COMMISSIONER OF INCOME TAX Vs. MANGIRAM GOPI CHAND

JUDGEMENT

(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 :

(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 : <FRM>JUDGEMENT_807_ITR111_1978Html1.htm</FRM>

(3.) THE Tribunal, following the decision of the Supreme Court in the case of Commissioner of Income-tax v. Kantilal Nathuchand Sami [1967] 63 ITR 318, allowed the set-off of the speculation losses suffered by the firm against the speculation profits of the firm, and has allowed the firm to carry forward the losses as the loss of the firm to be adjusted against its future profits. Counsel for the department has contended that whatsoever might have been the position under the Income-tax Act, 1922, the carry forward of speculation losses of a registered firm has been specifically provided under Section 75 of the new Act (1961), and this being so, the carry forward of the speculation losses of a registered firm and its adjustment thereof can be made only in accordance with the provisions of the new Act. It has been contended that the principle laid down by the Supreme Court in the case of Commissioner of Income-tax v. Kantilal Nathuchand Sami [1967] 63 ITR 318 cannot be appropriately applied to the case, arising under the 1961 Act. Unfortunately, in this case, which is of some complexity, none has appeared on behalf of the assessee. Considering the importance of the matter, we requested Sri R.K. Gulati to assist us in this case on behalf of the assessee. Sri R.K. Gulati contended that the assessee was entitled under the Act of 1922 to carry forward the speculation loss and to set it off against its future profits in the speculation business, and that right was a substantive right, It was urged that notwithstanding the repeal of the Act, inasmuch as the assessee had not been able to set off its entire speculation losses by the time that the Income-tax Act, 1961, came into force, it was entitled to set off unadjusted losses against the speculation profits of the firm. In this context, he has drawn our attention to the provisions of Section 6(c) of the General Clauses Act and has urged that the mere repeal of the Indian Income-tax Act, 1922, did not take away the vested right of the assessee to set off the speculation losses of the firm against speculative profits of the firm in the years subsequent to the enforcement of the 1961 Act. It was also contended that the Act of 1961 did not bring about any such drastic change as would make the principle laid down by the Supreme Court in the case of Commissioner of Income-tax v. Kantilal Nathuchand Sami [1967] 63 ITR 318 inapplicable to the case of a registered firm. It is indisputable that in view of the pronouncement of the Supreme Court in the case of Commissioner of Income-tax v. Kantilal Nathuchand Sami [1967] 63 ITR 318, a registered firm could, so long as the 1922 Act was in force, carry forward speculation loss, if it could not be set off against speculation profits of the year in question. However, after the 1961 Act, specific provision by way of Section 75 of the Act has been made in respect of losses of registered firm. Section 75 has already been extracted. A bare perusal of the section establishes that the loss of a registered firm, which cannot be set off against any other income has to be apportioned between the partners of the firm, and they alone are entitled to have the amount of loss carried forward for set-off under Section 73 of the Act (we have abstained from mentioning the other sections relating to carry forward and set-off mentioned in Section 75 of the Act, as they are not relevant for the purposes of the present controversy). Section 73 specifically deals with loss in speculation business, and provides for setting off of the speculation loss in speculation business only against the profits and gains of another speculation business, and Sub-section (2) provides for carrying forward speculation losses to be set off in future against the profits of any speculation business in the future years. This being so, it will not be appropriate to apply the dictum of Kantilal Nathuchand's case [1967] 63 ITR 318 (SC) to a case arising for the assessment year 1962-63. We are fortified in the view that we take by the decision of the Kerala High Court in the case of M.O. Devassia and Co. v. Commissioner of Income-tax [1973] 90 ITR 525 and of the Gujarat High Court in the case of Commissioner of Income-tax v. Dhanji Shamji [1974] 97 ITR 173. THE question that now arises is as to whether the speculation losses of the years anterior to 1962-63 could be set off against the speculation profit of the firm. In support of his contention that the right conferred under Section 24(2) of the Indian Income-tax Act, 1922, was a substantive right, counsel has referred us to the cases of All India Groundnut Syndicate Ltd. v. Commissioner of Income-tax [1954] 25 ITR 90 (Bom) and Commissioner of Income-tax v. Govindalal Dutta [1958] 33 ITR 630 (Cal), In All India Groundnut Syndicate Ltd. v. Commissioner of Income-tax [1954] 25 ITR 90 (Bom), the question was as to whether a loss which the assessee could claim under Section 24(2) could be disallowed only on the ground that it had not been notified as required under Section 24(3). THEir Lordships of the Bombay High Court took the view that the right conferred by Section 24(2) of the Act was an absolutely unqualified right, and not made conditional upon a computation made by the Income-tax Officer or any notice issued by the Income-tax Officer. THE decision is hardly of any help for in that case, the Indian Income-tax Act, 1922, was in force and the only question that arose for determination was as to whether the- right conferred by Section 24(2) was dependent on Section 24(3) of the Act. Here the question is as to whether the repeal of the 1922 Act extinguished the right of carrying forward of the loss which had not been set off, and further as to whether such an amount could be set off against the speculative profits of the firm or be dealt with in accordance with Section 75 of the new Act. This distinction applies to the decision of the Calcutta High Court in Commissioner of Income-tax v. Govindalal Dutta [1958] 33 ITR 630 for in that case too, no such question has arisen in the present case and as such that decision is hardly of any assistance.