Law:

Section:

JUDGMENT Bhagwati Actg., CJ.-This reference arises out of two applications for reference made before the Tribunal, one by the assessee and the other by the Commissioner. There are in all four questions referred to us for our opinion and out of them, the first two questions are referred on the application of the Commissioner and the last two questions are referred on the application of the assessee. In order to appreciate how the questions arise for determination, it is necessary to notice the facts giving rise to the reference in some detail. The assessee is a registered firm and it carries on business as commission agent and general merchant and it also trades in forward contracts in groundnut seeds, groundnut-oil and groundnut oil cakes. It is a member of the Saurashtra Oil and Oil Seeds Association Limited, an association recognised by the Central Government, inter alia, for groundnut-oil, groundnut seeds and groundnut-oil cakes under section 6 of the Forward Contracts (Regulation) Act, 1952. During Samvat year 2013, which was the relevant accounting year for the assessment year 1958-59, the assessee entered, inter alia, into two classes of forward contracts in groundnut oil, groundnut seeds and groundnut-oil cakes. One class consisted of the forward contracts which were admittedly not in violation of any prohibition imposed under the Forward Contracts (Regulation) Act, 1952, while the other class consisted of forward contracts which according to the revenue, were in violation of the prohibition imposed under section 15, sub-sections (1) and (4) of that Act. The assessee incurred a profit of Rs. 2,19,046 in the first class of forward contracts and a loss of Rs. 3,40,443 in the second class of forward contracts. The assessee also earned profit in its other business which did not consist of forward contracts. In the course of the assessment of the assessee for the assessment year 1958-59, the question arose whether the loss of Rs. 3,40,443 was liable to be set off against the profit of Rs. 2,19,046 and the other profit earned by the assessee in order to arrive at the assessable income of the assessee. The Income-tax Officer took the view that the forward…

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