INCOME-TAX Vs. SETH RAM KRISHNA RAMNATH

JUDGEMENT

(1.) THIS is a reference under Section 66(1), Income-tax (Amendment) Act, 1939. The questions which have been referred to us by the Income-tax Appellate Tribunal (Bombay Bench) are as follows: (1) Whether on a true construction of Section 24, Sub-section (2), Income-tax (Amendment) Act, 1939, the applicant is entitled to set-off the loss in speculation business carried forward by him from the assessment year 1939-40 to the assessment year 1940-41 against the profits and gains of bidi business of the latter year? (2) Whether in computing the business income the applicant's claim for deduction of Rs. 4310 in respect of "charity levies" has been rightly disallowed?

(2.) WITH reference to the first question, the essential facts are as follows: The applicant Seth Ramkrishna Ramnath of Kamptee is a manufacturer of bidis (country cigarettes) on.an extensive scale. In the year pertinent to the assessment of 1939-40, that is to say, the year, ending in Diwali 1938, the applicant in addition to his bidi business engaged in speculation which we are told consisted in dealing in forward cotton contracts, and in that speculation he lost in that year Rs. 1,81,218. Under the provisions of Section 24(1), Income-tax Act, he was allowed to set this off against the profits derived from the manufacture of bidis during that year. The loss, however, outweighed the gains and he sought to carry forward the balance of the loss which amounted to Rs. 1,17,181 to the following year and claimed to set off this sum against the profits of bidi manufacture for the following year. It may here be, noted that in the following year he did not engage in any speculation whether in the nature of forward cotton contracts or otherwise at all. That venture had ceased. The Income-tax Officer, having regard to the provisions of Section 24(2) of the Act did not permit the set-off and assessed him on the profits of his bidi business. An appeal to the Appellate Assistant Commissioner failed as did a second appeal to the Income.tax Appellate Tribunal, Bombay, and it is this Tribunal which has now stated a case. We now set out the relevant portions of Section 24 of the Act. Section 24, sub. Section (1) runs: 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 loss set off against his income, profits or gains under any other head in that year.... Sub-Section (2):

(3.) NOW it is the contention of the assessee, as it was before the income-tax authorities, that he is entitled to set off the loss as he is still carrying on business and that the words in Sub-section (2) "from the same business, profession or vocation" have the same meaning as the head "profits and gains of business, profession or vocation" and that as the loss was incurred in business in the earlier year and as he is assessed' on income from business he is entitled to set off the balance of the loss against the gains of the following year. If that had been the intention of the Legislature we do not see why for these words the words "under the same head" should not have been used, and it appears to us that by the words "the same business, profession or vocation" it was the intention of the Legislature plainly to express that the loss could only be carried forward and set off against profits and gains, if any, arising from the identical business. An argument has also been addresssd to us contending that the two businesses of manufacturing bidis and entering into cotton transactions must be included as one in the word 'business' at the end of Sub-section (2) which we have quoted, and for this proposition reliance is placed on the definition of 'business' in Section 2(4) of the Act, The definition there is "business" includes any trade, commerce or manufacture or any adventure or concern in the nature of trade coommerce or manufacture,