COMMISSIONER OF LNCOME-TAX, GUJARAT versus KANTILAL NATHUCHAND SAMI

Citation: [1967] 1 S.C.R. 813 · Decided: 11-10-1966 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed
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Judgment (excerpt)

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B 
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COMMISSIONER OF ll"COME-TAX, GUJARAT 
v. 
KANTIJ,AL NATHUCHAND SAMI 
October 11, 1966 
(J. C. SHAH, V. RAMAsWAMI AND V. BHARGAVA, JJ.j 
813 
Il)dian Income-tax, 1922, s. 24--Registered firm suffering loss in specu-· 
lation business for two years--Such loss whether to be apportioned among· 
partners or to be carried forward and set oO against profit in speculation 
business in the subsequent year. 
The respondent firm had income from property, ready business in 
kappas, and also speculation business. 
It was registered under s. 26A of 
the Indian Income-tax Act, 1922, for the assessment years 1958-59, 1959-
60 and 1960-61. 
In the accounting periods relating to the assessment years 
1958-59 and 1959-60 the firm suffered loss in the speculation business. Tbe 
Income-tax Officer did not set off this loss against the income from property 
and ready kappas business but apportioned it between the partners of the 
firm. 
In 1960-61 there was profit in the speculation business and the Ihm 
claimed that the loss in 
that business in the preceding two. years should 
be set off against the said profit. 
According to the firm the Income.tax 
Officer was wrong in apportioning the speculation loss between the partners 
in 1958-59 and 1959-60. The plea was not accepted by the Income-tax 
Officer or the Appellate Ass'.stant Commissioner. But the Tribunal in fur-
ther appeal, and the High Court in reference under s. 66A accepted it. The 
Revenue appealed to this Court. 
HELD : (i) The principal clause of s. 24( I) lays down that if there be 
a loss of profits or gains in any year under any of the heads in s. 6, that 
loss has to be set off against the income profits or gains of the assessee 
under any other bead in that year. The first proviso to the clause however 
lays down an exception to the above rule, namely, that the losses sustained 
in speculative transactions are not to be taken. into account in computing 
the profits and gains chargeable under the head 'profits and gains of busi-
ness, profession or vocation,' except to the extent that they will be set off 
against profits and gains in any other business \vhich itself consists of spe-
culative transactions. 
In the present case the Income-tax. Officer was clearly 
right in the assessment years 1958-59 and 1959-60 in not setting off the 
losses in the speculative business against the income earned in those years 
either from property or from ready business in Kappas. 
[816 D-H] 
(ii) The Income~tax Officer howev-er erred in apportioning the said spe-
culation loss in the years 1958-59 and 1959-60 between the partners and 
in Mt carrying it forward and setting it off against the profit in speculation 
business in 1960-61. 
The second proviso to s. 24( 1) in so far as it deals with registered 
firms lays down that any loss \vhich cannot be set off against the income 
profits and gains of the registered firm is to be apportioned behveen the 
partners of the firm and they alone are entitled to have the amount set otT 
under this section. Clearly the word 'any loss' here must refer to the loss 
computed for purposes of the principal clause of s. 24( 1) taken with the 
first proviso, and will therefore not comprise in it the loss in speculative 
business which is not to be taken into account under the first proviso: 
If 
this T'nrt of the ~econd proviso were interpreted to include within it the ton 
in speculative busin-:ss which is not to be taken into account under the fir~t 
81' 
SUPREMI! COURT RllPORTS 
{1967] I S.C.R. 
proviso, the effect of giving a wider meaning to the words 'any loss' in it 
A 
would be that the same loss in speculative business would, after apportion-
ment, be set off against income profits and gains under other heads in com-
puting the total income of the partners. The result would be that the effect 
of the first proviso would be nullified by this part of the second proviso. 
[817 E-HJ 
Proviso (c} to s. 24(2) envisages the e<istence of !OS> which has not 
been apportioned between the partners and this 
clearly strengthens the 
B 
view that the second proviso to s. 24(1) does not cover loss in speculative 
business and consequently does not pennit that loss to be apportioned be-
tween the partners. [820 E-F] 
Section 23(5) (a) of the Act also could not help the Revenue. Under 
the first proviso to s. 23 (5 )(a) the share of a partner in a loss is r~uired 
to be set off against his other income, or carried forward and set off 1n
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