1. At the instant of the assessee the Tribunal has referred to us under section 66(1) of the Indian Income-tax Act, 1922, the following question for our determination :
'Whether, on the facts and in the circumstances of the case, was the Tribunal justified in refusing to allow the set-off carried forward losses of speculation business against the speculation profit of Rs. 11,369 of the assessment year 1958-59 ?'
2. Ambalal Narsidas, the assessee, has income from speculative transactions, business in ready shares and dividends. He has been assessed in the status of an individual. For the assessment year 1958-59, according to the profit and loss account for the relevant year, the loss that the assessee had suffered was shown at Rs. 6,866. This amount of Rs. 6,866 was arrived at after deducting from the total loss the dividend income of Rs. 51,274 and speculation profit of Rs. 11,369. The total loss without deducting those two items of dividends and speculation profit was Rs. 69,509. Even in the earlier years the assessee was carrying on speculation business and had suffered heavy losses in speculation business. The unabsorbed speculation loss of Rs. 68,224 was allowed by the Income-tax Officer to be carried forward in earlier years and has been brought forward by the assessee to this year.
3. While assessing the assessee for the assessment year 1958-59, a question arose whether the speculation profit of Rs. 11, 369 should be first set off against the carried forward losses of the previous years or whether the speculation profit of Rs. 11,369 should be taken into account in determining the net result of the income or profit for the year in question and if there was income or loss appropriate adjustment should be made in accordance with the provisions of the Income-tax Act. The Income-tax Officer did not allow the claim for set-off in respect of the sum of Rs. 11,369 against the speculation losses brought forward from the previous years to the present year. The order of the Income-tax Officer was confirmed in appeal by the Appellate Assistant Commissioner. The contention of the assessee before him was that the net speculation profit of 11,369 should have been treated separately by the Income-tax Officer and the speculation loss carried from the earlier years should have been set off against such profits. That contention was not accepted by the Appellate Assistant Commissioner. He was of the opinion that the profit or loss for a given assessment year had to be first computed and then only set-off given for loss carried forward under section 24(2) of the Income-tax Act against such net result. In computing profit or loss of any given assessment year, according to the Appellate Assistant Commissioner, the speculation profit had to be amalgamated with the profit in the ready transaction and only if there was resultant profit, the question of set-off loss carried forward from earlier years would then arise. The order of the Appellate Assistant Commissioner was confirmed in further appeal by the Tribunal. The Tribunal construed the provisions of section 24 of the Indian Income-tax Act, 1922, and observed that the section provided for set off of loss under one head against profits or gains under any other head. The provisions of the said section, according to the Tribunal would come into operation only after the provisions of section 10 were exhausted for computation of the business income and that involved set off of loss of one business against the profits of any other business. There was only one exception to such a position. That exception is contained in Explanation 1 to section 24(1). Under that Explanation speculation loss cannot be set off against non-speculation income, but there was no objection under the Act, according to the Tribunal, to set off non-speculation business loss against speculation profits. The Tribunal held that non-speculation loss had to be adjusted against speculation profit and that the net result which was so arrived at under section 10 should be considered under section 24(1). After referring to the provisions of section 24(2) of the Act the Tribunal pointed out that it was laid down that speculation loss carried forward should only be set off against profits and gains, if any of any business in speculation carried on by him in that year. This section did not lay down that before applying the normal method of computation of business income under section 10, the provisions of section 24(2) should be applied. In the opinion of the Tribunal sub-section (2) of section 24 only restricted the assessee's right to carry forward and set off speculation loss but did not lay down any restriction on the department's right to set off loss in one business against the profits of any other business under section 10. On this reasoning the contentions against this order of the Tribunal that the assessee has asked for reference to this court for determination of the question above referred to.
4. At the outset it may be stated that Mr. Patil, counsel for the assessee and Mr. Joshi, counsel for the revenue, have drawn our attention to a circular of the Board of Revenue which gives guidelines for answering the question referred to. It may, however, be plainly stated that before none of the taxing authorities and the Tribunal, was this circular cited or brought to their notice. If the circular to which our attention has been drawn is sufficient to decide the question then it is unnecessary for us to consider and construe the provisions of section 24 of the Indian Income-tax Act, 1922, read with the provisions of section 6 and 10 thereof. On a plain reading of the circular, to which our attention is invited, the question referred to us can be answered without discussing the provisions of the statue. We may point out that a Division Bench of this court in the case of Tata Iron & Steel Co. Ltd. v. N. C. Upadhyaya has pointed out that the circulars issued by the Board would be binding on the Income-tax Officers and must be given effect to by this court. However, a note of caution was struck by the court by observing that the binding nature of circulars issued by the Central Board of Revenue must be confined to tax laws and that also for the purpose of giving administrative relief to the taxpayer and not for the purpose of imposing a burden on him. If such is the effect to be given to the circular then we have to consider whether on the basis of the circular relied upon, it is possible for us to answer the question without going into the provisions of section 24 and the other relevant sections. On September 12, 1960 (Circular No. 23 (XXXIX-4) D of 1960) bearing No. F.No. 4 (124)-60/TPL. C.B.R. was issued. This circular relates to adjustment of speculation profits in the current year against the carried forward speculation loss. The relevant part of the circular is as under :
'Point (v) : Speculation loss, if any, carried forward from the earlier years or the speculation loss, if any, in a year should first be adjusted against speculation profits of the particular year before allowing any other loss to be adjusted against those profits.
Board's decision : The suggestion is acceptable. For the purpose of set off under section 10 and section 24(1) the speculation loss any year should first be set off against the speculation profits of that year and the remaining amount of speculation profits, if any, should then be utilised for setting off of any loss of that year from other sources. For the purposes of section 24(2) the Income-tax Officer may allow the assessee -
(i) either to first set off the speculation losses carried forward from an earlier year against the speculation profits of the current year and then to set off the current year's losses from other sources against the remaining part, if any, of the current year's speculation profits,
(ii) or to first set off the current year's losses from non-speculation business and other sources against the current year's speculation profits and then to set off the carried forward speculation losses of the earlier year against the remaining part, if any, of the current year's speculation profits, whichever is advantageous to the assessee. (For points (i) to (iv) considered by the C.B.R. see section 43(5)).'
5. It is thus clear from this circular that if speculation losses for the earlier years are carried forward and if in the year of account a speculation profit is earned by the assessee then the circular provides that such speculation profits for the accounting year should be adjusted against the carried forward speculation loss of the previous year before allowing any other loss to be adjusted against those profits. In view of this circular the position is beyond and doubt so far a the present question is concerned. In the accounting year relevant to the assessment year 1958-59, the assessee, inter alia, had a speculation profit of Rs. 11,369. It is equally clear that unabsorbed speculation losses for the previous years aggregating to Rs. 68,224 were carried forward by the Income-tax Officer from the earlier years. If that was so, then the sum of Rs. 11,369 which represented the speculation profit in the relevant year should first be set off in view of the provisions of this circular against the carried forward speculation losses of the earlier years and if that is done, then the question referred to us shall have to be answered against the revenue. Applying the provisions of the above circular of the central Board of Revenue, we hold that the taxing authorities and the Tribunal were not justified in refusing to allow the set-off of carried forward losses of speculation business against the speculation profit of Rs. 11,369 of the assessment year 1958-59.
6. Thus, the question referred to us is answered in the negative and against the revenue. There will be no order as to costs since the provisions of this circular were not brought to the notice of any of the taxing authorities or the Tribunal when the assessee's matter heard by them.