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The Commissioner of Income-tax, Bombay City Iii, Bombay Vs. Dharamdas Hargovindas, Bombay - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberI.T. Reference No. 52 of 1966
Judge
Reported in(1976)5CTR(Bom)426
ActsIncome Tax Act, 1922 - Sections 10, 24, 24(1) and 24(2)
AppellantThe Commissioner of Income-tax, Bombay City Iii, Bombay
RespondentDharamdas Hargovindas, Bombay
Appellant AdvocateR.J. Joshi, Adv.
Respondent AdvocateR.J. Kolah, Adv.
Excerpt:
.....fall within the aforesaid provision of section 24(2). each one of the assessees had sustained a loss in speculative transactions in the assessment year 1953-54 and each one of the assessees had claimed that such loss arising from speculative transactions should be allowed to be carried forward so as to be set off against the profits that would have arisen to each one of them fro out of speculative transactions which each one of them would carry on in the next year. so far as the third question is concerned, the results of speculative transactions that were entered in to by dharamdas and govardhandas in the assessment year 1954-55 were that in the speculative transactions in commodities like arand and gold each one of them suffered a loss of rs. 18,907/- while in transaction pertaining..........fall within the aforesaid provision of section 24(2). each one of the assessees had sustained a loss in speculative transactions in the assessment year 1953-54 and each one of the assessees had claimed that such loss arising from speculative transactions should be allowed to be carried forward so as to be set off against the profits that would have arisen to each one of them fro out of speculative transactions which each one of them would carry on in the next year. moreover, it was not disputed before us that even if the speculative transactions which were carried on by the two assessees with m/s. maganlal sundarji and narsidas jagjiwandas could be said to have been carried on by them as an unregistered firm, that unregistered firm had not been assessed at all. having regard to these.....
Judgment:

Tulzapurkar, J.

1. The following three questions, the first two relating to assessment year 1953-54 and the third one relating to assessment year 1954-55, have been referred to us for our opinion at instance of the Commissioner of Income-tax, Bombay City III, Bombay :

(1) Whether on the facts and in the circumstances of the case, the loss of Rs. 46,493/- in pursuance of transactions under Annexure 'A' is liable to be disallowed under the second proviso to section 24(1) of the Indian Income-tax Act, 1922 in the assessment for 1953-54

(2) Whether on the facts and in the circumstances of the case, the sum of Rs. 25,283/- being the speculation loss could be carried forward under section 24(2) in the individual assessments of Dharamdas and Gordhandas so as to be set off against the profits from any business in speculative transactions carried on by each of them in the next year

(3) Whether on the facts and in the circumstances of the case, the Tribunal acted rightly in holding that the loss in speculation carried forward from 1953-54 could be set off against the profits in speculation in the hands of Dharamdas and Gordhandas relating to 1954-55 and the balance of such absorbed loss could be forward under section 24(2) in the later years

2. The material facts so far as the first question is concerned are these : The question relates to the assessment year 1953-54, the relevant previous year being S.Y. 2008 corresponding to 31-10-1951. The two individual assessees Shri Dharamdas and Shri Gordhandas who are brothers, entered into an agreement on 21-12-1951 with Jamnadas Dayalji Boda and Chandrakant Dayalji Boda trading in the name of M/s. Gopalji Ratanshi. Under the said agreement Shri Dharamdas and Shri Gordhandas agreed to carry on certain business as a joint venture business in Mulmul of Universal Mill on terms and conditions mutually agreed upon between the said two brothers and the said Boda brothers. The joint venture business was to deal in quantity between 150 and 200 bales of mulmul. Dharamdas and Gordhandas were to supply the finance and profit or loss was to be shared equally between Dharamdas and Gordhandas on the one hand and Boda brothers on the other and the joint venture was to terminate on the sale of Mulmul bales minimum being 150 bales and maximum being 2oo bales of mulmul that were to be purchased from Universal Mill. It appears that the joint venture ran into losses and Boda brothers out of the business after suffering heavy losses and they seem to have left Bombay to evade creditors. The loss that accrued to Dharamdas and Gordhandas as a result of the arrangement under agreement dated 21-12-1951 came to Rs. 92,986.99 with the result that each one of them viz. Dharamdas and Gordhandas claimed one half of the same viz, Rs. 46,483/- as loss allowed in each one's individual assessment fro the year 1953-54. The Income-tax Officer disallowed this loss on the ground that it was not genuine and also on the ground that as it was an unregistered firm it could not be considered for the individual assessment. The first ground need not detain us any more because of the fact that the Tribunal has recorded a finding that the loss was genuine. On appeal by Dharamdas and Gordhandas to the Appellate Assistant Commissioner, the latter on perusal of the agreement dated 21-12-1951, details in the statement of account and other attendant circumstances held that there was no material justifying disallowance of the loss. The department carried matter in second appeal to the Tribunal and the contention of the department before the Tribunal was that said loss could not be allowed in the individual assessment in view of the second proviso to section 24(1) of the Indian Income-tax Act, 1922 and in support reliance was placed on the decision of the Supreme Court in : [1963]48ITR41(SC) Commissioner of Income-tax vs. Jadhavji Narsidas & Co. On behalf of the individual assessee reliance was placed upon the decision of this Court in (1953) 55 I.T.R. 128 Commissioner of Income-tax vs. Jagannath Narsinghdas and it was contended that in view of that decision the was properly allowed and there was nothing in the second proviso to section 24(1) to prevent such allowance. The Tribunal following the law laid down by this Court in : [1965]55ITR128(Bom) as well as by the Supreme Court in : [1962]44ITR710(SC) Commissioner of Income-tax vs. Muthuraman Chettiar held that the loss was allowable under section 10 of the Income-tax Act and nothing contained in the second proviso to section 24(1) of the Act prevented such allowance. It therefore upheld the order of the A.A.C. At the instance of the Commissioner the first question set out above has been referred to us for our opinion.

3. Mr. Joshi appearing for the Revenue fairly conceded before us that the question was clearly covered by the decision of this Court in the case of Commissioner of Income-tax vs . Jagannath Narsinghdas reported : [1965]55ITR128(Bom) , but he urged that in view of Full Bench decision of the Allahabad High Court in the case of Raza Buland Sugar Co. Ltd. vs . Commissioner of Income-tax, Delhi (Central) reported in : [1976]102ITR451(All) which in its turn had referred to some observation of the Supreme Court in certain applications which were preferred before it, the view taken by this Court in : [1965]55ITR128(Bom) could not be followed by this Court. It is not possible to accept this contention of Mr. Joshi for the reason which we shall presently indicate.

4. Certain admitted position may be stated. It was not disputed before us that the joint venture business, which was carried on by Dharamdas and Gordhandas along with two Boda brothers under the style of M/s. Gopalji Ratanshi, was a business admittedly carried on by the four persons as an unregistered firm. It was also not disputed before us that this unregistered firm was never assessed and it was in individual or personal assessment of Dharamdas and Gordhandas that deduction of loss arising out of joint venture business that was claimed by them under section 10 of the Income-tax Act, 1922 and the only question that arises for our consideration is whether when such adjustment is clearly allowable under sec, 10 of the Act is there anything in the second proviso to sec, 24(1) of the Act which prevents such allowance On this aspect of the matter the decision of this Court in C.I.T. vs . Jagannath Narsinghdas, reported in : [1965]55ITR128(Bom) , is quite clear. It has held in that case by this Court that in computing the business income of an assessee under section 10 of the Indian Income-tax Act, 1922, the assessee is entitled to adjust his share of the los sustained by unregistered firm in which he is a partner against the profits made by him in a business carried on by him individually, and that principle so laid down by the Privy Council in Arunachalam Chettiar vs. Commissioner of Income-tax, (1936) 4 I.T.R. 173, continues to apply even after the amendments in 1939 of sections 16(1)(b) and 24. This Court has further taken the view that so long as the adjustment that the assessee seeks is in his income under the same head, namely, business, there is nothing in the proviso to section 16(1)(b) or the second proviso to section 24(1) which would preclude him from seeking that adjustment under section 10 of the Act. Relying upon the Privy Council's decision in Arunachalam Chettiar's case and the decision in the case of P. M. Muthuraman Chettiar vs. C.I.T. reported in 31 I.T.R. 61 this pointed out that section 24 was applicable only when the assessee was an unregistered firm and further that section 24 had no application where the set-off is not of loss under one head of income against profit under another head but is a case of adjustment and set-off between the profits and losses under the same head and it further pointed out that the adjustment of profits and losses under the head of business is to be done under section 24 but under section 10 of the Act. In view of the aforesaid pronouncement of this Court it is quite clear to us that in the instant case before us the assessees were Dharamdas and Gordhandas individuals and not an unregistered firm. Moreover, it was a case where adjustment of profit and loss under the same head of business was sought by the assessees, which was perfectly permissible under section 10 of the Act and the second proviso to section 24(1) of the Act would be clearly unapplicable.

5. Mr. Joshi invited our attention to the Full Bench decision of Allahabad high Court in the case of Raza Buland Sugar Co. Ltd. vs . C.I.T., Delhi (Central) reported in : [1976]102ITR451(All) . In that case the facts were that Raza Sugar Company Ltd., (Raza) and Buland Sugar Company Ltd., (assessee) and formed a partnership as the Agricultural Company. The Agricultural Company suffered loss, For the Assessment years 1954-55, 1955-56 and 1956-57 the Agricultural Company was assessed as an unregistered firm. In the assessment proceedings in respect of Raza, the High Court had held on a reference that as the Agricultural Company had been assessed as an unregistered firm, no partner could claim to set off its share of loss against its individual income by reason of the provisions contained in section 24 (1) of the Income Tax Act, 1922. The petitions by Raza to the Supreme Court for special leave to appeal against the decision of the High Court were dismissed with the observation 'We do not think that these are fit cases to be heard by this court'. On reference to the High Court in respect of the assessment proceedings with reference to the assessee-company Raza Buland Sugar Co., Ltd. The Full Bench held that when the Supreme Court dismissed the special leave petitions in Raza's matter it should be presumed that the special that the special leave petitions were dismissed because they lacked merit and therefore it had to be held that the assessee, a partner in the Agricultural Company assessed as an unregistered firm and was not entitled to set off its share of loss therefrom against its other income. What was sought to be urged by Mr. Joshi before us was that since the Supreme Court had dismissed the special leave petitions in Raza's matter, the Supreme Court must be presumed to have held that by reason of the provision contained in the second proviso to section 24(1) of the 1922 Act such claim under section 10(1) of the Act was not allowable. It is not possible to accept the submission of Mr. Joshi for more than one reason. In the first place, it is not clear as to whether the special leave petitions in matter were dismissed on merits through the Allahabad High Court seems to have felt that way. The petitions were dismissed by the Supreme Court with the observation 'We do not think that these are fit cases to be he heard by this court' and such observations could be made by the Supreme Court for a number of reasons and not necessarily for the relevant assessment years the Agricultures Company had been assessed as an unregistered firm, which is not the position here. In the circumstances we are of the view that the first question is clearly covered by the decision of this Court in : [1965]55ITR128(Bom) and in our view, the Tribunal was right in allowing adjustment that was sought for each of the assessees. The first question is, therefore, answered in the negative, inasmuch as, the adjustment sought in respect of loss of Rs. 46,483/- is clearly allowable under section 10 of the Act and the same is not disallowable under the second proviso to section 23(1) of the Act as the latter provision is not applicable.

6. Dealing with the second question, which also pertains to the assessment year 1953-54, the relevant previous year being S.y. 2008, the facts are similar. The two assesses-Dharamdas and Gordhandas entered into 'speculative transactions' as defined in Explanation 2 to section 24(1). These transactions were entered into with M/s. Maganlal Sundarji and Narsidas Jagjiwandas in which the two brothers were equally interested each having a half share therein. The total loss in these transactions amounted to Rs. 50,566/- Rs. 20,320/- in transaction with Maganlal Sundarji and Rs. 30,246/- in transactions with Narsidas Jagjiwandas. Dharamdas and Gordhandas each claimed in his individual assessment his share of said loss viz. Rs. 25,283/-. This was disallowed by the income-tax Officer on the ground that it arose from an unregistered firm. In the appeal to the Appellate Assistant Commissioner it was contended that though the disallowance was correct, as ti was speculation loss, still it carried forward under the provisions of section 24(2) of the Act so as to be set off against the profits from any business in speculative transactions carried on by each one of them in the next year. The A.A.C. accepted the contention and held that the said loss should be allowed to be carried forward. When the matter was carried in second appeal by the department, the self-same contention was urged that as the loss had arisen from an unregistered firm, the same could not be considered in the individual assessment of the partner and reliance was placed upon the second proviso to section 24(1) of the Act. The Tribunal negatived the contention and held that the assessees before them were individual partners and not an unregistered firm their loss could be considered for adjustment to the extent admissible under section 10 of the Act but that as the loss was one from speculative transactions its adjustment was only possible as against speculative profits. The Tribunal therefore held that the loss could be taken into consideration to the extent permissible under section 24(1) of the Act in the individual assessment. At the instance of the Commissioner of Income-tax, therefore, the second question has been referred to us for our opinion. In our view, the question is equally covered by the decision of this Court in : [1965]55ITR128(Bom) and for the reason which we have already indication above while answering question No. 1, we feel that the Tribunal was right in taking the view that the sum of Rs. 25,283/- being speculation loss, which was claimed to be carried forward by each one of the assessees in his individual assessment could be carried forward under section 24(2) so as to be set off against the profits from any business in speculative transactions carried on by each one of them in the next year.

7. Mr. Joshi for the Revenue contended before us that it could not be disputed that since the loss arose from speculative transactions the same could be set off against the profits arising from speculative transactions but the Tribunal should have held that right to carry forward such speculations loss under section 24(2) was not available in the instant case to the assessees viz. Dharamdas and Gordhandas, inasmuch as, the right to carry forward was brought into existence by the provisions of section 24(2) and that under the said proviso since the loss had arisen from the transactions of an unregistered firm, the right to carry forward could be claimed only by an unregistered firm if it carried on speculative transactions next year and earned profits so as to earn set off. It is not possible to accept this contention of Mr. Joshi having regard to the plain language which is to be found in section 24(2) of the Act. Section 24(2) as it stood on the statute book during the material years ran thus :-

24(2) Where any assessee sustains a loss of profit or gain in any year, being a previous year not earlier than the previous year for the assessment for the year ending on the 31st day of March, 1940, in any business, profession or vocation, and the loss cannot be wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no other head of income shall be carried forward to the following year, and

(i) where the loss sustained by him in a business consisting speculative transactions, it shall be set off only against the profits and gains, if any, of any business in speculative carried on by him in that year;

(ii) where the loss was sustained by him in any other business, profession or vocation, it shall be set off against the profits and gains, if any, of any business, profession or vocation carried on by him in that year provided that the business profession or vocation in which the loss was originally sustained continued to be carried on by him in that year; and

(iii) if the loss is either case cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following year and so on.'

In our view, the two assessees here being individually assessed clearly fall within the aforesaid provision of section 24(2). Each one of the assessees had sustained a loss in speculative transactions in the assessment year 1953-54 and each one of the assessees had claimed that such loss arising from speculative transactions should be allowed to be carried forward so as to be set off against the profits that would have arisen to each one of them fro out of speculative transactions which each one of them would carry on in the next year. Moreover, it was not disputed before us that even if the speculative transactions which were carried on by the two assessees with M/s. Maganlal Sundarji and Narsidas Jagjiwandas could be said to have been carried on by them as an unregistered firm, that unregistered firm had not been assessed at all. Having regard to these facts and circumstances, we do not feel there is any substances in the contention urged by Mr. Joshi that the loss being speculative loss suffered by each one of the assessees could not be carried forward under section 24(2) in their individual assessments so as to be set off against the profits from any business in speculative transactions carried on by each one of them in the year. The second question will have, therefore, to be answered in the affirmative, in favour of the assessee.

8. Turing to the last question that has been referred to us for our opinion, in our view, it is consequential upon the second question we have already answered in favour of the assessee. Once it is held that the loss arising from speculative transactions could be carried forward under section 24(2) by the two assessees in their individual assessments so as to be set off against the profits from any business in speculative transactions carried on by each one of them in the next year, it would logically follow that the said loss will have first to be set off against the profits that would be earned by each one of them in the speculative transactions carried on by them in the next year viz., assessment year 1954-55 and even after such set off if some unabsorbed loss could remain, the same will have to be carried forward for consideration under section 24(2) in latter years. So far as the third question is concerned, the results of speculative transactions that were entered in to by Dharamdas and Govardhandas in the assessment year 1954-55 were that in the speculative transactions in commodities like Arand and gold each one of them suffered a loss of Rs. 18,907/- while in transaction pertaining to commodities like silver and ground-nut oil each one of them earned a profits of Rs. 25,632/-. Keeping in mind these results of the speculative transactions entered into by the two assessees in assessment year 1954-55, the A.A.C. worked out the loss to be carried forward thus : 'From the assessment year 1953-54, a sum of Rs. 25,283/- has been permitted to be carried forward a speculation loss. This will be set off against the profit of Rs. 25,632/-, of this year. The balance of Rs. 349/- will be set against the loss of Rs. 18,907/- through Shashikant Himmatlal. The net loss of Rs. 18,558/- will be carried forward under section 24(2).' This working out has been upheld by the Tribunal and we do not see any reason why that part of the order requires any interference. In our view, question no. 3 deserves to be answered in the affirmative in favour of the assessee.

9. In the result, question No. 1 is answered in the negative in the manner indicated above. Question No. 2 is answered in the affirmative and question No. 3 is also answered in the affirmative in favour of the assessee.

10. Department will pay the costs of the reference to the assessee.


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