Law:

Section:

Section 73 of the Income-tax Act, 1961 [Corresponding to section 24 of Indian Income-tax Act, 1922] - Losses - In speculation business - Assessment year 1957-58 - Whether hedging loss in respect of banned contract under Forward Contracts (Regulation) Act, 1952 cannot be set off against profits of other business of previous year - Held, yes - Whether speculation loss in commodity banned under statutory provisons cannot be carried forward for set off in following year - Held, yes FACTS The assessee was carrying on business by running an oil mill, and also doing business in sales and purchase of groundnuts, groundnut seeds and oil; speculation business in groundnuts, groundnut oil and groundnut seeds; and speculation business in cotton, erranda, etc. While determining the income of the assessee the ITO disallowed loss in forward contracts in groundnut oil, groundnuts and groundnut seeds on the ground that it arose out of illegal contracts on account of the same being banned under section 15(4) of the Forward Contracts (Regulation) Act, 1952. The AAC affirmed the order of the ITO. On a second appeal, the Tribunal held that notwithstanding the illegality of the transactions the loss could be set off and carried forward in accordance with the provisions of section 24(1) and 24(2) respectively of the 1922 Act. The Tribunal, accordingly, directed that the loss in hedging transactions of forward business in the banned contracts should be set off against the other profits of the assessee for the relevant accounting year under section 24(1) of the 1922 Act and that the balance loss relating to the speculative transaction in the banned contracts should be carried forward to the following year under section 24(2) of 1922 Act to be set off against profits of the following year from speculative business. On reference: HELD The hedging loss being in respect of a banned contract under section 15(4) of the Forward Contracts (Regulation) Act, 1952, could not be set off against the profits of other business of the previous year. It was also admitted that the contract for speculation in the commodity in question was banned under the 1952 Act. It also appeared that the said loss…

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