1995 (3) TMI 20 - HC - Income Tax

Court allows set-off of loss against business profits under Income-tax Act, emphasizing delivery as actual; favors assessee.

The court held that the transactions were not speculative under section 43(5) of the Income-tax Act, allowing the assessee to set off the loss against ... Business Loss, Goods In Transit Issues Involved:1. Whether the transactions in question are speculative within the meaning of section 43(5) of the Income-tax Act, 1961.2. Whether the loss suffered by the assessee can be set off against the profits from its business.Summary:Issue 1: Speculative Transactions u/s 43(5)The primary issue was whether the transactions in question were speculative transactions as defined u/s 43(5) of the Income-tax Act, 1961. The definition of 'speculative transaction' u/s 43(5) states that it is a transaction where a contract for the purchase or sale of any commodity is settled otherwise than by the actual delivery or transfer of the commodity. The court examined various precedents, including Raghunath Prasad Poddar v. CIT [1973] 90 ITR 140 (SC), Davenport and Co. P. Ltd. v. CIT [1975] 100 ITR 715 (SC), and CIT v. Shantilal P. Ltd. [1983] 144 ITR 57 (SC), to determine the nature of the transactions. The court concluded that if the seller parts with the possession of the goods and hands them over to the carrier, it amounts to actual delivery to the buyer, thus not falling within the definition of speculative transactions.Issue 2: Set-off of LossesThe assessee claimed a loss of Rs. 45,677 from the sale of groundnut oil, which the Income-tax Officer initially deemed speculative and disallowed the set-off against business profits. The first appellate authority upheld the assessee's contention but later directed a fresh examination u/s 154 of the Income-tax Act, 1961. The Tribunal eventually ruled in favor of the assessee, stating that the transactions were not speculative. The court supported this view, emphasizing that the delivery to the carrier constituted actual delivery, thereby allowing the set-off of the loss against business profits.Conclusion:The court answered the referred question in the affirmative, holding that the transactions were not speculative within the meaning of section 43(5) of the Income-tax Act, 1961. Consequently, the loss suffered by the assessee could be set off against the profits from its business, ruling in favor of the assessee and against the Revenue.