COMMISSIONER OF INCOME-TAX, U.P. versus JAGANNATH MAHADEO PRASAD, ETC.

Citation: [1969] 1 S.C.R. 537 · Decided: 02-08-1968 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Appeal(s) allowed

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Judgment (excerpt)

-
537 
A 
COMMISSIONER OF INCOME-TAX, U.P. 
v. 
JAGANNATH MAHADEO PRASAD, ETC. 
August 2, 1968 
B 
[J. C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.] 
c 
D 
E 
F 
G 
H 
Income-tax Act (11 of 1922), s. 24(1), first proviso-Scope of-Loss 
from speculative transactions--Set off against, profits and gains- when per-
missible. 
The assessee, an individual, derived income from various sources in-
cluding commission agency business and shares in partnership fr:ms. 
1!1 
arriving at the net profit for the assessment year 1953-54, he churned his 
share of the loss tfrom one oi the firms in which he was a partner, as a 
set off against profits from other business. 
The. loss was the !esult. of 
speculative transactions. The Department and Tribunal held agamst him. 
On a reference, ihe High Court held in favour of the assessee on the 
basis that the observations of this Court, in Commissioner of Income-tax, 
Gujarat v. Kantilal Nathu Chand, 
[1967] 1 S.C.R. 813; 63 I.T.R. 318 
(S.C.) namely: that under the first proviso to s. 24(1) of the Income. 
tax Act, 1922, losses in speculative business are not to be taken into 
account when computing the total income, except to the extent to which 
they can be set off against profits. tfrom other speculative business, are 
obiter. 
In appeal to this Court, 
HELD : The observations in Kantilal Nathu Chand's case, cannot be 
regarded as obiter, because the question of the applicability of the proviso 
directly arose in the case. 
The p'roviso says in unequivocal terms that 
any losses 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 or gains in any other business consisting of speculative 
transactions. If this is read with Explanation I, according to which where 
the speculative transactions carried on are of such a- nature as to consti-
tute a business the business shall be deemed to be distinct and separate 
from any other business, no other view is possible. [541 G-H; 542 A-BJ 
Keshavlal Pramchand v. Commissioner of Income-tax, Ahmedabad, 
31 l.T.R. 7, 
Commissioner 
of Income-tax 
Nagpur 
v. Ram 
Gopal 
Kanhaiya/al, 38 I.T.R. 193, Manohar Lal Munshi Lal v. Commissioner of 
Income-tax, New Delhi, 44 l.T.R. 618, Commissioner of Income-tax v. 
Ram Swarup, 45 I.T.R. 248, Jummar Lal Surajkaran v. Commissioner of 
Income-tax 47 I.T.R. 809, Hanuman Investment Company v. Conzmis-
.sioner of Income-tax, 48 I.T.R. 915 and Joseph John v. Commissioner of 
Income-tax, 51 I.T.R. 322, approved. 
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1761 
of 1967. 
Appeal from the judgment and decree, dated the 14th April, 
1964 of the Allahabad High Court in Income-tax Reference No. 
130 of 1960 and Civil Appeal No. 1762 of 1967. 
Appeal from the judgment and decree, dated May 5, 1964 
of the Allahabad High Court in Income-tax Reference No. 777 
of 1961. 
538 
SUPREME COURT REPORTS 
(1969] I S.CR. 
B. Sen, B. D. Sharma and R. N. Sachthey, for the appellant 
A 
(in both the appeals). 
G .. C. Sharma, V. C. Rishi and P. K. Mukherjee, for the 
respondent (in C. A. No. 1761 of 1967). 
The Judgment of the Court was delivered by 
Gro.-er, J. 
The common question which arises in these 
appeals by certificate, is whether speculative losses can be set off 
against profits from any other business activity under s. JO in 
spite of the first proviso to s. 24 (1) of the Income Tax Act, 
1922. 
The facts in C. A. 1761/67 in which the question in the above 
form was referred, the language of the question being somewhat 
different in the other appeal, may be stated. 
The assessee who 
is an individual derived income from three sources i.e., property, 
shares in joint stock companies and commission agency business 
and shares in partnership firms. 
The accounting year relevant 
to the assessment year 1953-54 was the period from October 20, 
1951 to October 8, 1952. 
In the personal business of commis-
sion agency, the assessee returned a net profit of Rs. 2,76 I. In 
arriving at this figure the net share of loss of R_s. 11,075 from 
the firm of Kamta Prasad Raghunath Prasad in which the assessee 
was a partner, was claimed. 
The Income Tax Officer did not 
go into the details but ignored the figure in the absence of infor-
mation from the Income-tax Officer assessing the aforesaid firm. 
Before the Appellate Assistant Commissioner it was submitted 
that the actual share of" loss was Rs. 13,232 and it included a 
sum

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