2003 (1) TMI 84 - HC - Income Tax

Court affirms Tribunal's decision on hedging loss vs. speculative, emphasizing genuine intention and factual findings.

Commissioner of Income-Tax Versus Hotz Hotels Ltd.

The court upheld the Tribunal's decision that the loss on the sale of shares was a hedging loss, not speculative, based on factual findings regarding the ... 'A. Whether the Income-tax Appellate Tribunal was right in holding that loss of Rs. 10,05,740 on account of sale of shares is a hedging loss and is not a speculative loss as held by the Assessing Officer? - B. Whether the Income-tax Appellate Tribunal was right in not appreciating that the transaction related to speculative loss as covered under section 43 of the Act? - C. Whether the order of the Income-tax Appellate Tribunal in holding that Rs. 10,05,740 is a business loss, is perverse and has ignored the fact that actual delivery of the shares was not taken by the assessee? - D. Whether the Income-tax Appellate Tribunal has correctly interpreted applied section 43(5), Explanation 2 to sections 28 and 73 of the Income-tax Act, 1961, and correctly held that the loss of Rs. 10,05,740 is not on account of speculative transaction of business?' - In the present case the two appellate authorities have recorded concurrent findings of fact about the existence of the contract between the parties and the intention of the parties to enter into the transaction, namely, to guard against loss in the holding of stocks and shares through future price fluctuations. - order of the Tribunal does not give rise to any question of law, much less a substantial question of law. Issues:1. Whether the loss on account of the sale of shares is a hedging loss or a speculative loss.2. Whether the transaction related to speculative loss as covered under section 43 of the Income-tax Act, 1961.3. Whether the order of the Income-tax Appellate Tribunal in holding the loss as a business loss is correct.4. Whether the correct interpretation and application of section 43(5), Explanation 2 to sections 28 and 73 of the Income-tax Act, 1961, were done by the Income-tax Appellate Tribunal.Analysis:Issue 1:The assessee claimed a loss of Rs. 10,05,740 on the sale of shares, contending it was a hedging loss. The Assessing Officer treated it as a speculative loss due to various reasons. The Commissioner (Appeals) disagreed, stating that the transaction was a hedging loss to safeguard against further loss. The Tribunal also upheld this view, emphasizing the existence of a contract and the intention to guard against future loss through price fluctuations.Issue 2:The Income-tax Appellate Tribunal correctly interpreted the transaction as falling within the ambit of the proviso (b) to clause (5) of section 43. The Tribunal found that the transaction was entered into to guard against future loss and boost the market, not for speculation. The Tribunal rejected the Revenue's contention regarding the absence of distinctive numbers and physical delivery, stating that these factors were not necessary for the transaction to be considered a hedging one.Issue 3:The Commissioner (Appeals) and the Tribunal both concluded that the loss was a hedging loss, not a speculative one. They found that the transaction was based on a contract to safeguard against loss due to adverse price fluctuations. The intention of the assessee was deemed genuine, and the transaction was not speculative in nature.Issue 4:The Tribunal's decision was based on factual findings regarding the existence of a contract and the intention behind the transaction. The Tribunal's conclusion that the transaction fell within the proviso (b) to clause (5) of section 43 was upheld as it was supported by relevant facts. The court found no grounds to interfere with the Tribunal's decision, as it was not based on irrelevant material or unreasonable conclusions.In conclusion, the court dismissed the appeal by the Revenue, stating that the Tribunal's order did not raise any substantial question of law. The decision was based on factual findings regarding the nature of the transaction as a hedging one, not speculative, and the intention behind entering into the contract to safeguard against future loss.