- (1.) THIS is a reference under Section 66 (1), Indian Income-tax Act, and the point raised is a nice question of law on which learned counsel are agreed that there is no previous decision. The question formulated by the Tribunal is as follows: "whether in the circumstances of the case, a loss of Rs. 19,228/- sustained by the assessee in the previous year relevant to the assessment year 1942-43 could legally be treated as a carried forward loss in the assessment year 1944-45 and be set off under the provisions of Section 24 (2)I. T. Act, against the profits from the same business for the previous year relevant to the 1944-45 assessment in spite of the fact that it was not so set off although there were profits from the same business to cover the loss in the previous year relevant to 1943-44 assessment?"
(2.) THE facts are really not in dispute. The assessee carried on business at Delhi and at Agra. At the head office at Agra the assessee carried on business in ready goods in colour, yarn and 'kairana' and also entered into forward contracts in 'sonth, kali mirch', grain and gold. The branch shop at Delhi carried on for-ward contract business in yarn, silver, grain and gold. The income-tax Officer dissected the two businesses into two portions considering the business in ready goods as one business and the forward contract business a separate business. In the assessment year 1942-43 the profits and loss were worked out by the Income-tax Officer and it was found that the profits from the business in ready goods in that year were much less than the loss incurred in speculation, the difference being a sum of Rs. 19,228/ -. After the profits were set off against the loss in accordance with the provisions of Section 24 (1), Income-tax Act, the loss was carried forward to the next year. In the year 1943-44 it was found that while the business in ready goods had ended in profit there was a further loss in speculation and that loss was set off against the profits made, but as the income-tax Officer held that the two businesses were separate he did not allow the sum of Rs. 19,228/- which was the loss carried forward from the previous year to be set off against the profits of the business in ready goods in the year 1943-44. The assessee submitted to the assessment and the case did not come up to the Appellate Tribunal. In the year 1944-45 the income-tax Officer again calculated the profit and loss of the dealings in forward contract business separately and found that there was a loss in the forward contract business but the profits in the dealings in ready goods exceeded the losses. The Income-tax Officer, however, again refused to allow the amount of Rs. 19,2287-which had been carried forward from the year 1942-43 to be set off against the profits of 1944-45. The case came up to the Tribunal and in its appellate order the Tribunal carefully went into the facts and came to the conclusion that as a matter of fact the assessee was carrying on only one business and the Income-tax Officer was not entitled to dissect the business into two parts and deal with the transactions in ready goods separately from the forward contracts. Having come to the conclusion that the profits made were from the same business from which the loss of Rs. 19,2287- had been incurred the Tribunal allowed a set off. On behalf of the Commissioner an application was made for a reference that the Tribunal was not entitled to allow the set off as the case did not come under Section 24 (2), income-tax Act. The Tribunal agreed that a point of law did arise out of the appellate order and referred the question mentioned above for decision by this Court.
(3.) RELIANCE is placed on the language of Section 24 (2), Income-tax Act, and it is urged that a set off in a subsequent year can be allowed only if the case comes within the express words of section 24 (2), Income-tax Act. Learned counsel has pointed out that previous to the amendment in the year 1939 the loss of one year could never be carried forward and set off against the profits in a subsequent year. It was by the amendment in. 1939 that it was provided that if a loss had been incurred in any particular business which could not be set off against the total profits made in the same year then that loss could be carried forward to the next year against the profits made from the same business and this process was to continue for a maximum period of six years.;