Speculation loss adjustment must first absorb current profits against carried-forward losses under the binding revenue circular.

A binding revenue circular on speculation loss adjustment required current year speculation profits to be set off first against brought-forward speculation losses, before other losses were considered. The court held that the circular governed the manner of adjustment and had to be given effect by the taxing authorities. On the facts, the refusal to allow the carried forward speculation losses to be adjusted against the speculation profit was unjustified, and the issue was decided in favour of the assessee.

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Issues: Whether carried forward speculation losses of earlier years were required to be set off against speculation profits of the current year before adjusting other losses.

Analysis: The Court relied on the Board circular dealing with adjustment of speculation profits and speculation losses. The circular stated that speculation loss of any year should first be set off against speculation profits of that year, and for carried forward speculation losses the assessee could adopt the course more advantageous to him. On the facts, the assessee had current year speculation profit and unabsorbed speculation losses brought forward from earlier years. The Court held that the circular governed the manner of adjustment and required the current year speculation profit to be first absorbed against the carried forward speculation losses.

Conclusion: The refusal to allow set-off of the carried forward speculation losses against the speculation profit was unjustified. The issue was answered against the revenue and in favour of the assessee.

Ratio Decidendi: A binding revenue circular governing speculation losses required current year speculation profits to be adjusted against brought-forward speculation losses before other losses were considered, and the taxing authorities had to give effect to that administrative direction.

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