TaxTMI 
TaxTMI 
1992 (1) TMI 1
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....ircumstances of the case, the transactions resulting in the loss of Rs. 2,04,746 in the previous year relevant for the assessment year 1960-61 and in the loss of Rs. 17,000 in the assessment year 1961-62 were saved from being treated as speculative transactions by Clause (a) of the third proviso to Section 24(1) of the Income Tax Act, 1922 " 2. The assessee is a registered firm carrying on business in cloth and yarn. Its Head-Office is at Madurai with branches at Vijayanagaram and Calcutta. Its trade in cloth consisted mainly in Gada manufactured by certain mills including Meenakshi Mills Ltd., Virudhnagar Textiles Ltd. and Loyal Textiles Mills Ltd. The assessment years concerned herein are 1960-61 (previous year ending on 12.4.1960) and 1....
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....use (a) of the third proviso to Section 28. This is what the High Court has recorded: In this case it has been conceded at all stages by the assessee that the transactions in respect of which the losses in question have occurred are speculative transactions as defined in Explanation 2, and, therefore, it is not necessary for us to consider the scope of the Explanation 2 to Section 24. The only question for consideration is whether the transactions which are admittedly speculative coming within Explanation 2 to Section 24(1), will fall within the scope of Clause (a) of the third proviso to that section. 3. The High Court disagreed with the interpretation placed by the Tribunal upon Clause (a) of the said proviso and held that on the mater....
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....on in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and share through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transactions in the nature of jobbing or arbitrate to guard against loss which may arise in the ordinary course of his business as such member. 7. Explanation 2 to Section 24 defines what a speculative transaction is. It corresponds to t....
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.... the view that "for a transaction to come under Clause (a), it should be one entered into by an assessee to guard against loss through future price fluctuations in respect of his sale contracts". It, however, agreed with the Tribunal that there need not be actual co-relation, contract to contract, between the purchase and sale contracts contemplated by the Clause and that it is sufficient if a transaction either by way of purchase or sale is entered into with a view to guard against any future loss in that particular line of business. It held "for a transaction to come under Clause (a) it should be one entered into by an assessee to guard against loss through future price fluctuations in respect of his sale contracts ...there need not be ac....
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....aying the difference. In the circumstances, the High Court held that it is not possible to say either that the sale contract entered into by the assessee with the purchaser, or the purchase contract entered into between them, would come under Clause (a). The only question now before us is whether the High Court was right in its interpretation of Clause (a) of the third proviso of Section 28 (which corresponds to Clause (a) of the proviso to the definition of speculative transactions contained in Clause 5 of Section 43 of the 1961 Act)? 9. The proviso containing Clauses (a) to (c) is a proviso to Explanation 2 which defines what a speculative transaction is. Clause (a) of the proviso contemplates and applies to a manufacturer as well as a m....