H. D. DEVASIA & CO., KERALA vs. COMMISSIONER OF INCOME TAX, KERALA

CIVIL APPEAL No. 2716/1972Supreme Court[1979] 3 S.C.R. 127104 May 1979Bench: 3 JudgesAuthor: N.L. UNTWALIA, R.S. PATHAK, E.S. VENKATARAMIAH5 pages
AI SummaryDismissed

What were the facts?

The assessee, H. D. Devasia & Co., is a registered firm carrying on business in various commodities and also in speculation. For assessment years 1964-65 and 1965-66, the firm incurred speculation losses of Rs. 40,510 and Rs. 598 respectively. For assessment year 1966-67, it made a speculation profit of Rs. 1,36,264. The Income Tax Officer apportioned the losses and profit amongst the partners. The assessee contended that the speculation losses should be carried forward and set off against the profit of assessment year 1966-67. The Income Tax Officer rejected this, but the Appellate Assistant Commissioner accepted the assessee's stand. The Tribunal, however, ruled in favour of the Revenue, distinguishing the case from a previous Supreme Court decision. The High Court also answered the reference against the assessee.

What did the Supreme Court hold?

The Supreme Court held that the provisions of Chapter VI of the Income Tax Act, 1961, represent a significant departure from the corresponding provisions of the 1922 Act. Specifically, Section 73(1) of the 1961 Act stipulates that a loss in speculation business can only be set off against profits from another speculation business. While Section 73(2) allows carry forward of such losses, this is made subject to the other provisions of Chapter VI, including Section 75. Section 75(1) mandates that for a registered firm, any loss not set off against the firm's other income shall be apportioned between the partners, and they alone are entitled to carry forward and set off such losses. Furthermore, Section 75(2) explicitly states that nothing in Section 73(2) entitles a registered firm to carry forward and set off its losses. Therefore, the Tribunal and the High Court were correct in holding that the ratio of the Kantilal Nathuchand case is not applicable under the 1961 Act. The appeals were dismissed.

What were the issues?

1. 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 assessee contended that under the Income Tax Act, 1961, speculation losses incurred by a registered firm should be carried forward and set off against future speculation profits of the firm, citing the Supreme Court's decision in C.I.T., Gujarat v. Kantilal Nathuchand Samji. The Revenue argued, and the Tribunal and High Court agreed, that the provisions of the Income Tax Act, 1961, particularly Sections 73 and 75, differentiate the treatment of speculation losses for registered firms compared to the earlier Act under which the Kantilal Nathuchand case was decided. The Revenue contended that for registered firms, such losses must be apportioned between the partners, who alone are entitled to carry them forward and set them off.

Which sections of the Income-tax Act were involved?

Section 73,Section 75,Section 67,Section 24(1),Section 24(2),Section 70,Section 71,Section 72,Section 74

AI-generated summary — verify with the full judgment below

- H. D. DEV ASIA & CO., KERALA v. COMMISSIONER OF Jl\:C0,\1E TAX, KERALA May 4, 1979 12 71 [N. L. UNTWALIA, R. S. PATHAK AND E. S. VENKATARAMIAH, JJ.J Jncon1e Tax Act, 1961, Sections 73 and 75-Scopc of-Losses in specula- 1ion business-A registrred [inn is not entitled tO ha1·e its losses in spec11fatio11 business carried forward for set off agoin~·t future profits in sprcufation busi- ness.

Any such loss sludl be apportionrd between the partners of the firn1 and they (the partners) alone shall be entilled to ha\"e thr a111ount of the loss set -0f/ and carried forward for set off under Section 73. The assessee-appellant is a registered firn1 carrying on business at several places in the State of Kerala. Apart from it'i regular trade in various commo- dities, the assessee \Vas also carrying on a business in speculation.

In respect of the loss'es- during the Msessment years 1964-65, 1965-66 and the profit during the assessment year 1966-67, the Income Tax Officer appor- tioned the aforesaid losses and profits amongst the partners and rejected the assessee's contention that the losses in speculation business should be can·ied forward and set off against the profit in

The order continues below.

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