COMMISSIONER OF LNCOME-TAX, GUJARAT vs. KANTILAL NATHUCHAND SAMI

CIVIL APPEAL No. 676/1965Supreme Court[1967] 1 S.C.R. 81311 October 1966Bench: 3 JudgesAuthor: J.C. SHAH, V. RAMASWAMI, VISHISHTHA BHARGAVA B8 pages
AI SummaryDismissed

What were the facts?

The respondent, a registered firm, had income from property, ready business in kappas, and speculation business. For assessment years 1958-59 and 1959-60, the firm incurred losses in its speculation business. The Income-tax Officer did not set off these losses against other income but apportioned them among the partners. In assessment year 1960-61, the firm had profits from speculation business and claimed that the losses from the preceding two years should be set off against these profits. The firm argued that the Income-tax Officer's apportionment of speculation losses in 1958-59 and 1959-60 was incorrect. This plea was rejected by the Income-tax Officer and Appellate Assistant Commissioner but accepted by the Income-tax Appellate Tribunal and the Gujarat High Court. The Revenue appealed to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the Income-tax Officer was correct in not setting off the speculation losses of 1958-59 and 1959-60 against the income from property and ready business in those years, in accordance with the first proviso to Section 24(1). However, the Court found that the Income-tax Officer erred in apportioning the speculation loss between the partners in those years. The Court reasoned that the second proviso to Section 24(1), when read with the first proviso, does not permit the apportionment of speculation losses. The phrase 'any loss' in the second proviso refers to losses computed under the principal clause of Section 24(1) read with the first proviso, which excludes speculation losses. If speculation losses were apportioned, it would nullify the effect of the first proviso. Furthermore, Proviso (c) to Section 24(2) envisages the existence of loss not apportioned between partners, strengthening the view that speculation loss is not meant for apportionment under the second proviso to Section 24(1). Section 23(5)(a) also does not apply to speculation losses kept apart under the first proviso to Section 24(1). Therefore, the speculation losses of 1958-59 and 1959-60 should have been carried forward and set off against the speculation profits of 1960-61. The appeal was dismissed.

What were the issues?

1. Whether, on the facts and in the circumstances of the case and on a true interpretation of the Indian Income-tax Act, 1922, the Tribunal was correct in holding that speculation losses of the Respondent firm for the assessment years 1958-59 and 1959-60 should be set off against its speculation profit of Rs. 6,19,784/- in its assessment for 1960-61. Assessee's contentions: The Income-tax Officer was wrong in apportioning the speculation losses of Rs. 6,26,606/- (1958-59) and Rs. 5,416/- (1959-60) between the partners. Under the second proviso to Section 24(1) of the Indian Income-tax Act, 1922, this loss could not be apportioned. Consequently, under Section 24(2), the firm was entitled to carry forward these losses and set them off against the speculation profits in 1960-61. Revenue's contentions: The Income-tax Officer was correct in not setting off the speculation losses against income from property and ready business in 1958-59 and 1959-60, as per the first proviso to Section 24(1). However, the Revenue contended that the second proviso to Section 24(1) permitted the apportionment of such losses between partners. The Revenue relied on Section 23(5)(a) and the decision in Commissioner of Income-tax, Bombay City I, v. Chimanlal J. Dalal and Co. (1962) 57 ITR 285.

Which sections of the Income-tax Act were involved?

Section 24,Section 26A,Section 66A,Section 23(5)(a),Section 24(1),Section 24(2)

AI-generated summary — verify with the full judgment below

A B c D E F G H COMMISSIONER OF ll"COME-TAX, GUJARAT v. KANTIJ,AL NATHUCHAND SAMI October 11, 1966 (J. C. SHAH, V. RAMAsWAMI AND V. BHARGAVA, JJ.j 813 Il)dian Income-tax, 1922, s. 24--Registered firm suffering loss in specu-· lation business for two years--Such loss whether to be apportioned among· partners or to be carried forward and set oO against profit in speculation business in the subsequent year.

The respondent firm had income from property, ready business in kappas, and also speculation business.

It was registered under s. 26A of the Indian Income-tax Act, 1922, for the assessment years 1958-59, 1959- 60 and 1960-61. In the accounting periods relating to the assessment years 1958-59 and 1959-60 the firm suffered loss in the speculation business. Tbe Income-tax Officer did not set off this loss against the income from property and ready kappas business but apportioned it between the partners of the firm.

In 1960-61 there was profit in the speculation business and the Ihm claimed that the loss in that business in the preceding two. years should be set off against the said profit.

According to the firm the Income.tax Officer was wrong in apport

The order continues below.

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