AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
1977 (2) TMI 1
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.... in the circumstances of the case, the assessee was entitled to set off hedging loss of Rs. 31,745 against other profits of the previous year ? (2) Whether, on the facts and in the circumstances of the case, the assessee was entitled to carry forward the speculation loss of Rs. 41,603 to the next year ? " The following facts appear from the statement of case and the order of the Tribunal : The assessment year in question is 1957-58 and the corresponding previous year is the Samvat year 2012. The assessee is carrying on business by running an oil mill, and also doing business in sales and purchase of groundnuts, groundnut seeds and oil ; speculation business in groundnuts, groundnut oil and groundnut seeds ; and speculation business....
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....r held that the assessee was not entitled to the set-off of the loss against the assessee's other business under section 24(1) of the Act and also that such loss could not be carried forward to the following year under section 24(2) of the Act. On a second appeal by the assessee before the Appellate Tribunal, the Tribunal held that notwithstanding the illegality of the transactions the loss could be set off and carried forward in accordance with the provisions of sections 24(1) and 24(2), respectively, of the Act. The Tribunal, accordingly, directed that the loss in hedging transactions of forward business in the banned contracts amounting to Rs. 31,745 be set off against the other profits of the assessee for the relevant accounting year....
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....court observed : " The contract contemplated by Explanation 2 to the first proviso to section 24(1) of the Indian Income-tax Act, 1922, has to be an enforceable contract and not an unenforceable one by reason of any taint of illegality resulting in its invalidity. Set-off cannot be allowed under the first proviso to section 24(1), read with Explanation 2 thereto, of losses in contracts which are illegal and unenforceable on account of contravention of section 15(4) of the Forward Contracts (Regulation) Act, 1952. " This court held the contracts in that case in respect of which the loss was incurred by the assessee as illegal contracts. It also held that the assessee was not entitled to a set-off under the first proviso to section 24(1....
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....voted to the business which the assessee was doing and in which the profit of Rs. 2,19,046 was made and the loss of Rs. 3,40,443 was sustained ". Such an uncertainty, however, is not present in the instant case. The submission of Mr. Hathi, therefore, cannot be accepted. The present case rests upon section 24 of the Act. That section, so far as material for our purpose, reads as follows : " 24. (1) Where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in section 6, he shall be entitled to have the amount of the loss set off against his income, profits or gains under any other head in that year : Provided that in computing the profits and gains chargeable under the head 'Profits and gain....
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....g year and so on but no loss shall be so carried forward for more than eight years... " In the instant case there is no dispute about the following findings of facts : The assessee sustained losses in the relevant accounting year amounting to Rs. 73,348. This figure was arrived at on a legitimate computation under section 10(2) of the Act. No further question survives for a recomputation of the income under section 10(2) of the Act in this case. The only question that remains is as to whether the loss of Rs. 31,745 can be set off against other profits in the previous year. This is the first question in the reference. This question has to be answered in the negative in view of the Kothari decision [1971] 82 ITR 794 (SC). The hedging lo....
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.... a lawful speculative business after incurring loss is discontinued and loss therefrom is carried forward for set off against any other lawful speculative business in the following year. This is the true legal effect of section 24(2)(i) of the Act in this case. It is inconceivable that law can permit an illegal activity to be carried on from which a benefit could be obtained. The concept of carry forward is not the same thing as the setting off of loss in a particular illegal business against profit of that illegal business in a particular year. The two concepts have to be kept distinctly separate even in a taxing statute. There is no express warrant for the submission either under section 24(2) or under any other provision of the Act, f....