Mark-to-market loss on stock index futures treated as accrued business loss where daily exchange settlement made the loss actual, not contingent.

Mark-to-market loss on stock index futures was treated as an accrued business loss because the contracts were subject to daily settlement through the exchange mechanism, with price differences adjusted on a day-to-day basis. The loss was therefore not a mere notional or contingent adjustment, but an actual loss arising from daily movements in futures prices during the relevant period. Authorities dealing with estimated losses on unexpired forward contracts and anticipatory losses on undelivered goods were distinguished on that basis, and the loss was held allowable as a business deduction.

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Issues: Whether the loss arising on mark-to-market valuation and daily settlement of stock index futures was an accrued and allowable business loss, or a merely notional and contingent loss.

Analysis: The futures contracts were subject to daily settlement through exchange mechanism, with price differences adjusted or paid on a day-to-day basis. The loss was thus not a mere book entry based on an estimated future fluctuation, but an actual loss accruing from the daily movement in futures prices and being settled during the relevant period. The authorities relied upon cases dealing with estimated losses on unexpired forward contracts and anticipatory losses on undelivered goods, which were found distinguishable because the present loss arose from actual daily settlement of futures contracts.

Conclusion: The mark-to-market loss on stock index futures was an accrued business loss and was allowable in favour of the assessee.

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