1965 PLP 712 (PTD)

Loss-Loss in speculative transactions-Whether deductible from business income-Indian Income-tax Act, 1922, S. 10(2)(xv). An assessee is entitled to a deduction of the loss in speculative transactions while computing the profits and gains under the bead "profits an gains from business" under section 10 of the Income-tax Act. Jagannath Mahadeo Prasad v. Commissioner of Income-tax (1965) 55 I T R 501 fol. STATEMENT OF CASE By this application the assessee requires the Appellate Tribunal to refer to the High Court certain questions of law which are said to arise out of the order of the Tribunal in I. T. A. No. 8334 of 1956-57. As, in our opinion, questions of law do arise out of .the aforesaid order, we hereby draw up a statement of the case and refer the same to the High Court of Judicature at Allahabad.

2. The statement of the case relates to the assessment for 1953-54 for which the relevant account , year commenced on November 26, 1951 and ended on October 22, 1952.

3. The assessee is' a registered firm carrying on business in ready bardana and sutli, etc. Speculation in bardana was also a part of the assessee's business activities. The income from business is the only source of the assessee's income.

4. During the accounting year in question the assessee's income from dealings in ready goods bad been computed by the Income-tax Officer at Rs. 27,813 which was finally reduced by the Appellate Assistant Commissioner and the Tribunal to Rs. 19,

654. The assessee also suffered a loss of Rs. 1,964 in the speculation transaction in bardana. The Income-tax Officer did not allow this loss to be set off against the assessee's profit in ready goods but parried forward the loss to the next year for setting it off' against any future speculation profits. A copy of the Income-tax Officer's order is made a part of the case and is Annexure "A".

5. The assessee preferred an appeal before the Appellate Assistant Commissioner and contended before him that the speculation loss should have been allowed as a deduction in computing the business income under section 10 and that the proviso to section 24(1) was not attracted at all. The Appellate Assistant Commissioner, however, held that the proviso to section 24(1) was clearly applicable and confirmed the Income-tax Officer's action in carrying forward the speculation loss for set-off against the speculation profit of the subsequent years. A copy of the Appellate Assistant Commissioner's order is made a part of the case and is Annexure "B".

6. When the assessee came up in second appeal before the Tribunal, it was contended in the first instance that the Legislature was not competent to enact the first proviso to section 24 (1) inasmuch as it offended the Constitution which empowered the Centre to impose "taxes on income" only and not on losses. The alternative claim was that the total business income from all transactions including speculation transactions should have been computed under section 10, before the proviso to section 24 (1) could be brought into operation.

7. The Tribunal negatived the assessee's first contention holding that, in enacting the first proviso to section 24 (1), what the Legislature did was to lay down the mode of computing business profits and not imposing a tax on losses. In coming to this conclusion the Tribunal relied on the ruling of the Bombay High Court in Keshavlal Premchand v. Commissioner of Income-tax (1957) 31 I T R

7. The Tribunal also held, that, in computing the income chargeable under the head "profits and gains of business, profession or vocation", the assessee was not entitled to the deduction of the speculation loss of Rs. 1,951 in view of the proviso to section 24 (1) laying down the special treatment to be noted to losses in speculation transactions. The order of the Tribunal is made a part of the case and is Annexure "C".

8. It is on these facts that we refer the following questions of law for the opinion of their Lordships: "(1) Whether the first proviso to subsection (1) of section 24 of the Income-tax Act was intra vires of Parliament?" If the answer to question No. (1) above is in the affirmative. (2) Whether, on a true interpretation of the first proviso to section 24 (1), the assessee was entitled to a deduction of the speculation loss of Rs. 1,964 in the computation of the business income under section 10?"

9. The draft statement of the case was placed before the parties. The minor suggestions made by the parties were duly accepted. Question No. 1 has been added as suggested by the parties. The statement is finalised. P. N. Pachauri for the Assessee. R. L. Gulati for the Commissioner.