Law:

Section:

Section 43(5) of the Income-tax Act, 1961 - Speculative transactions - Assessment year 1962-63 - Whether, for purpose of Act, if contract for sale or purchase is ultimately settled and no actual delivery of goods is effected under settlement then it is a speculative transaction irrespective of intention of parties at time of contract - Held, yes FACTS The assessee, carrying on business in yarn, entered into two contracts of sale-one of which was for 50 bales of 60's of yarn of BM and the other was for 50 bales of the same count with one N.K. The delivery period was March-April 1961. The market price of these counts of yarn was rising during the period of delivery and the difference between the contract price and the market price was Rs. 14,000. These contracts for sale were not covered by any item of purchase contract. Yarn was not delivered under these contracts, but a sum of Rs. 9,500 was paid to N.K. and the contracts were settled. There were 13 other sales contacts in which deliveries were not effected, but in these cases the assessee received the price difference amounting to Rs. 3,313. The assessee claimed a sum of Rs. 9,500 as a business loss. The ITO considered this amount as a speculative loss and disallowed it; at the same time he assessed the sum of Rs. 3,313 as business income. The AAC held that these transactions were not speculative transactions and that the payment of Rs. 9,500 was simply a case of settlement of the difference in prices and no speculation aspect was involved in these transactions He accordingly allowed the claim as a business loss. The Tribunal held that since there was no actual delivery of the goods contracted under the settlement of the contracts they were speculative transactions and, therefore, the sum of Rs. 9,500 was a speculation loss. On the same reasoning the Tribunal treated the sum of Rs. 3,313 received by the assessee as profit in speculation business and allowed a set-off against the sum of Rs. 9,500. For the balance of Rs. 6,187 it was held that since it was a speculation loss, it could not be set off against the income from other sources of business. On reference : HELD Section 43(5) defines 'speculation…

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