TaxTMI 
TaxTMI 
1983 (1) TMI 42
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....could not perform the contracts by supplying the oil for want of wagons; he settled them by paying the price difference. For the relevant assessment year, he claimed set off for the amount of loss arising from payment of price difference against the profits of his business which was disallowed by the ITO holding that since the 13 contracts were settled otherwise than by delivery of goods, they are speculative transactions and, hence, the losses arising therefrom cannot be set off against profits from regular business. On appeal, the AAC agreed with the ITO. On further appeal, however, the Tribunal took a contrary view. On a consideration of the relevant provisions of the Act, the Tribunal observed that unless the Department proves that " the transactions entered into by the assessee which resulted in payment of price difference without there being actual delivery of goods, constituted speculation business ", the set-off as claimed by the assessee must be allowed. Aggrieved by the decision of the Tribunal the Revenue applied for and obtained this reference. "Speculative transaction " is defined in sub-s. (5) of s. 43 of the I.T. Act to mean "a transaction in which a contract for ....
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.... from a speculation business can be set off only against the profits and gains, if any, of another speculation business but not against the profits and gains from any other business. It is the interpretation of Expln. 2 to s. 28 which mainly falls for consideration before us. The contention of Sri. M. S. N. Murthy the learned standing counsel for the Department, is that so long as the speculative transactions are business transactions they must be treated as and must be deemed to constitute a distinct and separate business called "speculation business ", while the contention of Sri Srirama Rao, the learned counsel for the assessee, is that for this Explanation to apply the several speculative transactions must be such as to constitute one business, and that, then alone they can be treated as a separate business. In other words, the contention of Mr. Srirama Rao is that a common thread must run through several speculative transactions before they can be treated as a distinct or separate business called " speculation business ". His contention is that if the transactions which are held as speculative transactions by virtue of the definition contained in s. 43(5), are part and parcel ....
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....ansaction is a speculative transaction or not, the intention of the parties is not relevant, but that such intention is relevant while determining whether the speculative transactions constitute a speculative business or not. The view taken by us finds support from the following decisions. In Hoosen Kasam Dada (India) Ltd. v. CIT [1964] 52 ITR 171 (Cal), at p. 179 the Calcutta High Court observed thus : " I now come to another point of view put forward by Mr. Mitra. According to him, we must not lose sight of the fact that in the proviso to section 24 not only the words 'speculative transactions' are mentioned, but they are followed by the words 'which are in the nature of a business'. He argues that if you have a business including a number of transactions of the same nature, then if you are going to single out certain specified transactions as speculative transactions they must form a distinct or separate group, He argues that, in the present case, the facts are otherwise. In other words, in a series of transactions in gunnies, some transactions were non-speculative and others were speculative. Under such circumstances, the proviso does not apply. I must admit that I am una....
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....ven then under Explanation I to sub-section (1) of section 24, such transactions shall be deemed to be distinct and separate from the general business of the assessee. To the same effect is the, decision of the Madras High Court in R. Chinnaswami Chettiar v. CIT [1974] 96 ITR 353 (Mad). In this case, the assessee a dealer in yarn entered into a number of forward contracts of which 4 transactions were found to be speculative because they were settled by paying the difference. The court observed (p. 363): " The transactions were not isolated transactions in the sense that they are totally unconnected with his business as a dealer in yarn. These speculative transactions, which form part of the business, by a fiction of law under Explanation 2 to section 28 of the Act, are deemed to be distinct and separate from any other business. The losses incurred in respect of these transactions, therefore, constituted a loss in a speculation business." In Juvvi Subbaramaiah and Co. v. CIT [1964] 51 ITR 742 (AP), a Bench of this court observed that (head note) " it is not open to an assessee to adjust the loss sustained in speculation business against his income derived from other busines....
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....ances. Therefore, having regard to the meaning of speculation business, we agree with the finding recorded by the Tribunal that it is a loss in business and not a loss in speculation business." We are unable to see how the above observation supports in any manner the interpretation sought to be placed by the learned counsel upon the Explanation. For the above reasons, we answer the question referred to us in the negative, that is, in favour of the Revenue and against the assessee. Mr. Srirama Rao then brought to our notice Circular No. 23 (XXXIX) D of 1960 dated 12th September, 1960, which is also found referred to in the judgment of the Tribunal. The Board's circular reads as follows : " The Board are unable to accept this suggestion as a general rule. It is already provided that if on the facts of any case it can be demonstrated that the forward transaction has been entered into only for safeguarding against loss through future price fluctuations, such a transaction should not be treated as a speculative transaction but as a case of hedging. However, the case of a bona fide ready delivery contract being settled by delivery to a substantial extent and by payment of dif....