JOSEPH JOHN Vs. COMMISSIONER OF INCOME TAX
HIGH COURT OF KERALA
COMMISSIONER OF INCOME-TAX, KERALA.
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(1.) THIS is a reference by the Income-tax Appellate Tribunal, A Bench, Madras, under section 66 (1) of the Indian Income-tax Act, 1922. The questions referred are :
"(1) Whether there are materials for the Tribunal to hold that the aforesaid transactions constitute speculative transactions in the nature of a business within the meaning of the first proviso to section 24 (1) ?
(2) Whether the losses are deductible under section 10 as business losses of the two assessment years 1953-54 and 1954-55 ?"
(2.) THE accounting periods are the calendar years 1952 and 1953. THE two Members of the Appellate Tribunal, Messrs. Sambamurthi and Sankararaman, who heard the appeal, in the first instance, differed on the following point :
"Whether the losses of Rs. 26,248 and Rs. 14,043 incurred by the assessee in the settlement of forward contracts in cocoanuts oil in which also he traded in during the calendar years ended 1952 and 1953, the previous years for the respective assessment years 1953-54 and 1954-55, are deductible as business losses under section 10 in the respective assessment ?"
The President then made a reference under section 5A (7) of the Act to three other Members of the Tribunal including himself. Those three members agreed with Mr. Sankararaman and held that the two sums mentioned are not deductible as business losses under section 10 of the Act. The final decision, according to section 5A (7), is the decision which is in consonance with the opinion of the majority of the members of the Tribunal who have heard the case, including those who first heard it.
Section 24 (1) of the Indian Income-tax Act, 1922, provides that 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. The heads mentioned in section 6 are six in number. They are (1) salaries, (2) interest on securities, (3) income from property, (4) profits and gains of business, profession or vocation, (5) income from other sources, and (6) capital gains.
(3.) THE first proviso to section 24 (1) is in the following terms :
"Provided that in computing the profits and gains chargeable under the head profits and gains of business, profession or vocation, any loss sustained in speculative transactions which are in the nature of a business shall not be taken into account except to the extent of the amount of profits and gains, if any, in any other business consisting of speculative transactions."
There can be no doubt that sub-section (1) of section 24 applies only when the loss under one head is sought to be set off against the profit under another head, and that it has no application to a case like the one before us where the loss under one head is sought to be set off against the profit under that head itself. In Anglo-French Textile Co. Ltd. v. Commissioner of Income-tax the Supreme Court referred to the decision of the Privy Council in Arunachalam Chettiar v. Commissioner of Income-tax and said :
"... a set-off under section 24 (1) can only be claimed when the loss arises under one head and the profit against which it is sought to be set off arises under a different head. When the two arise under the same head, of course, the loss can be deducted but that is done under section 10 and not under section 24 (1)".
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