Skip to content


M.O. Devassia and Co. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference Nos. 100 to 102 of 1970
Judge
Reported in[1973]90ITR525(Ker)
ActsIncome Tax Act, 1961 - Sections 75(2)
AppellantM.O. Devassia and Co.
RespondentCommissioner of Income-tax
Appellant Advocate S.A. Nagendran,; N. Krishna Pillai,; N.N. Divakaran Pill
Respondent Advocate P.A. Francis and; P.K. Ravindranatha Menon, Advs.
Excerpt:
- - ' 6. sub-section (2) clearly applies to the assessment in this case......under section 67 of the income-tax act, the income-tax officer also apportioned the speculation business losses determined by him for the assessment years 1964-65 and 1965-66. similarly, for the assessment year 1966-67, he apportioned the speculation business profit determined on assessment, among the partners under section 67. the assessee's contention that the speculation business loss incurred by the assessee-firm during the previous years 1964-65 and 1965-66 should not have been apportioned between the artners, but should have been carried forward and set off against the peculation business profit made by the assessee for the year 1966-67, was negatived by the income-tax officer.4. the assessee appealed against the orders of assessment to the appellate assistant commissioner and.....
Judgment:

Viswanatha Iyer, J.

1. A common question mentioned hereunder has been referred to this court by the Appellate Tribunal, Cochin Bench, under Section 256(1) of the Income-tax Act, 1961 :

' 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 ?'

2. The following are the facts: The assessee is a registered firm carrying on business in hill produce, cocoanut oil, etc. at Palai, Cochin and Alleppey, Apart from regular trade in these commodities, the assessee was also carrying on a business in speculation. For the assessment year 1964-65 the assessee declared a loss of Rs. 33,013 relating to speculation business and the Income-tax Officer, on assessment, determined the loss at Rs. 40,510. For the assessment year 1965-66 the assessee declared a profit of Rs. 6,902 from the speculation business, but on assessment, the Income-tax Officer fixed the loss at Rs. 598. For the assessment year 1966-67, the assessee declared a profit of Rs. 1,43,764 from the speculation business. But, on assessment, the Income-tax Officer fixed the income from this business at Rs. 1,36,264.

3. In apportioning the assessee's income among its partners under Section 67 of the Income-tax Act, the Income-tax Officer also apportioned the speculation business losses determined by him for the assessment years 1964-65 and 1965-66. Similarly, for the assessment year 1966-67, he apportioned the speculation business profit determined on assessment, among the partners under Section 67. The assessee's contention that the speculation business loss incurred by the assessee-firm during the previous years 1964-65 and 1965-66 should not have been apportioned between the artners, but should have been carried forward and set off against the peculation business profit made by the assessee for the year 1966-67, was negatived by the Income-tax Officer.

4. The assessee appealed against the orders of assessment to the Appellate Assistant Commissioner and he, following the decision of the Supreme Court in Commissioner of Income-tax v. Kantilal Nathuchand Sami, [1967] 63 I.T.R. 318; [1967] 1 S.C.R. 813 (S.C.), allowed the assessee's appeals on this point and held that speculation business loss of the assessee's-6rm should have been carried forward and set off against its future speculation business profits and should not have been apportioned among its partners as was done by the Income-tax Office On second appeal by the department, the Appellate Tribunal set aside to order of the Appellate Assistant Commissioner and restored that of the Income-tax Officer. Aggrieved by that decision, the assessee applied for reference and it is under these circumstances that this question has come up for consideration.

5. In this connection it has to be noted that in sections 70 - 75 provision is made in the Act for set-off and carry-forward of loss incurred by the assessees under various heads of income. In Section 70 it is provided that where the net result for any assessment year in respect of any source of income other than capital gain is a loss, the said loss is allowed to be set off against his income from any other source under the same head. In Section 71 it is provided that, in respect of a loss which could not be set off under Section 70, it can be set off against the income from any other head subject to other provisions of Chapter VI. For loss incurred in business, profession and vocation, Section 72 allows set off and carry forward of such loss to subsequent years except in the case of loss incurred in speculation business. So far as the latter loss is concerned, Section 73 provides that it can be set off only against speculation business profits and that it can be carried forward and set off only against profits in speculation business in the subsequent years. Section 74 provides for set off and carry forward of losses in capital gains. If the assessee is a registered firm, Section 75(1) provides that if the loss cannot be set off against any income, it should be apportioned among the partners and the partners can claim the benefits of sections 70, 71, 72, 73 and 74. It is also stated in Section 75(2) that this carry forward and set off under the above sections is not allowable to an assessee, being a registered firm. Section 75 reads as follows :

' 75. (I) Where the assessee is a registered firm, any loss which cannot be set off against any other income of the firm shall be apportioned between the partners of the firm, and they alone shall be entitled to have the amount of the loss set off and carried forward for set off under sections 70, 71, 72, 73 and 74.

(2) Nothing contained in Sub-section (1) of Section 72, Sub-section (2) of Section 73, or Sub-section (1) of Section 74 shall entitle any assessee, being a registered firm, to have its loss carried forward and set off under the provisions of the aforesaid sections.'

6. Sub-section (2) clearly applies to the assessment in this case. But, it is contended that Sub-section (2) must be read along with and as part of Sub-section (1) and, so reading, the field of operation of Sub-section (2) should be limited to those cases where loss has been apportioned between partners. In other words, it is contended that this provision is ended only as a prohibition against double relief in respect of the same loss in the hands of the same assessee and that, if the loss has been apportioned between and allowed to be carried forward by the partners, to avoid double relief alone Section 75(2) has been enacted. According to the assessee, no loss has been set off in assessing the tax on the firm, and, therefore, in respect of an assessment of tax on the registered firm this Section 75(2) cannot be made applicable. There is no scope for such a restricted construction. There is no ambiguity in the language used in Sub-section (2). The plain grammatical construction of that sub-section leads only to one conclusion, viz., it makes an inroad into the general right to set off and carry forward of losses conferred on registered firms by the preceding three sections. When the legislature enacts that a registered firm is not entitled to carry forward and set off the loss in respect of a speculation business, full effect must be given to that provision.

7. The Supreme Court decision referred to above, viz.. Commissioner of Income-tax v. Kantilal Nathuchand Sami, was a case which arose under Section 24 of the Indian Income-tax Act, 1922. Under the earlier Act there was no section similar to Section 75(2) and, therefore, the Supreme Court held that a registered firm can also carry forward and set off speculation business loss against speculation business profit in subsequent years. That decision has absolutely no application to an assessment under the provisions of the new Act. The decision of the Appellate Tribunal is correct. Therefore, the common question in all the references is answered in the affirmative and against the assessee. The parties shall bear their costs.

8. A copy of this judgment shall be forwarded to the Appellate Tribunal, Cochin Bench, as required by law for each of the References Nos. 100 to 102 of 1970.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //