G.K.MITTER, J. - (1.) IN this reference under s. 66(1) of the INdian IT Act, the point of law involved is whether loss incurred by the assessee in a speculative business can be set off towards profits and gains of his other business not of a speculative nature arising to him in the same year under s. 24(1) of the Act read with the first proviso thereto. The relevant portion of s. 24(1) with the proviso is as follows : "24 (1) Where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in s. 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 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."
(2.) THE assessment year of the assessee-company for the purpose of this reference is 1953-54, the corresponding accounting year being the financial year ending on 31st March, 1953. During the relevant period the assessee carried on business in managing agency, money-lending, etc. It also carried on a speculative business in sales and purchases of gunny bags, the loss whereof was computed at Rs. 57,750. THE assessee claimed to set off the same towards its business income from managing agency, moneylending, etc., in the year showing a net profit of Rs. 59,289. THE ITO added back the loss of Rs. 57,750 and this was upheld both by the AAC and the Tribunal. THE question which has been referred to us is : "Whether, on the facts and in the circumstances of the case, the loss arising in the speculation business could be set off against the other business income falling under s. 10 of the Act ?" The contention of the assessee is that profits and gains of its businesses, profession or vocation carried on during the year in question must be computed under s. 10. As it has several businesses each business must be computed separately deducting allowances permissible under the section and the net result thereof is to be taken either as its profits and gains or as its loss for the relevant year. In support of this, reliance was placed on the judgment of the Privy Council in Arunachalam Chettiar vs. CIT (1936) 4 ITR 173 (PC) : TC33R.539. The Judicial Committee there approved of the judgment of the Madras High Court in CIT vs. Arunachalam Chettiar (1924) ILR 47 Mad 660 where it had been held that a person carrying on two different trades, one individually and the other as a member of an unregistered firm, was entitled to set off for purposes of income-tax the loss incurred by him in respect of the partnership trade against profits made by him in his individual trade. Reliance was also placed on the very clear words of the Bombay High Court in CIT vs. Murlidhar Mathurawalla (1948) 16 ITR 146 (Bom) : TC45R.53 : "Different businesses do not constitute different heads under the IT Act. All businesses wherever carried on constitute one head which falls under s. 10 of the Act and in order to determine what are the profits and gains of a business under s. 10, an assessee is entitled to show all his profits and set off against those profits, losses incurred by him under the same head. It is only when he proceeds to set off a loss under business against a profit under some other head that s. 24 comes into operation and various considerations will arise whether he is entitled to such a set-off or not." The proviso set out above was not embodied in the Act at the time when Murlidhar Mathurawalla's case was heard and naturally Chagla C.J. who delivered the judgment in the above case, did not have to deal with effect of the proviso. According to the assessee the purpose of a proviso is to carve out something which would otherwise be covered by the language of the section and must be confined to that alone. Reliance was placed in support of this proposition on the following observations of Lord Macmillan in Madras and Southern Mahratta Railway Co. Ltd. vs. Bezwada Municipality (1944) LR 71 IA 113 : AIR 1944 PC 71 : "The proper function of a proviso is to except and deal with a case which would otherwise fall within the general language of the main enactment, and its effect is confined to that case." This has been quoted in many judgments of different High Courts in India including some of our Supreme Court. Reference was made to the judgment of the Supreme Court in CIT vs. Indo- Mercantile Bank Ltd. (1959) 36 ITR 1 (SC) : TC45R.45, where it was said : "Ordinarily it is foreign to the proper function of a proviso to read it as providing something by way of an addendum or dealing with a subject which is foreign to the main enactment."
(3.) IT was strenuously argued that s. 24(1) does not fall to be considered at all unless the assessee claims to set off a loss of profits or gains in any year under any of the heads mentioned in s. 6 against his income, profits or gains under any other head in that year as the authorities mentioned above lay down that in arriving at the net result under s. 10 losses in any business must first be deducted from the profits in any other business of the assessee. IT was urged that the question of set off under s. 24 is entirely irrelevant to a case where adjustment has to be made under s. 10 itself and the proviso to s. 24(1) cannot enlarge the scope of the section so as to prevent deduction of loss in a speculative business from profits and gains of other business to arrive at the net result of the operation of s. 10. Normally, no doubt, a proviso is not meant to enlarge the scope of the main section but this does not hold universally true. There have been instances where Courts have come to the conclusion that in enacting a proviso the legislature has in effect enlarged the scope of the section and, in my opinion, the present is a case of that type. In Rhondda Urban District Council vs. Taff Vale Railway Co. (1909) AC 253 it was observed by Lord Loreburn, L. C., at page 258 : "IT is true that s. 51 (Railway Clauses Act of 1845) is framed as a proviso upon preceding sections. But it is also true that the latter half of it, though in form a proviso, is in substance a fresh enactment, adding to and not merely qualifying that which goes before." Looking at the scheme of the Indian IT Act I find that Chapter I containing ss. 3 and 4 provides for the charge of tax on income by s. 3 and the application of the Act under s. 4. The last mentioned section shows what kind of income is to be taken into consideration for computing the total income assessable to tax under s. 3 and what kinds of income are not to be included in the total income. Chapters II and IIA describe the authorities constituted for the purpose of the Act and their jurisdiction. Chapter III containing ss. 6 to 17 shows what are taxable income. The different heads under which all income must fall for the purpose of computation under the Act are classified under s. 6 and their computation is provided for in ss. 7 to 12B. Exemptions of general or special nature which the Act allows are contained in ss. 14 to 16. Sec. 17 deals with determination of tax payable in certain special cases. Sec. 10 shows how profits and gains of "business, profession or vocation" carried on by an assessee are to be computed. There is no specific provision for computation of separate or diverse businesses carried on by an assessee in the section itself. All the profits and gains of business, profession or vocation carried on by an assessee have to be computed under this section and in order to arrive at the total income of an assessee (an expression defined in s. 2(15) of the Act) the Revenue authorities must find out the total amount of income, profits and gains computed in the manner laid down in the Act. Chapter IV of the Act containing ss. 18 to 39 is headed "deductions and assessment". Sec. 18 deals with deduction at source, 18A with advance payment of tax, 19 for payment in other cases. Sec. 22 deals with return of income which must be submitted by all persons whose total income during the previous year exceeded the maximum amount which is not chargeable to income-tax. Sec. 23 gives the ITO jurisdiction to assess the total income of the assessee and determine the sum payable by him. Secs. 23A, 24A, 25 and 25A contain provisions for assessment in certain special cases. Sec. 24 which falls within this group of sections providing for assessment is headed "set off of loss in computing aggregate income." Without this section it would be difficult to compute the total income of an assessee where he has made a profit under any of the heads mentioned in s. 6 but suffered a loss under one or more of the other heads. But for the proviso to s. 24(1) loss in a speculative business would be treated just like any other loss and set off under profits and gains computed under any of the other heads of income mentioned in s. 6. It was argued by counsel for the assessee that s. 24(1) deals with the question of set off of loss against income intra head and not inter head so far as heads of income under s. 6 are concerned and the proviso to the section ought not to be construed so as to disturb the computation of profits or loss inter head. According to him, if on account of loss in speculative business there was a balance of loss taking into account all businesses under s. 10 of the Act, the same could not be set off under profits and gains under any of the other heads of income under s. 6 in the same year but had to be carried forward. In my view the wording of the proviso does not permit of such narrow construction. The text of the proviso shows that where an assessee sustains a loss in speculative transactions which are in the nature of a business in computing profits and gains chargeable under the head "Profits and gains of business, profession or vocation" such loss is not to be taken into account except to the extent of the amounts of profits and gains, if any, in any other business consisting of speculative transactions. Now, computation of "Profits and gains of business, profession or vocation" is what s. 10 deals with, the identical field in which the proviso to s. 24(1) is to operate. It would have been better if the legislature had added the expression "subject to the first proviso to s. 24(1)" at the beginning of s. 10(2) of the Act. But this omission is immaterial. If the object of the legislature in enacting the proviso to s. 24(1) was to deny an assessee a set- off of loss incurred in speculative transactions in the nature of business against profits and gains under any of the other heads mentioned in s. 6 there was no need to use the words "in computing the profits and gains chargeable under the head 'Profits and gains of business, profession or vocation'" in the proviso at all. Moreover, it is difficult to see why loss in speculative transactions should be allowed to be set off against profits and gains of business which was not speculative but not against profits and gains under any of the other heads mentioned in s. 6. Reading the whole of the proviso it appears to me that what the legislature was aiming at was to prevent loss sustained in speculative transactions reducing the taxable income of an assessee. The legislature seems to have provided for setting off of loss in speculative transactions only against profits and gains of business of a similar nature. Such losses are allowed to be carried forward but even under sub-s. (2) are not to be set off except against profits made in business of the same nature.;