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Additional Commissioner of Income-tax, Gujarat Vs. Ranjitsinhji Oil Mills Pvt. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Judge
Reported in[1976]103ITR405(Guj)
ActsIncome Tax Act, 1922 - Sections 24(1), 28, 28(1), 43(5) and 73
AppellantAdditional Commissioner of Income-tax, Gujarat
RespondentRanjitsinhji Oil Mills Pvt. Ltd.
Appellant Advocate K.H. Kaji, Adv.
Respondent Advocate K.C. Patel, Adv.
Cases ReferredSunder Lal and Son v. Bharat Handicrafts
Excerpt:
direct taxation - set off - section 24 (1) of income tax act, 1961 and forward contracts (regulation) act, 1952 - loss occurred due to illegal forward transactions - assessee not entitled to set off such loss against income from other business. - - the tribunal, having regard to the fact that all the transactions were recorded in the same books of accounts of the assessee, and as there was no finding by the lower authorities that the transactions which resulted in loss did not relate to the same business as carried on by the assessee, and that department has failed to establish that the two businesses were distinct, dismissed the appeal of the commissioner of income-tax v. however, the assessee is entitled to claim set-off of such illegal losses against his profits in the other legal.....b.k. mehta, j.1. a somewhat difficult problem, viz., whether the assessee, on the ratio of the supreme court decision in commissioner of income-tax v. s. c. kothari : [1971]82itr794(sc) , is entitled to set off and carry forward the illegal speculation losses against any other business income, is posed before us in all these references. since the facts involved in these three references and the questions referred to us are identical, we intend to dispose of these three references by this common judgment. in order to evaluate the rival contentions urged on behalf of the parties, a few facts which are almost identical need be stated : in income-tax reference no. 46 of 1974 the relevant assessment year is 1962-63. the assessee-company is an oil mill with three expellers. the business of the.....
Judgment:

B.K. Mehta, J.

1. A somewhat difficult problem, viz., whether the assessee, on the ratio of the Supreme Court decision in Commissioner of Income-tax v. S. C. Kothari : [1971]82ITR794(SC) , is entitled to set off and carry forward the illegal speculation losses against any other business income, is posed before us in all these references. Since the facts involved in these three references and the questions referred to us are identical, we intend to dispose of these three references by this common judgment. In order to evaluate the rival contentions urged on behalf of the parties, a few facts which are almost identical need be stated :

In Income-tax Reference No. 46 of 1974 the relevant assessment year is 1962-63. The assessee-company is an oil mill with three expellers. The business of the assessee-company is to purchase groundnuts and to crush them, produce groundnut oil and sell the groundnut oil and oil cakes. It incurred a loss of Rs. 44,326 being the amount of difference paid in the various forward contracts entered into with its customers. On scrutiny of its books of accounts and other relevant documents, the Income-tax Officer found that the said loss was incurred in settlement of the transactions in which no delivery of the goods was actually taken or made. He also found that the assessee earned a profit of Rs. 5,268 in the said transactions. The net loss to the assessee in the financial year under reference was to the tune of Rs. 39,058. The Income-tax Officer held that these were illegal speculative transactions which were prohibited by the Forward Contracts (Regulation) Act, 1952, and that the loss from the illegal speculative transactions could not be deducted from the other income. The Income-tax Officer, therefore, disallowed the loss claimed by the assessee for the assessment year under reference. The assessee carried the matter in appeal before the Appellate Assistant Commissioner, who, by his order of November 18, 1967, held that though the loss incurred in the forward transactions was speculative loss, the assessee was entitled to set off this court in Commissioner of Income-tax v. S. C. Kothari [1968] 69 ITR . The Income-tax Officer, therefore, carried the matter in appeal before the Tribunal. The Tribunal found that there were no findings made by the lower authorities that the transactions which resulted in loss did not relate to the same business carried on by the assessee. It also noted the nature of the business of the assessee which was to manufacture and deal in groundnut oil and oil cakes. Having regard to the fact that all the transactions were to be found from the same books of accounts of the assessee, it appeared to the Tribunal prima facie that the transactions in question related to the same business as was carried on by the assessee. The Tribunal also noted that the income-tax department has not been able to establish that the two businesses were distinct. In that view of the matter, the Tribunal relied upon the decision of the Supreme Court in Commissioner of Income-tax v. S. C. Kothari : [1971]82ITR794(SC) and held that the assessee was entitled to set off the losses incurred in the illegal speculative transactions against the other business income of the assessee. The Additional Commissioner of Income-tax has, therefore, sought this reference and the following question has been referred to us for our opinion : 'Whether, on the facts and in the circumstances of the case, the assessee was entitled to set off in respect of the loss of Rs. 39,058 in respect of illegal forward transactions against other business income of the assessee ?'

2. Similarly, in Income-tax Reference No. 40 of 1974, the assessee has an oil mill where groundnuts are crushed for production of oil. The assessee deals in extracting oil and selling oil and oil cakes. The Income-tax Officer found on the scrutiny of the books of accounts and other documents of the assessee that the assessee had claimed a loss of Rs. 8,901 being the amount of difference paid in settlement of transactions in which no actual delivery of the goods was made. He, therefore, disallowed the claim of the assessee to deduct the said amount of loss from the other income. The assessee carried the matter in appeal before the Appellate Assistant Commissioner, who, following the decision of this High Court in Commissioner of Income-tax v. S. C. Kothari [1968] 69 ITR , allowed the appeal and directed the Income-tax Officer to permit the assessee to set off the speculative loss against the speculative profits. The Income-tax Officer, therefore, carried the matter in appeal before the Tribunal. The Tribunal, having regard to the fact that all the transactions were recorded in the same books of accounts of the assessee, and as there was no finding by the lower authorities that the transactions which resulted in loss did not relate to the same business as carried on by the assessee, and that department has failed to establish that the two businesses were distinct, dismissed the appeal of the Commissioner of Income-tax v. S. C. Kothari : [1971]82ITR794(SC) , and directed the Income-tax Officer that the business income of the assessee activities and that the losses suffered by the assessee in the illegal speculative transactions should be set off against off other business income of the assessee. The Additional Commissioner of Income-tax has, therefore, sought this reference on the following question for our opinion :

'Whether, on the facts and in the circumstances of the case, the assessee was entitled to set off in respect of the loss of Rs. 8,901 in respect of illegal forward transactions against other business income of the assessee ?'

3. In Income-tax Reference No. 59 of 1974 which relates to the assessment year 1966-67, all the facts are identical with the facts in Income-tax Reference No. 40 of 1974 and as the Tribunal, following the decision of the Supreme Court in Commissioner of Income-tax v. S. C. Kothari : [1971]82ITR794(SC) , directed the Income-tax Officer to determine the business income of the assessee after taking into account all the business activities and the losses suffered by the assessee in the illegal speculative transactions and to set off the losses suffered by the assessee against the other business income of the assessee, the Additional Commissioner of Income-tax has sought this reference on the following question :

'Whether, on the facts and in the circumstances of the case, the assessee was entitled to set off in respect of the loss of Rs. 16,978 in respect of illegal forward transactions against other business income of the assessee ?'

4. The grievance of the revenue is that the Tribunal has read more than what is warranted in the Supreme Court decision in Commissioner of Income-tax v. S. C. Kothari : [1971]82ITR794(SC) . According to the revenue, the Tribunal has not at all appreciated the ration of the decision of the Supreme Court in S. C. Kothari's case : [1971]82ITR794(SC) in its proper perspective. The correct ratio of the said decision, according to the revenue, is that forward transactions which are within the mischief of the Forward Contracts (Regulation) Act, 1952, are illegal and not enforceable and, consequently, therefore, in view of Explanation 2 to section 24, losses arising in such business cannot be set off against the profits arising in the business of forward contracts which may be legal and valid. However, the assessee is entitled to claim set-off of such illegal losses against his profits in the other legal forward business while computing profits and gains of his business provided both the activities-legal as well as illegal-are part and parcel of the same business. The aforesaid Supreme Court decision, so asserts the revenue, does not lay down that such losses of illegal business can be set off against any other business income of an assessee. To read such a broad conclusion, as done by the Tribunal in the present cases, would not only upset all the known and settled principles and introduce new concepts which are alien and irrelevant but also result in an absurd and unfair situation inasmuch as an assessee incurring losses by indulging in illegal and void contracts would be in a better position than one carrying on legal forward business; so much so the former would have advantage of carrying forward and setting off illegal speculative losses against any head of his income in the subsequent years.

5. On behalf of the assessee, it has been very forcefully urged that the Tribunal has rightly applied the ratio of the decision of the Supreme Court which succinctly laid down that the question of set-off of illegal speculative losses is to be examined from the angle of the provisions contained in section 24 and section 10 of the Indian Income-tax Act, 1922, and an assessee is not deprived of his rights to claim set-off illegal losses against his other business income while computing his profits and gains under section 10(1) merely because he is not entitled to set it off against profits of legal speculative business under the proviso to section 24(1) because it is the real income in the ultimate analysis which is to be brought to tax.

6. In order to determine what is the correct ratio of the Supreme Court decision in S. C. Kothari's case : [1971]82ITR794(SC) , it would be profitable to recapitulate the context in which that decision was rendered. It should be noted that the scheme of set-off of speculative losses contained in section 24 (1) is not disturbed in the Income-tax Act of 1961 and the corresponding provisions which have a bearing in these references are more or less the same. Section 10(1) of the 1922 Act is corresponding to section 28(1) of the 1961 Act. Proviso to section 24 (1) of the 1922 Act is corresponding to section 73 of the 1961 Act. Explanations 1 and 2 of section 24 are corresponding to Explanation 2 to section 28 and section 43(5) of the 1961 Act. The ratio of the decision of the Supreme Court in S. C. Kothari's case : [1971]82ITR794(SC) , though rendered in the context of the 1922 Act, would still be applicable and good so far as the question of set-off of speculative losses under the 1961 Act is concerned. In the case before the Supreme Court during the assessment year 1958-59, the assessee, S. C. Kothari, entered, inter alia, into two classes of contracts in groundnut oil, groundnut seeds and groundnut cakes, one of which consisted of forward contracts which were admittedly not in violation of any prohibition imposed under the Forward Contracts (Regulation) Act, 1952. while the other consisted of forward contracts which according to the revenue in that case were in violation of the prohibition imposed under sections 15(1) and 15(4) of the said Act. The assessee obtained a profit in the first set of contracts and incurred losses in the latter set. The assessee also obtained a profit in his other businesses which did not consist of forward contracts. The claim of the assessee to set off the loss in the illegal speculative transactions against his profits in the legal forward contracts as well as other business was negatived by the Income-tax Officer on the ground that the forward contracts which resulted in losses were illegal and the losses arising therefrom were not liable to be taken into account in computing the total income of the assessee. In appeal the Appellate Assistant Commissioner confirmed the view of the Income-tax Officer and held that losses could not be taken into account as the forward contracts were illegal. The Appellate Assistant Commissioner, however, did not go into the question, whether the assessee was entitled to set off the losses against the whole of his income or against only that part of the profits referable to his other business in speculative transactions. On further appeal, the Tribunal held that the forward contracts were legal and valid, and, hence, the loss arising there-from ought to be taken into account as loss from the business. The Tribunal also held that assuming the forward contracts to be illegal, the loss arising therefrom would still have to be taken into account as a business loss in computing the total income of the assessee and as the Appellate Assistant Commissioner had not gone into the question, whether the loss could be set off against the entire income or the actual income from the speculative business, the Tribunal remanded the matter to the Appellate Assistant Commissioner for a finding on this point. The Appellate Assistant Commissioner found after the remand that, as the forward contracts were speculative transactions within the meaning of the 2nd Explanation to section 24(1) of the Indian Income-tax Act, 1922, the loss arising therefrom could be set off only against the profits arising from the other speculative transactions by reason of the first proviso to section 24(1). The Tribunal agreed with this finding and permitted set off of the loss only in respect of the profits in the speculative business and disallowed the claim of set-off of the balance of loss against the other income of the assessee. On reference sought by both the assessee and the revenue four questions were referred to this court for its opinion. At the instance of the revenue, the following two questions were referred :

'1. Whether, on the facts and in the circumstances of the case, the contracts in respect of which the loss of Rs. 3,40,443 was claimed were illegal contracts and were not validly entered into under the Forward Contracts (Regulation) Act, 1952

2. Whether even assuming the transactions, in which the loss of Rs. 3,40,443 was incurred, were illegal transactions, the assessee would be entitled to the set-off of the said loss ?'

The Tribunal also referred at the instance of the assessee the following two questions as questions Nos. 3 and 4 for the opinion of this court :

'3. Whether, in the facts and in the circumstances of the case, the transactions resulting in a loss of Rs. 3,40,443 were speculative transactions for the purposes of section 24 of the Indian Income-tax Act, 1922, merely on the ground that the assessee had not performed the contracts by giving delivery and has paid damages in settlement of the obligations contracted for

4. Whether, on the facts and in the circumstances of the case, the assessee is entitled to set off the balance of the loss of Rs. 1,21,397 against the assessee's other income ?'

7. A Division Bench of this court : [1968]69ITR1(Guj) consisting of P. N. Bhagwati C.J. (as he then was) and B. J. Divan J. (as he then was) heard the reference. The Division Bench did not think it necessary for the purposes of the reference to decide the controversy between the parties about the illegality of the contracts involved in the said reference since it was not material whether the contracts were illegal or not. According to the Division Bench what was material was whether the loss of Rs. 3,40,443 sustained in the unlawful business of those contracts was liable to be taken into account in computing the business income of the assessee. The Division Bench negatived the broad contention of the revenue that an assessee is not entitled to claim deduction of loss arising out of illegal business. The Division Bench held that illegal business is a business within the Income-tax Act and if profits from illegal business are assessable to tax, there is no reason either on principle or on authority for refusing to take into account losses from illegal business. In the opinion of the Division Bench there is in principle no distinction between profits and losses of a business and if the profits of an illegal business are assessable to tax, equally the losses arising from illegal business must be held to be liable to be taken into account in computing the income of the assessee. The Division Bench was, therefore, of the view :

'... the losses incurred in unlawful business carried on by the assessee are liable to be taken into account in computing the business income of the assessee and the loss of Rs. 3,40,443 arising to the assessee from the impugned contracts entered into unlawfully, was liable to be taken into account in determining the business income of the assessee subject to the provisions of the Income-tax Act. '

8. The Division Bench, therefore, addressed itself to the material question as to what is the profit against which the loss of Rs. 3,40,443 could be set off. According to the Division Bench, having regard to the decision of the Bombay High Court in Keshavlal Premchand v. Commissioner of Income-tax : [1957]31ITR7(Bom) , and the decision of this court in Commissioner of Income-tax v. Kantilal Nathuchand : [1964]53ITR420(Guj) , if there is a loss in speculative transactions, it can be set off only against the profit from other business consisting of speculative transactions under the proviso to section 24(1) and it cannot be set off against other business income of the assessee. In that view of the matter, the Division Bench : [1968]69ITR1(Guj) answered the respective questions as under :

'Question No. 1 : It is not necessary to decide whether the contracts in respect of which the loss of Rs. 3,40,443 was claimed were illegal contracts but they were entered into in contravention of the provisions of section 15(4) of the Forward Contracts (Regulation) Act, 1952, and were therefore, not validly entered into in accordance with those provisions.

Question No. 2 : Even though the said contracts were not validly entered into in accordance with the provisions of section 15(4), the said loss of Rs. 3,40,443 is liable to be taken into account in computing the business income of the assessee under section 10 and the assessee is entitled to set it off against the profit from other speculative transactions.

Question No. 3 : In the affirmative.

Question No. 4 : In the negative.'

9. In other words, the opinion of the Division Bench was that the assessee in the case before it was entitled to set off the speculative losses against the speculative profits in view of the proviso to section 24(1), and that the assessee was not entitled to set off the balance of the illegal speculative losses against the assessee's other income. It should be noted that the assessee did not prefer any appeal against this decision and rested satisfied with the opinion of this court. The revenue being aggrieved by the decision went in appeal before the Supreme Court.

10. We have, therefore, to see what the Supreme Court has said in the above context. Mr. Justice Grover (as he then was), speaking for the court, could not appreciate the approach of this court in not deciding question No. 1 as to the legality of the forward contracts involved in the reference before it. The Supreme Court was of the opinion that the first question about the legality of the contracts stood concluded by the law laid down by the Supreme Court in Sunder Lal and Son v. Bharat Handicrafts (P.) Ltd. (AIR 1968 SC 406) and, therefore, having regard to the provisions contained in section 15(4) of the Forward Contracts (Regulation) Act, 1952, so long as there was no writing recording the terms of those contracts there was no enforceable contract at all and such contracts could not be regarded as having been validly entered into under the Act. The Supreme Court therefore answered the first question in the affirmative and against the assessee. On the second question about the competency of setting off of illegal speculative losses, the Supreme Court felt that there were two aspects which had come up for consideration before the departmental authorities, the Tribunal and the High Court. The first aspect, according to the Supreme Court, related to deduction of the loss of Rs. 3,40,443 incurred in the aforesaid illegal transactions while computing the income of the assessee's speculative business under section 10(1). The other was the set off which can be allowed under the relevant part of section 24(1) of the 1922 Act. The Supreme Court concurred with the view of this court that for the purpose of section 10(1) the losses which have actually been incurred in carrying on a particular illegal business must be deducted before the true figure relating to profits which have to be brought to tax can be computed or determined. The Supreme Court thereafter said that in order to claim the set-off, the meaning of speculative transaction has to be first looked at and it found that under Explanation 2 a speculative transaction means a transaction in which a contract for the purchase and sale of any commodity is periodically or ultimately settled otherwise than by actual delivery. Since the contract has necessarily to be an enforceable contract and not an unenforceable one by reason of any taint of illegality resulting in its invalidity and as the court has also found that the contracts in question were illegal and unenforceable on account of contravention of section 15(4) of the Act, in the opinion of the Supreme Court, this court was in error in considering that any set off could be allowed in the present case under the first proviso to section 24(1) which, according to the Supreme Court, must always be read with Explanation 2. The Supreme Court, in spite of this finding, was of the view that though the assessee was not entitled to claim the set-off under the proviso to section 24(1) he could still claim a set-off against the profits arising from the speculative business. It, therefore, directed this court to consider whether the legal and illegal forward transactions were part and parcel of the same business. It is this direction given by the Supreme Court which has given rise to the debate with which we are concerned in these references. The relevant portion by which the Supreme Court : [1971]82ITR794(SC) directed this court to consider the matter for purposes of determining whether the assessee was entitled to claim set off of the illegal speculative losses is in the following terms :

'There would have been no difficulty in disposing of the matter finally after the above discussion. But enough attention was not devoted to the business which the assessee was doing and in which the profit of Rs. 2,19,046 was made and the loss of Rs. 3,40,443 was sustained. It has been found to be of a speculative nature but the High Court has not clearly found that it was the same business in which the amount of the profit and the loss mentioned above was earned and sustained in which case alone a deduction will be possible of the loss under section 10 (1). The High Court proceeded on the basis that if the business in which the profit was made and the business in which the loss was incurred were separate a set-off could be claimed by the assessee under section 24(1). If, however, the business was the same then the loss would be liable to be taken into account while computing the profits under section 10(1). As we have come to the conclusion that no set-off could be allowed under section 24(1) of the Act of 1922, it will have to be determined whether the profits and losses were incurred in the same business even though that business involved the entering into contracts some of which were, in the eye of the law, illegal. If the trade or the business, for instance, the business of commission agency or forward business, was the same in which the profits were made and the loss was incurred, then in order to arrive at the figure which can be subjected to tax, the loss will have to be deducted from the profit. For this purpose we shall have to remit the matter to the High Court to decide this point and, if necessary, after calling for a supplementary statement of the case.'

11. In the view of the matter which the Supreme Court has taken and the directions given, which we have set out hereinabove, the Supreme Court answered the questions as under :

'In the result out answer to the first question is that the contracts were illegal; on the third and the fourth questions there is no dispute not has any appeal been preferred by the assessee relating to them that the answers returned by the High Court in the affirmative and in the negative, respectively, were not correctly answered. As regards question No. 2, the High Court will have to answer the same in the light of our judgment.'

12. In pursuance of the directions of the Supreme Court this court called for a supplementary statement of the case from the Tribunal by its order of June 20, 1972. In view of the finding made by the Tribunal that the business of the forward contracts in which the profit was earned and the loss was suffered was the same, as stated in the statement of the case, this court : [1968]69ITR1(Guj) reframed question No. 2 so as to read :

'Whether even if the transactions in which the loss of Rs. 3,40,443 was incurred were illegal transactions, such loss was liable to be deducted and answered it in favour of the assessee.

It appears that the Tribunal in the present three references has read this decision of the Supreme Court as laying down a broad proposition that if forward contracts in which losses have been incurred by an assessee are illegal or unenforceable contracts, the assessee would not be entitled to claim illegal speculative loss under section 24(1), but that would not deprive him of the right to claim losses when profits and gains of the business are computed under section 10(1) and the assessee is entitled to set off such illegal losses against any other business income of his. We do not think that the Tribunal was justified in reading this decision of the Supreme Court to lay down such a broad principle. The context, which we have set out, in which the Supreme Court rendered its decision makes it clear to us that the Supreme Court could not have laid down such a broad proposition as sought to be made out by the Tribunal. It should be recalled that in the reference made before this court, in the case of S. C. Kothari : [1968]69ITR1(Guj) , the assessee was claiming that he was entitled to set off his illegal speculative losses against his other business income. That claim of the assessee in that case was referred to the High Court for its opinion by question No. 4. That claim of the assessee, it should be further noted, was negatived by the High Court and no appeal was preferred by the assessee against the said opinion to the Supreme Court. It was only the revenue which had gone in appeal against the decision of this High Court which had answered question No. 2 in that case in favour of the assessee, to the effect that the assessee was entitled to claim set off of the illegal speculative losses against the speculative profits only. It was, therefore, in that narrow context that the Supreme Court was giving its opinion in the appeal preferred by the revenue being aggrieved by a part of the decision of this High Court in so far as it affected the revenue. It is no doubt true that the Supreme Court has said that so far as question No. 2 of the competency of set off of the illegal speculative losses was concerned, it assumed two-fold consideration; one from the angle of the provision contained in section 10 and another from the angle of the provision contained in section 24(1). The Supreme Court did not uphold the view of this court that the assessee was entitled to claim set off of the illegal speculative losses under section 24(1) because in the opinion of the Supreme Court before such loss could be allowed to be set off, the transaction must be a speculative business as defined under sub-section (2) of section 24(1), which provided that transaction is a speculative transaction in which the contract of sale or purchase ultimately resulted in payment of differences only without taking or giving actual delivery, and if the contract in question in a given case is not enforceable, there would be no right of an assessee to claim set off of losses arising in such illegal contracts under the proviso to section 24(1). The Supreme Court, however, felt that it is in the ultimate analysis the real income which is to be brought to tax and, therefore, if illegal forward contracts in which losses arise are part and parcel of the same business in which profits have arisen in legal and valid contracts, the assessee is entitled to claim deduction of such loss notwithstanding its illegality. A strenuous effort has been made on behalf of the assessees to justify the reading of the Tribunal, by pointing out certain observations of the Supreme Court. The first observation to which our attention is invited is at page 799, where the court : [1971]82ITR794(SC) observed : 'Coming to the second question, the language thereof is somewhat ambiguous and the question was not framed property. It appears that there were two aspects which had come up for consideration before the departmental authorities, the Tribunal and the High Court. The first aspect related to the deduction of the loss of Rs. 3,40,443 incurred in the aforesaid illegal transactions while computing the profits of the assessee's speculative business under section 10(1). The other was the set off which can be allowed within the relevant parts of section 24 of the Act of 1922.'

13. Another paragraph towards which our attention was invited to justify the view of the Tribunal is at page 802 which reads as under :

'If the business is illegal neither the profits earned nor the losses incurred would be enforceable in law. But, that does not take the profits out of the taxing statute. Similarly, the taint of illegality of the business cannot detract from the losses being taken into account for computation of the amount which can be subjected to tax as 'profits' under section 10(1) of the Act of 1922. The tax collector cannot be heard to say that he will bring the gross receipts to tax. He can only tax profits of a trade or business. That cannot be done without deducting the losses and the legitimate expenses of the business. We concur in the view of the High Court that for the purpose of section 10(1) the losses which have actually been incurred in carrying on a particular illegal business must be deducted before the true figure relating to profits which have to be brought to tax cab be computed or determined.'

14. The third observation on which reliance has been placed is in the paragraph on page 803 of the judgment of the Supreme Court which we have set out hereinabove in this judgment. We do not think that these observations can be of much assistance to the cause of the assessee. Prima facie, they do appear to give an impression that the Supreme Court examined the question of set-off of the illegal losses from two different angles; one under section 24(1) and another under section 10(1) and, therefore, when it ultimately held that an assessee is not entitled to set off of illegal speculative losses under the proviso to section 24(1) and that he could claim set-off under section 10(1), the Supreme Court was, in other words, laying down a principle that these illegal losses can be set off against the other business income. We, however, do not think that reading of this judgment of the Supreme Court in the manner in which it has been done by the tribunal and which is sought to be justified by the advocate on behalf of the assessee is permissible. To read such a broad proposition in the judgment would result in upsetting all the known and settled legal principles and it will introduce certain new concepts which are irrelevant and alien to the income-tax law. It should again be recalled that the Supreme Court was merely dealing with an appeal by the revenue against the judgment of this court only on the limited question, whether the assessee in that case was entitled to claim set-off of the illegal speculative losses under section 24(1). The Supreme Court did say ultimately that though the assessee was not entitled to claim set off of the illegal speculative losses under section 24(1) he was entitled to claim set off under section 10(1) against the speculative profits provided the legal as well as the illegal activities were part and parcel of the same business. It should not be lost sight of that the assessee in that case had not preferred any appeal against the decision of this court that the assessee was not entitled to the set-off of the illegal speculative losses against his other business income. The Supreme Court was very much aware that no such appeal was preferred against the opinion of this court on question No. 4 and, therefore, in the operative part of the order when it gave its opinion on the different questions involved in the reference, the Supreme Court : [1971]82ITR794(SC) observed as under :

'...... on the third and the fourth questions there is no dispute nor has any appeal been preferred by the assessee relating to them that the answers returned by the High Court in the affirmative and in the negative, respectively, were not correctly answered.'

15. If there was no dispute before the Supreme Court as to the correctness of the opinion of this court on question No. 4, that the assessee was not entitled to the set-off of the illegal speculative losses against his other business income, it is beyond our comprehension how the Tribunal read the Supreme Court decision as if the Supreme Court has ruled otherwise. It was in the limited context that the Supreme Court was trying to answer the problem which was posed before it and in the ultimate analysis it directed that though the assessee was not entitled to set off the illegal speculative losses against the speculative profits under section 24 in view of the meaning of 'speculative transactions' given in Explanation 2, he was not deprived of claiming that set off for purposes of computation of the real income under section 10 of adjusting against the speculative profits. If that had not been so, the Supreme court would not have directed this High Court to examine the question whether the legal and the illegal activities were part and parcel of the same business. Because, if the Supreme Court intended to lay down a principle that illegal speculative losses could be set off against the other business income under section 10(1), it certainly would not have asked this High Court to inquire into either by itself or by calling for a supplementary statement of the case from the Tribunal as to whether the legal or illegal activities are part and parcel of the same business. In any case, it would have not refused to answer question No. 4; to say the least about this interpretation which has been accepted by the Tribunal and which has been forcefully canvassed before us that though an assessee is not entitled under section 24(1) to claim set off of illegal speculative losses as the forward contracts in which he suffered losses were illegal and were unenforceable, still he is entitled to claim that very set off against the other business income under section 10(1), would, as rightly contended on behalf of the revenue, put an assessee indulging in illegal activities in a better position. That could not have been the intention of the Supreme Court, and more particularly so, in the context in which the decision of the Supreme Court in S. C. Kothari's case : [1971]82ITR794(SC) was rendered. In that view of the matter, therefore, we do not agree with the learned advocate of the assessees in these references and we are of the opinion that the contentions of the revenue must prevail. We do not think that the ratio of the decision of the Supreme Court in S. C. Kothari's case : [1971]82ITR794(SC) is as read by the Tribunal so as to permit the set off of the illegal speculative losses against the other business income. We, therefore, answer the questions referred to us in all the three references in the negative and against the respective assessees. Having regard to the facts and circumstances of this case, there should be no order as to costs.


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