Patna High Court
Sahu Jain Ltd. vs Commissioner Of Income-Tax. on 11 April, 1963
Equivalent citations: [1964]52ITR857(PATNA)
JUDGMENT
PAGE 860 & 861 IS MISSING.
business consisting of a speculative transaction. The key words which are to be construed in the proviso are "in computing the profits and gains chargeable under the head profits and gains of business, profession or vocation", and having regard to the scheme of the Act, especially Chapters III and IV, it is manifest that the question of set-off only arises after the profits and gains of a business, profession or vocation have been computed in the manner laid down in Chapter III. The process of computation as understood by the Indian Income-tax Act is antecedent to the question of the right of the assessee to claim any set-off under section 24. In other words, the question of set-off only arises when there is a loss under one head, the loss having been arrived at in the manner of computation laid down in Chapter III, and there is a profit under another head, the profit having been arrived at in the manner laid down in Chapter III. It is also significant that in the proviso to section 24(1) the expression "set-off" is not used; the expression used is "taken into account". It is, therefore, manifest from the language used in the proviso that the legislature intended to enact a substantive provision, though in the garb of a proviso, and the application of the proviso cannot, therefore, be restricted to the provision of section 24(1).
The view that I have expressed is borne out by the decision of the Bombay High Court in Keshavlal Premchand v. Commissioner of Income-tax. Chagla C.J. also pointed out in that case that it was a sound rule of interpretation that a statute should be so construed as to prevent the mischief and to advance the remedy according to the true intent of the makers of the statute. Chagla C. J. took judicial notice of the fact that in recent times businessmen have been known to buy speculative losses in order to reduce their profits, and clearly the legislature was aiming at that mischief, and that mischief could only be removed by preventing the assessee from reducing his profits by these speculative losses, and that was what was exactly done by the legislature in enacting the proviso. I respectfully agree with the line of reasoning which has èbeen adopted by Chagla C.J. in the Bombay case. The same view as to the interpretation of section 24(1) has been expressed by the Madhya Pradesh High Court in Commissioner of Income-tax v. Ramgopal Kaniyalal and by the Punjab High Court in Commissioner of Income-tax v. Kumkum Chand Dalal, Manohar Lal Munshi Lal v. Commissioner of Income-tax and Commissioner of Income-tax v. Ramp Sarup. The decision of the Bombay High Court in Keshavlal Premchand v. Commissioner of Income-tax, has also been followed by the Madras High Court in P.S.N.M.K. Ramalingam Chettiar v. Commissioner of Income-tax and by the Andhra Pradesh High Court in Jummarlal Surajkaran v. Commissioner of Income-tax.
It is necessary to add that the Income-tax Act of 1961, which is a consolidating Act, contains an independent substantive provision dealing with the matter of losses in speculation business. Section 73 of the new Act states as follows :
"73. (1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business.
(2) Where for any assessment year any loss computed in respect of a speculation business has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and -
(i) it shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year; and
(ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and son on..."
I have already expressed the conclusion that the language of the proviso to section 24(1) of the Indian Income-tax Act of 1922 clearly indicates that the legislature in enacting the so called proviso was enacting a substantive provision dealing with the mode of computing the profits and gains chargeable under the head "profits and gains of business, profession or vocation". In other words, the language of the proviso is clearly such that it has the necessary effect of travelling beyond the main enactment, and controlling the provision of section 10 of the statute. Even assuming for a moment that the interpretation of the proviso to section 24(1) is obscure and ambiguous or is capable of more than one interpretation, light may be thrown on the true view to be taken of it by the aim and provisions of a subsequent statute. This principle is stated by Lord Sterndale in Cape Brandy Syndicate v. Inland Revenue Commissioners as follows :
"I think it is clearly established in Attorney-General v. Clarkson that subsequent legislation on the same subject may be looked to in order to see what is the proper construction to be put upon an earlier Act where that earlier Act is ambiguous. I quite agree that subsequent legislation, it it proceeded upon an erroneous construction of previous legislation, cannot alter that previous legislation; but if there be any ambiguity in the earlier legislation then the subsequent legislation may èfix the proper interpretation which is to be put upon the earlier. As I have said, taking the Act of 1915, the words which are relied upon really, not entirely, but most strongly, as showing that what I may call post-war businesses were not included in the Act, are the words where there has not been one pre-war trade year. I do not find it possible to say that those words are not capable of two constructions. I have mentioned the two constructions. One would exclude post-war businesses; one would not do so. I will not say it would include them because if they are not excluded they are included by section 39. I think those are two possible constructions. It is perfectly obvious that the Act of 1916 and the Act of 1920 both assume that the Act of 1915 was so framed as to include post-war businesses, and therefore it seems to me to assume and really to direct that the second construction, which does not exclude post-war businesses, is the right construction of Part II of the Fourth Schedule to the Act of 1915."
Applying the principle to the present case, it is manifest that the proviso to section 24(1) of the Indian Income-tax Act is really a substantive provision dealing with the computation of profits and gains under section 10 of the Act. This is an additional reason for supporting the view of Chagla C.J. as to the interpretation of section 24(1) of the Act in Keshavlal Premchand v. Commissioner of Income-tax.
Learned counsel on behalf of the assessee also based his argument upon the reasoning adopted by the Supreme Court in Commissioner of Income-tax v. Indo-Mercantile Bank Ltd. and contended that the principle of that case must govern the decision of the present case also. I see no warrant for accepting this argument. In the Supreme Court case the question at issue was the interpretation of section 32(1) of the Travancore Income-tax Act, which was almost similar to another proviso to section 24(1) of the Indian Income-tax Act and was to the following effect :
"Provided that -
(a) where the loss sustained is a loss of profits and gains of a business or vocation to which the first proviso to sub-section (1) is applicable, and the profits and gains of that business, profession or vocation are, under the provisions of clause (c), sub-section (2), section 14, exempt from tax, such loss shall not be set off except against profits and gains accruing or arising (in an Indian State) from the same business, profession or vocation and exempt from tax under the said provisions."
After closely examining the language of this proviso, the Supreme Court held that the case fell within the normal principle that the territory of a proviso was to carve out an exception to the main enactment and to operate in the same field. It was further pointed out by the Supreme Court in that case that in the proviso in question there were no positive words which would support an interpretation in favour of the disintegration of the head "business" and compel the application of the proviso to the same head. It is manifest that the language of the proviso which was the subject-matter of interpretation in the Supreme Court case is markedly different from the language of the proviso which is the subject-matter of èinterpretation in the present case. I am, therefore, of opinion that the ratio decidendi of the Supreme Court decision cannot apply to the present case and the same conclusion cannot be reached with regard to the interpretation of the proviso with which we are concerned in the present case.
For the reasons I have expressed I hold that on a proper construction of the provisions of section 10 and of the first proviso to section 24(1) of the Indian Income-tax Act, the loss of Rs. 6,52,550 sustained by the assessee company in speculation transactions cannot be set off against the profits of the managing agency or other business of the assessee company. I would accordingly answer the question of law referred by the Income-tax Appellate Tribunal against the assessee and in favour of the income-tax department.
The assessee must pay the costs of this reference. Hearing fee Rs. 250.
UNTWALIA J. - For the reasons given by my Lord the Chief Justice, I agree that the question of law should be answered against the assessee and in favour of the income-tax department. I would, however, like to add one more reason in support of the view expressed by him.
The construction and meaning aforesaid of the proviso in question find further support from the provisions of sub-section (2) of section 24, which deals with carrying forward of the loss of profits or gains sustained by an assessee in any year in any business, profession or vocation to the following year. Sub- section (2) of section 24 with clause (i), which is the relevant clause in support of the construction put upon the proviso, reads thus :
"Where any assessee sustains a loss of profits or gains in any year, being a previous year not earlier than the previous year for the assessment for the year ending on the 31st day of March, 1940, in any business, profession or vocation, and the loss cannot be wholly set off under sub-section (1), so much of the loss as is not to set off or the whole loss where the assessee had no other head of income shall be carried forward to the following year, and
(i) where the loss was sustained by him in a business consisting of speculative transactions, it shall be set off only against the profits and gains, if any, of any business in speculative transactions carried on by him in that year."
The main enactment in sub-section (2) provides that, even if the loss in any business, profession or vocation cannot be wholly set off under sub-section (1) against the assessees income, profits or gains under any other head in any assessment year, or it cannot be set off at all, there being no such income from any other head, so much of the loss as cannot be set off under sub- section (1) or the whole loss, as the case may be, shall be carried forward to the following year. But in clause (i) of sub-section (2), it is provided that, where the loss was sustained by the assessee in a business consisting of speculative transactions, it shall be set off only against the profits and gains, if any, of any business in speculative transactions carried on by the assessee in the following year. That is to say, such loss sustained by the assessee in any previous year "shall not be taken into account except to the extent of the amount of profits and ègains, if any, in any other business consisting of speculative transactions", "in computing the profits and gains chargeable under the head profits and gains of business, profession or vocation." in the assessment year relating to the previous year. If the general and the restricted meaning and interpretation of the proviso as suggested on behalf of the assessee were to be accepted, it will not be possible to give full effect to all the parts of the section, namely, to clause (i) of sub-section (2) of section 24. The glaring example of this is the case in hand. The Income-tax Officer, for the assessment year 1953-54, assessed the income of the assessee to be Rs. 10,87,685 as income from only one head, namely, business, profession or vocation other than the business consisting of the speculative transactions. After some modification by the Appellate Assistant Commissioner and the Income-tax Tribunal, the figure of that income was maintained in the neighbourhood of rupees 10 lakhs. The claim of the assessee for a set-off of the loss of Rs. 7,72,550 in speculative transactions against the said income was rejected by the Income-tax Officer and the Appellate Assistant Commissioner chiefly on the ground that the loss itself was fictitious and not proved. The Tribunal, however, rejected the assessees claim to the extent of Rs. 1,20,000 and held that the claim for the loss in speculative business to the extent of Rs. 6,52,515 was proved. In this case there was no question of set-off under sub-section (1) and, if the proviso to that sub-section were not to be given the exceptional and the wider meaning, the whole of the loss could be set off against the income of about rupees 10 lakhs from the business other than the one of speculative transactions. In that event, although the loss of rupees 6 lakhs and odd was sustained by the assessee in the previous year relating to the assessment year 1953-54 in a business consisting of speculative transactions, it will not be possible to give effect to clause (i) of sub-section (2) and to say that the loss in the speculation business is to be set off by carrying forward to the following year, only against the profits and gains, if any, of any business in speculative transactions carried on by the assessee in that year.
Question answered in the negative.