Law: Income Tax Act, 1922

Section: 24(2)

Income-tax-Loss-Loss in speculative contracts-Forward contract business-Settlement of some contracts by payment of difference-Absence of initial intention to settle such contracts by payment of difference-Whether contracts speculative-Whether such contracts form separate business-Loss in such transactions, whether deductible from other business profits-Indian Income-tax Act, 1922, S. 24(2). The assessee carried on extensive business in gunnies and oil seeds. In the course of his business he entered into forward contracts in gunnies and oil seeds some of which were settled by payment of differences and not by actual delivery of the goods. In the assessment year he incurred a total loss of Rs. 16,48,376. The Income-tax Officer disallowed a sum of Rs. 9,61,402 on the ground that these losses were incurred in connection with speculative contracts which were settled by payment of differences and such losses were not allowable under section 24(2). It was contended on behalf of the assessee that, as there was no initial intention on his part to settle the contracts in question by payment of difference but he was only forced by subsequent circumstances to do so, the transactions were not speculative in nature. It was also argued that these transactions in themselves did not constitute a separate business within the meaning of section 24(2): Held, (i) that the transactions which were settled by payment of differences must be treated as speculative transactions even though the assessee did not intend when the contracts were entered into to settle them by payment of differences. The intention of the parties has no place in the scheme of section 24. (ii) The proviso to section 24 does not contemplate that the speculative transactions should form a separate unit. On the other hand, it has been stated in Explanation I that they would be "deemed" to be a distinct and separate unit. There is no difficulty in separating the two kinds of business, viz., specul ative and non-speculative, and considering them as separate groups. Commissioner of Income-tax v. Gourishankar Lal Singha (1967) 63 I T R 711; Hoosen Kasam Dada (India) Ltd. v. Commissioner of Income-tax (1964)…