P L D 1978 Karachi 414 (PLP)

2. During the account year relating to the charge year 1961‑62, the assessee, Hafiz Mushtaq Ahmed fit Company, Karachi, a registered firm, carried on business at its head office and at s branch. From the head office, its Income from other business cams to Re. 10,815, bit there was a loss, from speculative transactions, of Rs.59,

564. Likewise, from the branch, there was an income from other business of Rs.. 36,169 and, a loss of lie 7,000 in speculative transactions. The assessee sought to set off the losses from both the places against the incomes of those places. But the Income‑tax officer did cot allow this and the losses from the speculative transactions were ordered by him to be carries forward next year for setting off against profits from speculative but s .ees, Being aggrieved by this order, the assesses filed an appeal to the Assistant Commissioner of Income tax, but it failed A further appeal to the Income‑tax Appellate Tribunal was also dismissed and the order of the Income‑tax Officer was upheld. The contention of the essence before the Appellate Tribunal was that both the general business and the speculative business carried on by the assessse in the year of sc runt, fell under one and the: same tread of Income namely, "profits and gain of business. Profession or vocation". Both Incomes, therefore, bad to leer aggregated and losses adjusted for the purpose of computing the total income xo the manner prescribed in section 10 of the Act, as that as the assesses vas not claiming to act off Jones which it had suffered under one Had against profit earned under a different head neither section 24(1) nor the first proviso thereto was applicable to the case. The tribunal rejected this contention following its earlier decision reported in (1963) 8Taxation95 in which it was held that the plain words off the provinso showed that speculative business is to be treated as a distinct and separate business from other business for the purposes of computing of profits and losses under section 10 and also because losses from speculative business are not to be adjusted or set off against profits earned from the other non-speculative business. Therefore, it held that the proviso to section 24(l) was a substantive enactment and governed both section 10 as well as section 24 of the Act.

3. Section 24(1) of the Act and the first proviso at the relevant date road as follows ‑ "24(1) Where any assessee sustains a ions of profit's or gains in any year under any of the heads mentioned in section 6, he shall be entitled so have the amount of the loss sot of against his income, profit Or gains under any other head in that year : Provided that where an assessee is engaged in speculative transaction which are in the nature of business, such transactions OWL not withstanding anything to the contrary contained in any law for the time being in force, be deemed to constitute a business carried and separate from, my other business carried on by the assesses and any loss sustained by him in such business shall be tot off only against the income, profits and gains of that business."

4. Mr. Iqbal Pasha learned counsel for the applicant‑assessee reiterated the same condition which were submitted on behalf of the assessee before the Income‑tax Appellate Tribunal. His main argument Is that it is as well‑established principle of interpretation of statutes that a proviso ix subordinate to the main section and is to be construed as a limitation or as an exception to it That while a main section woven a particular field, the proviso takes out or carves out from chat held a particular situation which, but for the proviso, would have been included irk the enacting put of the main section and therefore, to that extent, the proviso modifies or excepts that matter from the provisions of the main section. Applying this principle of interpretation, his submission is that whiles The main section 24(1) of oho Act entitles an assessee to set off his Ion of profits steed In any year under any of the heads mentioned in section 6 of the Act, against his profits earned under any other head in that year, the proviso qualifies this right of the &watt and makes an exception to it. It provides that if the loss was sustained by the assesses in speculative transactions which ass in the mature of business, the assessee shall be entitled to set off the loss only against probes only against profits earned in that (speculative) business and thereby impliedly prohibits setting off of the loss against profits earned under any other head of income. According to Mr. Iqbal Pasha, the assessee was not claiming the tight to set off fits speculative was profits under a different head but was claims the right to adjust the losses from speculative business against the profits nom the other business under tine tame head. Such adjustments, he contends are necessary for the purpose of computing the total income of the assessee under section 10 of tire Act, from multiple business including speculative business, carried on by the assessee. Therefore, according to him, the proviso was not applicable to the case of the assessee.

5. We have considered these submissions but we do not thinly that there is any force In them. We are inclined to agree with the Interpretation of the section and the first proviso placed by the Appellate Tribunal in its order rejecting the assessee's appeal, holding that the provision is a substantive enactment which governs both section 10 a well a section 24(1). Mr. Mansoor Ahmed Khan, learned counsel for the Commissioner rightly placed emphasis on the words in the proviso via. "not withstanding anything to the contrary contained in any lair for the time being in form'", in support of bit submission that the proviso operates as an overriding and substantive provision' of law and not by way of an exception to section 24(1). An overriding provision is a provision which prevails despite any law to the contrary, a if it impliedly repealed what has been stated before. The proviso states that where the assessee is engaged in a business in speculative transactions, that business shall, notwithstanding any provision of law the contrary, be deemed to constitute a distinct and separate business from my other business carried on by him and the losses sustained by him in sue speculative business shall be set of; only against the profits earned from the speculative business. Bat for this proviso, the assessee would have entitled to claim adjustment or set off of his looses in speculative bus' against profits from any other business in computing the aggregate to income of the assessee under section 10 of the Act. After the proviso enacted, the speculative losses can no longer be adjusted or set off except against the profits of the speculative business. Therefore, in effect, the proviso has modified the method of computing profits and losses of multiple businesses, including speculative business carried on by the seems and, in this way, it qualifies or governs section 10 of the Act. The subject‑matter of the proviso goes beyond the field and scope covered by the main section 24(1). which relates to the setting off of losses sustained under one bead in any year against the profits earned under say other head in that year. Although, it is worded in the form of a proviso, its plain and clear language laves us in no doubt that it is a substantive enactment. At the same time, the proviso also acts as an exception to the main section by restricting the setting off of the speculative losses against the profits of the same specula tive business, thereby prohibiting by implication the setting off of the losses against profits earned under any other head of lame, which is permitted under the main section 24(l). The object of enacting the proviso seems to be to avoid the mischief of assessees who carry on business, purchasing speculative losses in order to reduce their profits.

6. Mr. Mansoor Ahmed Khan referred to Commissioner of Income-Tax v. Messrs Haji Ferozuddin (PLD 1967 KAR. 312) in which a Division Bench, of the erstwhile High Court of West Pakistan while interpreting and comparing the first and the second provisos of section 24 of the Act, observed at page 818 as follows : ‑‑‑ "So far as the Pakistan Act is concerned, there seems to be not so much difficulty as in the Indian enactment. Reference to proviso 1 to section 24(1) of the Income‑tax Act would show that under it the intention of the Legislature was. clearly to mate b an overriding provision of law I and, therefore, no doubt an be entertained that it is a substantive and independent provision and b applicable to all the oases arising under the Income‑tax Act, whether governed by 34(1) or not. This is quite dew from the language used by the Legislature, namely, the words "notwithstanding anything to the contrary contained in any law for the time being in force". Thus whatever is provided in the first proviso to section 24(1) is of an overrid ing nature and has a general application and is not limited to the cases arising under section 24(1) of the Income‑tax Act."

7. This view of the law is also supported by several decisions from the Indian Jurisdiction including that of the Indian Supreme Court reported in Commissioner of income‑tax v. Jagannath Mahadeo Parsad ((1969) 71 ITR 296=AIR 1969 SC 209) on a slightly different working of the said proviso.

8. Accordingly, we would answer the reference In the negative and hold that losses in speculative business cannot be adjusted or set off against the profits from any other non‑speculative business under section 10 of the Income‑tax Act, in view of the first proviso to section 24(t) of the Act .

9. The costs of this reference shall iota borne by the applicant.

10. The Registrar is directed to send a copy of this judgment under the seal of the Court and under his signature to the Appellate Tribunal. S.A.H, Answered in negative,