Registered firm speculative loss can be carried forward against future speculative profits under the Income-tax Act.

Under the Income-tax Act, 1922, speculative loss of a registered firm was held not to be apportioned among partners under the special assessment scheme for registered firms, but to remain available to the firm for carry forward under the loss provisions. Reading sections 23 and 24 together, the Court accepted that the first proviso to section 24(1) excluded ordinary set-off, yet did not prevent carry forward under section 24(2). The firm was therefore entitled to carry forward its speculative loss and set it off against subsequent speculative profits, and the issue was answered in favour of the assessee.

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Issues: Whether the speculative loss of a registered firm, suffered in an earlier assessment year, could be carried forward and set off against the firm's speculative profits of the subsequent year, or whether it had to be apportioned among the partners in the earlier year.

Analysis: The relevant scheme of the Income-tax Act, 1922 was examined by reading sections 23 and 24 together. The special mode of assessment of a registered firm under section 23(5) requires determination of the firm's total income and then assessment of each partner's total income including his share in the firm's income, profits and gains, with the proviso dealing with a partner's share of loss. Section 24 governs set-off and carry forward of losses, and the controversy turned on whether speculative loss, excluded from ordinary set-off by the first proviso to section 24(1), nevertheless remained available to the registered firm for carry forward under section 24(2). The answer was influenced by the consistent practice of following another High Court's interpretation on an all-India taxing statute, and the Court accepted the Gujarat High Court's view that speculative loss of a registered firm is not to be apportioned among the partners under the second proviso to section 24(1) and may be carried forward by the firm under section 24(2).

Conclusion: The question was answered in the affirmative and in favour of the assessee. A registered firm was held entitled to carry forward its speculative loss and set it off against subsequent speculative profits.

Ratio Decidendi: Under the Income-tax Act, 1922, speculative loss of a registered firm is not absorbed by apportionment among partners under section 23(5) read with section 24, but is available to the firm itself for carry forward and set-off against future speculative profits under section 24(2).

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