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PETITIONER: H.D.DEVASIA & CO., KERALA

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX, KERALA

DATE OF JUDGMENT04/05/1979

BENCH: UNTWALIA, N.L. BENCH: UNTWALIA, N.L. PATHAK, R.S. VENKATARAMIAH, E.S. (J)

CITATION:  1979 AIR 1485            1979 SCR  (3)1271  1979 SCC  (4) 150

ACT:      Income Tax  Act, 1961,  Sections 73  and 75-Scope  of - Losses in  speculation business-A  registered  firm  is  not entitled to  have its  loses in speculation business carried forward for  set off  against future  porfits in speculation business. Any  such loss  shall be  apportioned between  the partners of  the firm and they (the partners) alone shall be entitled to  have the amount of the loss set off and carried froward for set off under Section 73.

HEADNOTE:      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 commondities, the assessee was also carrying on a business in speculation.      In respect  of the  losses during  the assessment years 1964-65, 1965-66  and the  profit during the assessment year 1966-67, the  Income Tax  Officer apportioned  the aforesaid losses and  profits amongst  the partners  and rejected  the assessee’s  contention   that  the   losses  in  speculation business should  be carried  forward and set off against the profit in  the said  business made  in the  assessment  year 1966-67. But the Appellate Assistant Commissioner, following the decision  of this  Court in  C.I.T., Gujarat v. Kantilal Nathuchand Sami,  [1967] 1  SCR 813  accepted the assessee’s stand. The  Tribunal on  second appeal answered in favour of the Revenue  and the  High Court also answered the reference against the assessee.      Dismissing the appeals by special leave the Court, ^      HELD :1.  The case  of Kantilal Nathu Chand was decided on a  true interpretation of Section 24(1) of the Income Tax Act 1922  and the  two provisions  appended thereto. But the provisions of  law contained  in Chapter  VI of the 1961 Act have made  a considerable  departure from  the corresponding provisions of the 1922 Act. [1274A, B-D]      It is  clear from  the provisions  of Section 73 of the 1961 Act  that the  assessee’s loss  in speculation business cannot be  set off except against profits and gains, if any, of another speculation business. [1275B]      2. For  the purpose  of set  off it  is permissible  to

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carry forward the losses to the following assessment year or years subject  to the  limit of  eight years  as provided in Section 73 of the 1961 Act. [1275C]      3.  The  provision  contained  in  Sub-section  (2)  of Section 73  of  the  1961  Act  is  "subject  to  the  other provisions of  this Chapter",  which  includes  section  75. Under section 75 where the assesee 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. The matter is put beyond any 1272 pale of doubt and challenge in sub-section (2) of section 75 when it  says that  nothing contained  in sub section (2) of section 73  shall entitle  any assessee,  being a registered firm to  have its loss carried forward and set off under the provisions of Section 73(2). [1275D-E]      C.I.T.,  Gujarat   v.  Kantilal  Nathu  Chand,  63  ITR 318=[1967] 1 SCR 813; distinguished.      C.I.T., Gujarat  III v.  Dhanji Shamji,  97 I.T.R.  173 Chowdary Cotton  Ginning and  Processing Factory  v. C.I.T., Punjab 109, I.T.R. p. 6; approved.      M. G.  Devasia & Co. v. C.I.T., Kerala, 90, I.T.R. 523; affirmed.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeals Nos. 27l6- 27l8 of 1972      Appeals by  Special Leave  from the  Judgment and Order dated the  14-7-1972 of  the Kerala High Court in income Tax Reference Nos. 100, 101 and 102 of 1970                             WITH              CIVIL APPEAL NOS. 365-367 of 1978.      From the Judgment and order dated the 24th May, 1977 of the Kerala High Court in I.T.R. Nos. 55, 56 and 57 of 1975      J. L.  Nain and  Mrs.  Saroja  Gopalakrishnan  for  the Appellant in all the appeals.      P. J.  Francis, S.  P. Nayar and Miss A. Subhashini for Respondent in all the appeals.      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 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   ill   various commodities, the assessee was also carrying on a business in speculation.  Apropos   the  speculation   business  of  the assessee the  Income Tax  officer 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  section 67  of the  Income  Tax  Act,  1961, hereinafter referred  to as the Act, he also apportioned the losses in speculation business in 1273 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  Income-Tax  officer amongst the  partners. The  assessee  contended  before  the

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Income-Tax  officer  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 Income-Tax  Officer   rejected  this   contention.  But  the Appellate Assistant  Commissioner in  appeal  following  the decision  of  this  Court  in  Commissioner  of  Income-Tax, Gujarat v.  Kantilal Nathuchand Samt 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 section 24  of the Income-Tax Act, 1922 under which the case of Kantilal Nathuchand (supra) had been decided and those of sections 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 Chapter VI has answered the  reference in favour of the Revenue and against the assessee.  The decision of the High Court is reported in M.D. Kevasia  & Co.  v. Commissioner  of Income-Tax, Kerala. Civil Appeals  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 365 to 367 of 1978 have been preferred from the said decision  of the High Court. 1274      In the case of Kantilal Nathuchand (supra) the question for con  sideration was  whether on a true interpretation of the various  provisions of  the Indian  Income Tax 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 section 2 (1) and the two provisos  appended thereto  were not very clear and some apparent conflict  arose between  the first  and the  second proviso. On a consideration of the same this Court held that speculation losses 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 for ward such. losses and  have it  set off  against speculation profits of the firm of a later year in accordance with section 24(2).      But the  provisions of  law contained  in Chapter 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  a    other speculation business. In this connection it would suffice to read only  the relevant  provisions of sections 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

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    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  assess  able  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."           75.  Losses  of  registered  firms-(1)  Where  the      assessee is  a registered   firm, any loss which cannot      be set off against 1275      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  section 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 purpose 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-section (4) of section 73. But it is to be noticed that the provision contained in sub-section (2) is  "subject to  the other  provision of  this Chapter", which includes  section 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 section 73.  The matter  is put beyond any pale of doubt and challenge in sub-section (2) of section 75 when it says that nothing contained  in sub-section  (2) of  section 73  shall entitle a   assessee,  being a  registered firm, to have its loss carried  forward and  set off  under the  provisions of section 73(2).  The Tribunal  and the High Court, therefore, were right in holding that the ratio of the decision of this Court in  Kantilal  Nathunchand’s  case  (supra)  cannot  be applied in  respect of  the assessment  made under  the Act. Identical views  have been  expressed by  the High  Court of Gujarat in Commissioner of Income-Tax, Gujarat III v. Dhanji Shamji(1) and  the High  Court  of  Punjab  and  Haryana  in Choudhary   Cotton   Ginning   and   Pressing   Factory   v. Commissioner of Income-Tax, Punjab. ( 2)      For the  reasons  stated  above,  we  dismiss  all  the appeals with costs. Hearing fee one set only.

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V.D.K.                                    Appeals dismissed. 1276