Law:

Section:

Section 28(i) , read with section 73 of the Income-tax Act, 1961 [Corresponding to section 10(1), read with section 24(1) of the Indian Income-tax Act, 1922] - Business loss/deduction - Allowable as - Assessment year 1958-59 - Assessee-firm a member of a recognised association carried on business of commission agency, general merchants it also had forward business - It entered into transactions for supply of ground nut oil with different non-members and claimed to have incurred loss in said transaction - Assessee claimed that loss was allowable under section 10(1) of 1922 Act as a deduction against its other business income - Tribunal found (i) that contracts were non-transferable, specific delivery contracts where intention ab initio was either to give or take delivery (ii) that they were entered into either for purchase or for sale; and (iii) that later on same quantity was either sold or purchased back by assessee on behalf of same constituents at market rates prevailing at material time, i.e., they were squared up by corresponding sales or purchases, as case might be - It was admitted that there was clear contravention of provisions of Forward Contracts (Regulation) Act, 1952 so far as transaction in question were concerned - Whether contracts entered into in contravention of statute could not possibly be regarded as having been validly entered into and, hence, contracts in respect of which loss was claimed were illegal contracts - Held, yes - Whether if a business is illegal, neither profits nor losses would be enforceable in law, but such taint of illegality cannot detract from profits and losses being taken into account for computation of amount which can be subjected to tax as "profits" under section 10(1) of Act of 1922 - Held, yes - Whether contract contemplated by Explanation 2 to first proviso to section 24(1) of 1922 Act has to be an enforceable contract and not an unenforceable one by reason of any joint of illegality resulting in its invalidity, and contracts in question being illegal and unenforceable on account of contravention of 1952 Act, no set-off could be allowed under first proviso to section 24(1) of 1922 Act which must be read with…

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