Speculative contract settlements may still generate business loss where they are incidental to the regular business activity.

Contracts settled without actual delivery fell within the definition of speculative transactions, but the tribunal held that this did not, on these facts, create a separate speculation business. The transactions were only a small part of the assessee's overall cotton ginning activity and were entered into to ensure uninterrupted cotton supply. As a result, the related loss was treated as a business loss forming part of the regular business, and not as a separate speculation business loss.

---

---

Issues: Whether the loss arising from settlement of cotton supply contracts without actual delivery was to be treated as speculation loss in a separate speculation business or as business loss forming part of the assessee's regular business.

Analysis: The contracts were settled otherwise than by actual delivery, bringing the transactions within the scope of speculative transaction. However, the decisive question was whether such transactions constituted a speculation business distinct from the assessee's existing cotton ginning business. The transactions were only a small part of the overall business activity and were entered into to uninterrupted supply of cotton. On the facts, they did not amount to a separate speculation business, and the loss could not be disallowed merely because the transactions were speculative in character.

Conclusion: The loss was correctly allowed as a business loss and not treated as a separate speculation business loss; the Revenue's challenge failed.

---