# The Commissio. ner of Incometax, New Delhi v. JI /s. Chuni Lal MoongaRam

- **Citation:** [1962] 2 S.C.R. 823
- **Court:** Supreme Court of India
- **Decided:** 1962
- **Case number:** Civil Reference No. 13 of 1955
- **Bench:** ~. K. DAs, l\L HU>AYATULLAH, J.C. :-lHAH
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-commissio-ner-of-incometax-new-delhi-v-ji-s-chuni-lal-moongaram-2299
- **Pages:** 10

## Headnote

E'.r,ce88 /'1'1.!fif.., 1'a .. r--lnco1ne-.A .. .,~esseecarryinr1 on. business
in fr1,xab1c lcrri'.!01·11- -Lu8SC'i t'.ncurred tn transactionsin nunfftxaf)Tr frl'ifor!J -Jj
af[,;1oalife
in coniputing income-b'xcess
l'n!(ils Tax .!cl, 19 IO (1.5 nf 1940), s. 5.
1Juri11g the a.sSC!:is111cut yedr 1946-·17, the asse!:isee \Vas
carryin.~ OH speculath·e \Jusiness in bullion at Delhi. It entered into transaction:-; in the nature of forward transactions with
parties al Bhatinda (in the Patiala State outside the taxable
territories uf llriti'!t India) in which it suffered losses.
The
assessee clain1c<l tlc<luctiou of these losses in the computation
of its inco1ne.
11 cld, that the losses incurred in llhatinda could not be
taken into acc.:uunt in co1nputing the incotne of the assessee in
British Indi;t.
Uu<ler the third proviso to s. 5 of the Excess
Profits Tax Act, 1940, that part of the business of the assessee
in which the losses occurred at Bhatinda was to be deemed to
be a separate business, and consequently the losses incurred in
non-taxable territorv could not be taken into consideration for
purposes of Excess Profits Tax. The language of the third proviso to s. 5 \Vas one of exclusion and made the Act inapplicable to profits etc. of the part of the business which arose in
non-taxalile territories.
(
1u1nniission1-r uf lnconie-tax v. Kara1nchand Premchand
Ltd., (1%0) 40 LT. R. 106, relied on.
CrnL APPELLATE J·URISDICTION : Civil Appeals
Nos. 3!J ami 40 of l!HiO.
AppealH froln the judgment and order dated
January 23, 1H57, of the Punjab High Court in
Civil Reference No. 13 of 1955.
H. N. Sanyal,
Additional Solicitor-General of
India, K. N. Rajagopala. Sastri and D. Gupta, for
the appellant.
Naunit Lal, for the respondent.
1961 --
May, 5.
1961
The Commissio.
ner of Incometax, New Delhi.
v.
JI /s. Chuni Lal
MoongaRam
Das.J.
824
SUt'l{EME COURT REPORTS
[1962]
1961. May 5. The Judgment of the Court was
delivered by
DAS, J.
These two appeals han'
liee11
brought to this Court on a l'ertifiC"nk of fitness
granted by the High Court of Punjali mHler s. G6A(:?)
of the Indian Incomc:-t:tx Act, l!J2:?.
The relevant facts arc thes'" Messrs Chunilal
l\Ioonga Ram, a firm of Delhi, carriPcl on a speculative business in bullion, mostly in gold and silver,
in Chamlni Chuwk at Delhi. .Fur th<' assl·ssment
year l!H6-47 it was charged to income-tax on its
income from the business in the relevant accounting
period. Similarly, it was clmrgPd to exeess profits
tax for the chargeable aC'Counting period ending on
February 6, l946. Ono of the ap1wals, Civil Appeal
No .. :m of 1960, arises out of the assessment of
income-tax and the other appeal, Civil A ppcal No. 40
of 1960. arises out of th!' assessmPnt of excess
profits tax. During th!' relevant aceounti11g periods
the firm entered into certai11 transactio11s c•allcd
"hedge" transactions in the bullion nwrkl't at
Bhatinda (then a part of the Patiala Statl', thn.t is,
outside the taxable territories of British India). It
claimed that it had i11curred losses to non-residents
there in the Sl!IllS of Rs. 6,366/- and Rs. 16,615/- in
the said transactions and claimed that these losses
should he taken into consideration in dot crmining
its income .. • It appears from the assc·s;;mrn1t order
of the lrn·ome-tax Offict•r, Ddhi, t!akd January 27,
1V49 that the firm purclias()(\ e<•rtain "snlil's" (liars
of gold and silver) from a llhatimla party on the
telephone, which purchasPs were later confirm<'Cl by
a letter or wire.
Similarly, the bars were also sold
by the firm through a Bhatinda party_ on the telephone. Apparently, no delivery was intewied to be
taken or was taken of the bars bought or sold ; nor
did the firm have any branch or agent at Bhatinda.
The transactions were in the nature of forward
transactions carried out by means of telephone
2 S.C.R. SUPREME COURT REPORTS
825
messages, letters or telegrams with parties at
Bhatinda. This was the nature of the transactions
which resulted in the losses for which

## Text

2 S.C.R.
SUPREME COURT REPORTS
823
'l'HE COl\IMltl~fONEH OF INCOME-TAX
NEW DELHI
·v.
l\1/s. CHUNI LAL MOONGA HAM
(~. K. DAs, l\L HU>AYATULLAH and J.C. :-lHAH, JJ.)
E'.r,ce88 /'1'1.!fif.., 1'a .. r--lnco1ne-.A .. .,~esseecarryinr1 on. business
in fr1,xab1c lcrri'.!01·11- -Lu8SC'i t'.ncurred tn transactionsin nunfftxaf)Tr frl'ifor!J -Jj
af[,;1oalife
in coniputing income-b'xcess
l'n!(ils Tax .!cl, 19 IO (1.5 nf 1940), s. 5.
1Juri11g the a.sSC!:is111cut yedr 1946-·17, the asse!:isee \Vas
carryin.~ OH speculath·e \Jusiness in bullion at Delhi. It entered into transaction:-; in the nature of forward transactions with
parties al Bhatinda (in the Patiala State outside the taxable
territories uf llriti'!t India) in which it suffered losses.
The
assessee clain1c<l tlc<luctiou of these losses in the computation
of its inco1ne.
11 cld, that the losses incurred in llhatinda could not be
taken into acc.:uunt in co1nputing the incotne of the assessee in
British Indi;t.
Uu<ler the third proviso to s. 5 of the Excess
Profits Tax Act, 1940, that part of the business of the assessee
in which the losses occurred at Bhatinda was to be deemed to
be a separate business, and consequently the losses incurred in
non-taxable territorv could not be taken into consideration for
purposes of Excess Profits Tax. The language of the third proviso to s. 5 \Vas one of exclusion and made the Act inapplicable to profits etc. of the part of the business which arose in
non-taxalile territories.
(
1u1nniission1-r uf lnconie-tax v. Kara1nchand Premchand
Ltd., (1%0) 40 LT. R. 106, relied on.
CrnL APPELLATE J·URISDICTION : Civil Appeals
Nos. 3!J ami 40 of l!HiO.
AppealH froln the judgment and order dated
January 23, 1H57, of the Punjab High Court in
Civil Reference No. 13 of 1955.
H. N. Sanyal,
Additional Solicitor-General of
India, K. N. Rajagopala. Sastri and D. Gupta, for
the appellant.
Naunit Lal, for the respondent.
1961 --
May, 5.
1961
The Commissio.
ner of Incometax, New Delhi.
v.
JI /s. Chuni Lal
MoongaRam
Das.J.
824
SUt'l{EME COURT REPORTS
[1962]
1961. May 5. The Judgment of the Court was
delivered by
DAS, J.
These two appeals han'
liee11
brought to this Court on a l'ertifiC"nk of fitness
granted by the High Court of Punjali mHler s. G6A(:?)
of the Indian Incomc:-t:tx Act, l!J2:?.
The relevant facts arc thes'" Messrs Chunilal
l\Ioonga Ram, a firm of Delhi, carriPcl on a speculative business in bullion, mostly in gold and silver,
in Chamlni Chuwk at Delhi. .Fur th<' assl·ssment
year l!H6-47 it was charged to income-tax on its
income from the business in the relevant accounting
period. Similarly, it was clmrgPd to exeess profits
tax for the chargeable aC'Counting period ending on
February 6, l946. Ono of the ap1wals, Civil Appeal
No .. :m of 1960, arises out of the assessment of
income-tax and the other appeal, Civil A ppcal No. 40
of 1960. arises out of th!' assessmPnt of excess
profits tax. During th!' relevant aceounti11g periods
the firm entered into certai11 transactio11s c•allcd
"hedge" transactions in the bullion nwrkl't at
Bhatinda (then a part of the Patiala Statl', thn.t is,
outside the taxable territories of British India). It
claimed that it had i11curred losses to non-residents
there in the Sl!IllS of Rs. 6,366/- and Rs. 16,615/- in
the said transactions and claimed that these losses
should he taken into consideration in dot crmining
its income .. • It appears from the assc·s;;mrn1t order
of the lrn·ome-tax Offict•r, Ddhi, t!akd January 27,
1V49 that the firm purclias()(\ e<•rtain "snlil's" (liars
of gold and silver) from a llhatimla party on the
telephone, which purchasPs were later confirm<'Cl by
a letter or wire.
Similarly, the bars were also sold
by the firm through a Bhatinda party_ on the telephone. Apparently, no delivery was intewied to be
taken or was taken of the bars bought or sold ; nor
did the firm have any branch or agent at Bhatinda.
The transactions were in the nature of forward
transactions carried out by means of telephone
2 S.C.R. SUPREME COURT REPORTS
825
messages, letters or telegrams with parties at
Bhatinda. This was the nature of the transactions
which resulted in the losses for which the firm
claimed deduction.
The Income-tax authorities
disallowed the claim on the ground that if the
Bhatinda transactions had resulted in profits, such
profits would have been exempt from tax in terms
of s.14(2)(c) as it then stood.and if the profits were
exempt from tax, the proviso to s. 24(1) of the Act
was a bar to the adjustment of the losses. The
assessee then moved the Income-tax Appellate
Tribunal. The Appellate Tribunal, however, allowed
the deduction claimed on grounds which are not
very clearly stated. It appears that the Tribunal
proceeded on tho footing that it was not possible to.
"split up transactions of a business luca~ed in the
taxable tcl't'ituries into two categories of transactions inside and outside such territorfoE" and
even if such spliting up was pos8ible, the Bhatinda
transactions would fall within s. 42 of the Act and
the income etc. therefrom would be deemed to have
arisen in British India. In this view of the matter,
the· Accountant Member of the Tribunal who
delivered the judgment of the Tribunal said :
"To start with, it seems tu us that there
is no warrant either in terms of s. 14(2)(c) or
in terms of the proviso to s. 24( 1) to split up
the transactions of a business located in the
taxable territories into transactions in taxable
territories and transactions without taxable
territories.
Even if that treatment were
permitted and the profits or losses resulting
from transactions outside the taxable territories can be described a.s income, profits and
gains,
su~h income, profits and gains are
deemed under s. 42 tu hav1o; accrued or arisen
in British India. The results of transactions
of the nature under review are, therefore, not
exempt from tax by virtue of s. 14(2Xc). The
proviso to s. 24(1) does not in any case come
1961
The OommUlioner of l?ICOtllt·
tax, New Delhi.
v.
MIB. Ghu1ti Lal
Moonga Ram
Da8 J.
1%1
The Oonttnissio.
ner of l ncoinetax, New Delhi.
v.
M /s. Chuni Lal
.Moonga Ram
Das J.
826
SUPllEME COURT REPORTS
[l!J62]
into play.
'fhe Income-tax authoritio& have
in this view that we have taken wrongly
disallowed the asscssee's ulaim for adjustment
of losses amounting to Its. 6,3tiu/-
1rnd
Rs. lti,615/-. We allow these losses."
The
Tribunal
anmrdingly
allowed the
two
appeals. We may here state that the Income-tax
authorities as also the Tribunal cornidered the claim
for deduction in relation to the assessml'nt for
income-tax only. As to the exl'ess profits tax there
was no separnte discussion of the provisions of s. 5
of the Excess Pl'Ofits Tax Ad, 1940 and they dealt
with the assessment of excess profifo tax as a mere
consequential matter.
The Commissioner of Income-tax, Delhi, then
made two applicatfons asking the Tribunal to refer
certain questions of law arioing out of its orders to
the High Court of Punjab.
The Tribunal came to
the conclusion that no questions of law arose out of
its orders and rnjcctcd the applications. The High
Court was thrn1 moved under s. 66 (2) of the Indian
Income-tax Act, l!J22 and the High Court heard
the two applications together and directed the Tribunal to state a Pase on the following two questions
whieh, in the opinion of the High Court, arose out
of the TribunaJ's mdern.
"(l)
(2)
Whether the claim of loss in this case is
governed by the provisions of s. 10(1)
or 24(1) proviso read with s. 14(2}(c),
or by the provisions of s. 42?
Whether on the facts of the casA a loss
of Rs. :22,981/- is allowable in computing
the income of the assessee chargeable to
the Excess Profits Tax ?"
The Tribunal then drew up a statement of
case on the two questions aforesaid. By its judg.
ment and order dated January 23, 1957 the High
Court answered both the questions in favour of the
2 S.C.R.
SUPREME COURT REPORTS
827
assessee.
Thereafter .the Commissioner of Incometax, Delhi, asked for and obtained a certificate
under s.66A(2) of the Indian Income-tax !\et and
on that certificate the present appeals have been
brought to this Court.
As to the first question the learned Additional
Solicitor-General, appearing on behalf of the appellant, has eonccd!'d that hr is not in a position to
dispute the correctness of th0 answef given, in view
of the rleeision of this Conrt in f'mnmissioner of
Income-tax v, lndo-Mercant-ile Bank Ltd. ('J.
This
disposes of Civil Appeal No. 39 of l9fi0 whic:h must
be dismisser!.
In Civil Appeal No. 40 of l9fi0 tlw s0eond
question falls for deeision. In answering this si,eond
question the High Court h:is Jll'OPf'<'<l<•rl nn two
grounrls : firntly, it has rpferrecl to s.:i
of the
Excess Profits Tax Act, 1940, partienlarly the third
proviss thereto, itrnl eontmsting the provisions of
that section with s.!i of the Rusi1wss Profits Titx
Act of 1947 has <'Xpress{'(l th<' viPw that neithPr of
these provisions tmwhPrl thP qn<>stfon whP!h<·r
losses inenrn,rl in an Imlian Stat.0 eonlrl he takm1
into account in assessing the taxable income of an
asRr>ssee in British Tnrlia. for JHll'JlOSPS of aHs1•ssing
excess profits tax or lnrnirwss prnfits tnx ; it th<·n
rcforr<'fl to tlw <loeision of the Bomhay High Court
in Kammchand Premdiaud Ltrl. v. C'om1n·issinner nf
lncmne-lax, Bombny (') am! sairl :
"It would serm that inspitr nf tll(' s li!(htly
different Jangnag<' of tlw ExC'ess Profits Tax
Act from that of the Income-tax Act, no
distinntion has ever been drawn in this matter
hetwt>Pn th<' principks gnYl'l'l1ing asspssment
to incom0-tax anrl thn principles governing
assessm•!nt to cxcPss profits tax :uul in fact it
would appeitr to have been the universal
\!J. (1959) 361.T.R. I
(2) (1956) 30 I.T.R. 849,
1961
The Oomini&'Jio·
ner of I '11CO'Tlie•
tax, New Delhi.
v.
M/s. Ohuni Lal
Mrxmga. Ram
DasJ.
1961
The 0 ommiasio·
mr of ] 'll()()mt•
tax, New Delhi.
v.
Mjs. Chuni La I
l!foonga Ram
DIU J.
828
SUPREME COURT REPORTS
(196.2]
practice that decisions of the Income· tax
authorities and High Courts have been followed by consequential orders relating to the
same assessee's taxable income fort.he purpose
of the Excess Profits Tax Act and the learned
counsel for the Commissioner has not been
ablP to cite anv decision in which different
principles have bPen applied in this particular
matter. Arlmittedly one of the reasons. given
in his judgment by Chagla c .. J for coming to
the decision mentioned above was that the
third proviso had been changer! in the Business
Profits Tax A<•t as compared with the Excess
Profits Tax Act, hut this is only one of a
numhrr of reasons and the questionis has not
het'n consirkrcd at. all whether nuder the
proviso in the Excess Profits Tax Act losses
made in an Indian State could have been
computed in assessing the assessee's incomP
from bnsinP;;s in British India. I can only
say that in th" eircumHtaucrs it seems to me
likely that if the point ha<! arisen the same
view that I have Pxprrssed above would have
bPt'n taken, namPly, that wherPaR for the
cxN·ss profitR tax profits eanrnrl in an Indian
Statt' could not bn taken into consideration
at all, such profits coulrl be taken into account
if brought into taxahl0 tl'rritories for nssessing
profits tax and that as r0gards losses they
could be taken into a·ccount in aHsessing the
business whether they occurred in a State or
in what was British India.''
The second ground given by the High Court
depended on the facts found.
The High Court
expressed the view that on th<> facts fonnd it was
doubtful if the losses in question could be deemed
to have occurred in Hhatinda.
It said:
"It is not in dispute that the only place
where the assessee carries on busineliS
is
2 S.C.R.
!'1UPREME COURT REPORTS
829
Delhi and that its transactions in other
markets are carried out by means of communication hy telephone or Post. TherP is no
suggestion that the firm has any agent or
hra.nch in any native 8tatP ancl it therefort'
se<·ms to mP that wlwthPr profits result or
losses an· incurred as tlw result of transactionH of this kirn 1 r•ven with firms in Indian
SlaleH, the prnfits accrue nr the loRses are incurred at the place wherP the payments are
reePived or from which they are made, namely,
the firm's place of husinPRR at Delhi."
On hohalf of the appellant .it is contended
that holh the afort'said grounds given hy the High
Court for thP answPr which it gave to the second
question nre unsubstantial. The first ground, it is
cont<·nderl, is 11nt<-nable in law, and the second
proceeds not on the findings of fact arrived at by
the Tribunal but on new findings made by the High
Court, which courst' was not open to the High
Coul't to take.
We consider that tiwsc contentions arc correct. As to tho first ground, it seems clear to us
that under tho third proviso to s.5 of the Excess
Profit.s Tax Act, 1940 where the profits etc., of a
part of the firm's business accrued or arose at
Bhatinda, that part of the business shall for the purpose of the said section bt' deemed to be a separate
lmsincss. If that is so the losses which arose at
Bhatinda must also be the losses of a separate business. We may here read s.5 and the third proviso
thereto :
"s. 5. This act shall apply to every business of which any part of the profits made
during the chargeable accounting period is
chargeable to income-tax by virtue of the
provisions of sub-clause (i} or Bub-clause (ii) of
clause (b) of sub-section (1) of section 4 of the
1961
The Oommi$•io·
11er of Iricomet az, New Delhi.
v.
M /8. Ohuni La I
Mon'Tlga Ram
Das J.
1961
The Oommissio·
ner of l ncome·
tax, New Delhi.
v.
.
M /s. Ohuni Lal
Moonga Ram
Das J.
830
SUPREME OOURT REPORTS
[1962]
Indian Inc.ome-tax Act, 1922, or of clause
(c) of that sub-section :
. ................................. .
Provided further that this act shall not
apply to any business the whole of the profits
of which accrue or arise in an Indiah State and
where the profits of a part of a business
accme or arise in an Indian State, such part
shall, for the pmposes of this proviRion, be
<let>med to he a separate business tho who le
of the profits of which accrue or arisP in an
Indian State and the oth<>r part of the busi·
ness 1ihall, for all the purposes of this Act, be
deemed to be a separate business."
In CornmiBSianer of Tnc-01ne-ta1' v. Karamchand Prrmchand Ltd.(').
This C0mt considered
s. fi. of the Business Profits Tax Ad, 1047 and
pointed out the distinction b(•tweon the t-hird pro·
viso thereto and the thirrl proviso to s. r; of the
Excess Profits Tax Act, 1940. This Comt quott•d
with apprm·al t-he decision in C01n111i88foner a.f
Excess Prof.its Tax, Bombay Oi'.!J! v. Rhogila.l H, Pltfel
Bombay (') and held that th0 language 1rnerl in the
third proviRo to s. 5 of the Excess Profits Tax Act,
1940 was one of exclusion and that Act did not apply
to profits et.c. of that part of the business which arose
in an Indian State. If that part of the business
has to be treated as a separate husinesR for the
purposes of the Excess Profits Tax Act, it is diffi.
cult to see how the losses incurred in an Indian
State can be taken into coasideration for the same
purposes. We think that the High Court was in
error in thinking that the third proviso to s. 5 of
the Excess Profits Tax Act did not touch the question whieh the High Court hiid to answer. On the
(I) (1960) 40 l.T.R. 106.
(2) ( 1952) 21 I.T.R. 72,
2 S.C.R.
SUPREME OOURT REPORTS
831
contrary, we think that the proviso answers the
question against the assessee.
Now, as to the second ground given by the High
Court. It seems to us that there can be no doubtthat
the assessing authorities proceeded on the footing
that the losses for which the assessee firm claimed
a deduction arose and were incurred at Bhatinda,
even though the firm's place of business was Delhi.
The Income-tax Officer, as also the Appellate Assistant Commissioner referred to s. 14(2)(c ) of the
Income-tax Act, 1922; that provision related to
income, profits or gains accruing or arising in an
Indian State. The assessing auth_orities proceeded
on the footing that as the profits were exempt from
tax in terms of s. 14(2)(c), the losses arising outside the taxable territories could not be taken into
account. The Tribunal did not rely on s. 14(2)(c),
nor on the proviso to s. 24 (1) of the Income-tax
Act, 1922. But it relied on s.42. That again
shows that it proceeded on the footing that though
the
income actually arose outside the taxable
territories, it should be deemed to have arisen with·
in the taxable territories by reason of its business
connection in the taxable terrifories. The High Court
had to answer the second question on the facts found;
it could not arrived at fresh findings of fact. Such
a course was not open to it. Indeed, it is true that
the Tribunal said that the firm's transactions could
not be split up, but the actual decision of the tribunal proceeded on the basis that even it the transactions could be split up, s.42 applied and the income actually arising at Bhatinda would be deemed
to have arisen in the taxable territories and so the
losses must be taken into consideration for arriving
at the income. The Tribunal considered the matter
solely from the point of view of the assessment of
income-tax. It. did not consider the third proviso to
s. 5 of the Excess Profits Tax Act, 1940 and what
effect it had in the matter of the assessment of
exce68 profits tax. We agree that if the income
1961
The
Oommiasiofler
of Income-tax,
New Delhi
v.
M/s. Ohuni Lal
Moonga Ham
DasJ.
1961
Th,
Commissioner
of Income-tax,
New Delhi.
\'.
.IL<. Ghuni Lal
,lfoonga Racn
Da• .I.
832
SUPREME COUR'l' REPORTS
(1962)
did not arise or accrue in Rhatinda but the whole
of it n rose in Delhi, the third proviso would have
no application. If however, part of the income etc.
arose in Bhatinda., then that part of the business
was a separate business for the purposes of the
Excess Profits Tax AC't and the losses incurred at
Bhatinda could not bP taken into account. \Ve
ar•' of the view that on the facts found, the answer
to l he seroml queHtion must be in favour of the
appellant and against the assessee. Civil Appeal
No. 40 of 1960 must, therefore, be allowed.
The two appeals were heard together and in
view of the divided success of the parties, the par·
tieH must bear their own costs in both appeals.
Civil Appeal No. 39 dismissed.
Civil Appeal No. 40 allowed.