Pathak, J. - (1.) THIS is a reference at the instance of the assessee under Section 66(1) of the Indian Income Tax Act.
(2.) THE assessee, an individual, enjoyed income from property, shares in joint stock companies, commission agency and also as partner in a number of firms. He submitted a return of his income for the assessment year 1953-54, disclosing a net profit. This profit was computed after setting off a loss from his share in one of the partnership firms, Kamta Prasad Reghunath Prasad, the loss being determined by taking into account ft sum of Rs. 8,669/- representing the net low suffered by him in speculative transactions and paid through that firm. The Income Tax Officer ignored the loss claimed by the assessee from the firm, but the Appellate Assistant Commissioner found that the assessee had suffered a net loss of Rs. 7,254/-upon the speculative dealings, and directed the Income Tax Officer to carry forward that loss for being set oft against the profits from speculative dealings in subsequent years. In appeal before the Appellate Tribunal the assessee contended that the loss of Rs. 7,254/- from speculative dealings should be set off against the profits from other businesses for the purpose of computing the profits and gains under Section 10(1) of the Act. This claim was negatived by the Appellate Tribunal, which relied upon the first proviso to Section 24(1). Accordingly, the following question has been referred: "Whether the speculation loss can be set oft against the profit from any other business activity under Section 10 in spite of the first proviso to Section 24(1)?" Section 10(1) provides: "10(1). The tax shall be payable by an assessee under the head 'Profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him." And Section 24(1), at the relevant time, declared; "24 (1). 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: Provided that in computing the income, profits and gains chargeable under any head or the loss of profits and gains falling under any head, so much of any loss of profits or gains as would but for the loss have accrued or arisen within the State of Jammu and Kashmir, shall not be taken into account except to the extent of the amount of income, profits and gains, if any, which would be exempt under the provisions of Clause (c) of Sub-section (2) of Section 14: Provided further 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: Provided further... ... ....."
(3.) THE first proviso was omitted by the Schedule to the Taxation Laws (Extension to Jammu and Kashmir) Act, 1954, and in the second proviso, which now became the first proviso, the word "further" was in consequence omitted. THE question framed by the Appellate Tribunal refers to the first proviso to Section 24(1), but it is apparent that reference was actually intended to the provision which was the second proviso to that sub-section as it stood during the assessment year 1953-54. The assessee contends that the aforesaid proviso to Section 24(1) does not govern the computation of the profits and gains for the purpose of Section 10, and that the proviso should be read only when the provisions of Section 24(1) are applied. For the Commissioner, however, it is urged that the proviso cannot be treated as a step in the application of Section 24(1) but should be considered when the profits and gains are computed under Section 10. The point which arises is one of no little difficulty, but having given the matter our careful consideration, in our opinion the contention advanced on behalf of the assessee must prevail.;