be no order as  to costs.

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V.P.S.                                       Appeal   partly allowed. 961