V.S. Desai, J.
1. The questions arising on this reference under section 66(1) of the Indian Income-tax Act, 1922, relate to the assessee's assessments for the assessments years 1958-59 and 1959-60 for which the relevant previous years are the Samvat years 2013 and 2014 respectively. The original assessment of the assessee for the assessment year 1958-59 was made on June 30, 1959, on a total computed income of Rs. 59,413. In the said computation a sum of Rs. 53,008, which was claimed as a bad debt in the account of one Gopaldas Champshi, was allowed by the Income-tax Officer. This amount of Rs. 53,008 included a sum or Rs. 19,453 which represented the valan profits made by the assessee in certain speculative transactions in the Samvat year 2011 and were due to it from the said Gopaldas Champshi and were, therefor, debited to his account. They were, however, not realised and ultimately in the relevant accounting year they were written off and claimed as bad debt along with the other dues from the said debtor. Since the assessee's claim that the debt due from Gopaldas Champshi had income irrecoverable and, therefore, a bad debt was accepted by the Income-tax Officer, he allowed the entire amount of Rs. 53,008 as a bad debt without applying his mind to the question as to whether the amount of Rs. 19,453, which represented a part of the bad debt relating to the speculative transactions, would not be allowable in view of the provisions of the first proviso to section 24(1) of the Act. In the course of the assessment for the assessment year 1955-56, when the Income-tax Officer had to examine a similar bad debt claim, he realised that he had erroneously allowed an amount of Rs. 19,453 a bad debt in the earlier assessment year. He, therefore, reopened the assessment under section 34(1) (b) and disallowed the sum of Rs. 19,453 in the computation of the total income for that year and allowed it to be carried forward as a part of the speculative loss for the subsequent years.
2. The assessee appealed against the order to the Appellate Assistant Commissioner and failing in that appeal took a further appeal to the Income-tax Appellate Tribunal. In both the appeals the assessee contended, firstly, that the assessment was wrongly reopened under section 34(1) (b), and secondly, that the disallowance of Rs. 19,453 was erroneous. Both the contentions were negatived by the Appellate Assistant Commissioner as well as by the Tribunal. On an application by the assessee for a reference under section 66(1), two question have been framed and forwarded to us by the Tribunal, which are as follows :
'1. Whether, on the facts and in the circumstances of the case, the action under section 34(1) (b) is valid in la
2. Whether the sum of Rs. 19,453, being a debt in relation to speculative transactions, falls within the scope of section 24(1), first proviso, of the Income-tax Ac ?'
3. In the assessment for the assessment year 1959-60, the assessee claimed an amount of Rs. 43,541.44 as a bad debt in the account of one Madhavji Vithaldas. This amount represented the balance due to the assessee from the said Madhavji Vithaldas, in respect of certain speculative transactions entered into by the assessee with him in the Samvat year 2011. The dues having become irrecoverable, the assessee had written them off in the relevant accounting year and claimed them as a bad debt in the assessment. The Income-tax Officer allowed only a sum of Rs. 3,044 out of the said amount, to be adjusted against the speculative profits, which amounted to that figure during the accounting year and directed that the rest of the amount of Rs. 40,497 be carried forward as loss in speculation in accordance with the provisions of section 24(1), first proviso. The order passed by the Income-tax Officer was confirmed in appeal by the Appellate Assistant Commissioner. In the second appeal before the Tribunal, the Tribunal agree with the view that had been taken by the Income-tax Officer as well as the Appellate Assistant Commissioner. It, however, allowed a further set-off to the extent of Rs. 5,177, since that much amount had been recovered by the assessee out of a debt which had been treated as a bad debt previously and had, therefore, constituted a profit for the year of account in speculative transactions. The Tribunal accordingly disallowed the assessee's claim in respect of the bad debt only to the extent of Rs. 35,320. The question of law which it has referred to us as arising out of its order, is whether, on the facts of the case the sum of Rs. 35,320, being a debt in relation to speculative transactions, falls within the scope of section 24(1), first proviso. It will thus be seen that there is a common question of law referred to in respect of both the assessments. In respect of the assessment for the assessment year 1959-60, there is an additional question relating to the validity of the action under section 34(1)(b).
4. Mr. Mehta appearing for the assessee has not pressed for an answer on the first question or the assessment year 1959-60 relating to the validity of section 34(1), conceding that we may answer the question against him. We accordingly answer that question in the affirmative.
5. As to the second question, the main argument of Mr. Mehta is that the proviso to section 24(1) had no application to any part of the amount which the assessee had claimed as bad debt in the relevant accounting years. He does not dispute that the amount of Rs. 19,453 involved in the assessment for the first assessment year and the amount of Rs. 43,541 involved in the second assessment year related to dues on speculative transactions. His argument, however, was that they were not losses in speculative transactions, but, on the other hand, profits in the said transactions which has accrued in the Samvat year 2011, and gone into the computation of the total income for the said year and subjected to tax. His claim for deduction of the said amounts in the relevant assessment years was not on the basis of losses in speculative transactions, but on the basis of a lawful deduction to which he speculative transactions, but on the basis of a lawful deduction to which he was entitled under the provisions of section 10(2). Mr. Mehta argues that the proviso to sub-section (1) of section 24 deals with losses in speculative transactions, but has nothing to do with deductions which are claimable as bad debts under section 10 (2). According to him, therefore, the department was wrong in disallowing the deductions claimed by him on the ground that they fell within the scope of the provisions of section 24(1), first proviso.
6. The relevant part of section 24(1) and the first proviso run as follows :
'24. (1) 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 :
Provided that in computing the profits and gains chargeable under the head 'Profits and gains of business, profession or vacation', any loss sustained in speculative transactions which are in the nature of a business shall not be taken into account except to the amount of profits and gains, if any, in any other business consisting of speculative transactions... Explanation 1. - Where the speculative transactions carried on are of such a nature as to constitute a business, the business shall be deemed to be distinct and separate from any other business.'
7. Under the main provisions of sub-section (1), a loss under one head is allowed to be set off against profits or gains under any other head in that year. The first proviso confines itself to the computation of the profits and gains chargeable under the head 'Profits and gains of business, profession or vocation' and provides that, so far as the speculative transactions which are in the nature of business are concerned, any loss sustained in them will not be capable of being set off against the profits and gains in non-speculative business, but that it can only be set off against profits in any other business consisting of speculative transactions. In other words, what the proviso says is that when profits and gains are to be computed under the head of 'business', Thus, if he has five distinct lines of business, in three of which he earns a profit and in the other two he sustains a loss, the loss would be set off against the profits in the computation of the total income under the head of 'business'. Similarly, if the assessee had different kinds of speculative business, his income under the head of 'business' will be computed after permitting a set-off of the profits and losses in the different kinds of business. Where, however, an assessee has both speculative and non-speculative business, one or more than one of each kind, the losses in the speculative business of one kind can only be set off against profits, if any, in the speculative business of another kind, but they will not be capable of being set off against the profits from the non-speculative business. The department in the present case has treated the amounts of Rs. 19,453 and Rs. 43,541 in the respective accounting years as losses of those years and, since the amounts pertained to transactions in the course of the speculative business, treated them as speculative losses. Since in the first year there was no speculative profit against which it could be allowed to be set off, it allowed the entire amount to be carried forward to the subsequent year and in the second year since only a part of it could be set off against the profits available during that year, it allowed a set-off to that extent and directed that the rest should be carried forward to the subsequent years.
8. Mr. Mehta's arguments is that the department has erred in treating it as a loss sustained in speculative transactions. His arguments is that the amount claimed as a bad debt may be a loss in speculative business, but that is not the same thing as a los in speculative transactions. As a matter of fact, he says that the amount represented a profits in the speculative transactions when they took place. It was only converted into a business loss, though it was a profitable transaction, because it was not realised and, consequently, reduced the profits of the assessee by that amount. Mr. Mehta says that what the proviso speaks of is 'loss sustained in speculative transactions which are in the nature of a business' and not a loss in speculative business. According to him, therefore, the department is wrong in applying the proviso to section 24(1) to the assessee's claim for deduction of the bad debt. We are unable to agree with the submission made by the learned counsel. The distinction which the learned counsel has sough to make between 'loss sustained in speculative transaction which are in nature of a business' and the loss in a speculative business, does not appeal to us and we do not think that any such distinction has been contemplated by the legislature in exacting the proviso to section 24(1). According to Mr. Mehta's interpretation of the proviso, what is required to be set off against the profits in speculative transactions only are the losses sustained in speculative transactions and not all other kinds of losses incurred in connection with speculative business. We do not think that that is the correct interpretation. The expression 'any loss sustained in speculative transactions which are in the nature of a business' contemplates the resultant computation of loss or profit in the business in which the speculative transactions are entered into and not the aggregate of losses sustained in such of the transactions carried on by the assessee, the loss or profit in one kind of business can be adjusted against the loss or profit in another kind of business but a set-off losses in speculative business will not be allowed against profits from business which are not speculative. If the bad debt is allowed on the footing that it constitutes the loss in the business in the year in which it becomes bad, it would come within the expression of a 'loss sustained in speculative transactions which are in the nature of a business' within the meaning of the proviso to section 24(1). This would also answer, in our opinion, the other arguments advanced by the learned counsel, that the amounts claimed by him were merely decoction under section 10(2) and not losses sustained in speculative transactions. It is true that the claim for deduction was made under the specific provision of section 10(2) (xi), but there can be no doubt whatsoever that the reason for allowing the deduction is that it is treated as a loss sustained in the business in the course of the year. It is clear from the probations of section 10(2) (xi) that if an amount which is a bad debt in one year is subsequently realised by the assessee in a subsequent year, it is treated as profit of the year in which the realisation takes place. The allowing of bad debt as a deduction, therefore, is on the basis that it is looked upon as a loss suctioned in the business. In our opinion, therefore, the department was right in taking the view that in as much as in the relevant years there were not any sufficient speculative profits against which these amounts which were in the nature of losses in speculative business could be set off, the set off could not be allowed against profits in a non-speculative business and all that can be done is to carry forward the same to the subsequent year under the provision of section 24(1). In that view, of the matter, the second question for the assessment year 1958-59, and the similar question for the assessment year 1959-60, must be both answered in the affirmative. As we have already pointed out earlier, the first question for the assessment year 1958-59 had not been pressed and the counsel has conceded that it should be answered against the assessee and the answer to that question, therefore, must be in the affirmative. The assessee will pay the costs of the department.
9. Questions answered in the affirmative.