1. NAIMUDDIN, J.-By this application under section 66(1) of the Income-tax Act, 1922, as amended by the Finance Act, 1971, the Commissioner of Income-tax (Central), Karachi has directly referred to this Court the following question of law and arising out of the order dated 23-2-1971, passed by the Income-tax Appellate Tribunal, Karachi Bench, Karachi.
2. "Whether on the facts and in the circumstances of the case the learned Income-tax Appellate Tribunal was justified in holding that loss sustained by the assessee in the banking business in the assessm ent year 1962-63 should be set off against income from interest on securities and dividends for the assessm ent year 1963-64 in view of subsection (2) of section 24 of the Income- tax Act."
3. The relevant facts giving rise to this question as stated in the application, are that the assessee/respondent is a banking company which enjoys the income from the business, interest on securities, dividends and properties. The original assessment for the year 1963-64 was completed on 31-10-1967, at an income of Rs. 3,99,165 which was rectified on 5-4=1969. Under section 35 of the Income-tax Act. The rectification was necessitated because in sequel to an Appellate Order for the year 1962-63 loss was determined which was to be given effect to.
4. The Income-tax Officer in his order dated 5-4-1969, allowed - the set-off of losses against business income of the respondent only and not against income of the assessee from other sources like dividend, etc. Aggrieved by the order of the Income-tax Officer the respondent filed an appeal before the Income-tax Appellate Tribunal which up set the order of the Income-tax Officer holding that the appellant was entitled to the set-off of the losses brought forward against the income including interest on securities and dividends income as before the Tribunal it was not denied that the securities of the shares were held as trading assets of the respondent.
5. In holding so the Tribunal relied on the judgment of the Supreme Court of India in Commissioner of Income-tax, Andhra Pradesh v. Cocanada Radhaswami Bank Ltd. (1965) 57 1 T R 306. Therefore, the question mentioned above has been referred to us.
6. We have heard Mr. Nasarullah Awan Advocate for the Applicant and Mr. Muhammad Hanif Khan Advocate for the respondent.
7. It was submitted by Mr. Awan that in view of the provisions of clause (ii) of subsection (2) of section 24 of the Income-tax Act the loss brought forward could be set-off against the profits and gains of the same business and since interest earned on securities and dividends received on shares were not income from the same business in which the loss had accrued, the same could not be set off.
8. In order to appreciate the contention we may first here quote the relevant provisions of section 24 of the Act.
9. "Section 24(1975) 32 Tax. 22------------------
(2) 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, under the head "Profits and gains of business, profession or vocation", and the loss cannot be wholly set off under subsection (1), so much of the loss as is not so set off, or the whole of the loss where the assessee has no income under any other head, shall be carried forward to the following year, and
(i) Where the loss was sustained by him in a business consisting, of speculative transaction, - it shall be set off only against the profits and gains, if any, of the business in speculative transactions carried on by him in that year ;
(ii) where the loss was sustained by him in any other business, profes--sion or vocation, it shall be set off against the profits and gains, if any, of such business, profession or vocation if such business, profession or vocation continued to be carried on by him in that year ; and if the loss, in either case, cannot be wholly so set off, the amount of the loss not so set off shall be carried forward to the next year and so on but do loss shall be carried forward for more than 6 years Provided that ------------------ Mr. Awan submitted that since separate heads of income have been given under section 6 of the Act, therefore, in view of the provisions of clause (ii), subsection (2) of section 24 of the Act the loss carried forward under one head could be set off against income under the same head.
10. Accordingly, he submitted that interest on securities is a separate head of income under section 6 of the Act, and therefore, income by the respondent from this source and dividends could not be set off against the carried forward loss for the previous years. We would have in detail examined above referred to arguments of the learned counsel for the applicant but we think we will be unnecessarily burdening our judgment for the question referred to us and the arguments advanced thereon including the above arguments were already considered and the question answered in the affirmative in Rais Pir Ahmad Khan v. Commissioner of Income-tax, Lahore Zone, Lahore by a Division Bench of Lahore High Court consisting of Muhammad Akram and Munawar Elahi Rana, J1., and Messrs Sainrapt & Et. Brice; Karachi v. The Commis--sioner of Income-tax (West), Karachi PLD 1979 Kar. 591, by a Division Bench this Court consisting of Abdul Hayee Kureshi and 1. Mahmud, JJ.
11. In the first-named case on the similar question the Income-tax Tribunal had taken a view contrary to the view now taken. We may here quote the question which was considered in this case :- "Whether on the facts and circumstances of the case the Tribunal was right in vacating the decision of the Appellate Assistant Commissioner and holding that the share of losses from Messrs Faiz Jilani & Co., Karachi incurred and allocated in the previous years, could not be given set off against the share profit of the firm Messrs Shabbir Cotton Factory, Walhar received during the assessm ent year under section 24(2)(ii) of the Income-tax Act, 1922."
12. We may also quote paragraphs 10 and 11 of the decision which contain the reasons and read as follows :- "It may be noted that section 6 of the Act classifies income under six heads. The income-tax is only one tax levied on the sum total of the income classified under the various heads and it is not a collection of distinct taxes levied separately on each head of income. It is, therefore, that in this connection subsection (1) of section 24 expressly lays down that 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 losses set off against his income, profits or gains under any other head in that year. In this connection sub--section (2) of this section further lays down that where any assessee sustains a loss of profits or gains in any year, under the head "profits and gains of the business, profession or vocation;" and the loss cannot be wholly set off under subsection (1), so much of the loss as is not set off, or the whole of the loss where the assessee has no income under any other head, shall be carried forward to the following year. But in this connection clause (i) of subsection (2) of section 24 provides that where the loss was sustained by him a business consisting of speculative transactions, it shall be set off only against the profits and gains, if any, .Of the business in speculative transaction carried on by him in that year. However, clause (ii) of subsection (2) of section. 24 lays down that where the loss was sustained by him in any other business, profession or vocation, it shall be set off against the profits and gains, if any, of such business, profession or vocation if such business, profession or vocation continued to be carried on by him in that year.
13. Reading clauses. (t) & (ii) of subsection (2) of section 24 in juxta position with each other, it is evident that the business is dividend into two categories. Clause (i) deals with losses sustained by an assessee in a business consisting of speculative transactions while clause (ii) deals with losses sustained by him in any other business. In the context the term "such business" occurring twice in clause (ii) of subsection (2) of section 24 has reference to business other than the speculative business which forms the subject-matter of clause (i) above. In this connection we have no hesitation in agreeing with the interpretation placed by the Appellate Assistant Commissioner, and we are unable to accept the interpretation by the Tribunal which is unwarranted and far-fetched."
14. In the second cited case the question considered was as follows; "Whether in the facts and circumstances of the case assessee Sainrapt Et. Brice are entitled in law against profits in assessm ent years 1962-63, 1963-64, and 1965-66 of their business of Civil Engineers and Contractors carried on by them individually in their name to set off their apportioned carried forward share of their loss in their same business carried on by them up to assessm ent year 1965-66 in registered partnership of Sainrapt Et. Brice & Billiard."
15. In this case the Division Bench followed the Rals Pir Ahmad Khan's case, We .May here reproduce part of paragraph 6 of the judgment which reads as follows :- If will, therefore, be seen that as far as set-off of carried-forward losses in business is concerned, the object of the amendment was to treat a business in speculative transactions separately and in contrast with -any other business. Clauses (i) and (ii) must, therefore, be read together and in juxtaposition with each other as dealing with two distinct and contrasting categories or business, i.e. Speculative business and any other business. Clause (fl) with which we are concerned, deals with a case where the loss was sustained by the assessee in any other business which must be interpreted to mean any business other than a speculative business mentioned in clause (i), and therefore the words "such business" occurring twice in this clause refer to the business other than speculative business which forms exclusively the subject-matter of clause (i). It would not be correct to say, as held by the Tribunal, that the words "such business refer to the same and very business in which the loss was sustained. In our opinion, the words "such business", are not controlled or qualified by the word "loss" but they refer to and qualify the words "in any other business". The interpretation put on these words by the Tribunal, would appear to go against the object and intendment of the amendment introduced in section 24. If the loss sustained in a non- speculative business can be set off only against the profits and gains of same business or such business in which the loss was sustained the amendment would be meaningless because the law was the same prior to the amendment, viz. - that the losses could be set off only against the profits of the same."
16. However, we may add that the finding of the Tribunal is that the securities and shares were held by the respondent as its trading assets and therefore, in our view income from them would form part of income of assessee. We are fortified in our decision from Indian jurisdiction, namely; Western States Trading Co. .Ltd. v. Commissioner of Income-tax, Central, Calcutta (1971) 801 T R 21wherein it was held by the Supreme Court of India that if shares are held by an assessee as part of its trading assets, the dividends of those shares would form part of the income from the business of the assessee and the assessee will therefore, be entitled under section 24(2) of the Act to claim set off of losses from its business carried forward from earlier year against the dividends of the current year.
17. Since the question now referred to us already stands answered for the reasons already quoted herein above and since we do not find any reasons whatsoever, to take a different view we, therefore, also answer the question in the affirmation.