Law: Income Tax Act, 1922

Section: 10(2-A)

(Appeal from the judgment and order of the Calcutta High Court, dated January 14, 1965, in Income-tax Reference No. 215 of 1961). Income-tax---Speculation loss-Liability of assessee waived by creditor-Deemed profit-Nature of-Whether partakes of character of speculation - Indian Income-tax Act, 1922, S. 10(2-A). Where in relation to a loss or liability of the assessee arising out of speculative transactions for which deduction has been allowed, the creditor waives his right to recover the amount or payment of the debt, and that amount is brought to tax on the ground that it is deemed to be the assessee's business profits under section 10(2-A) of the Income-tax Act, 1922, such an amount ought to be treated as arising from speculative business. There is a fairly direct and proximate relationship between the income as deemed to be arising under section 10(2-A) and the speculative business which the assessee was carrying on. It would be most illogical and irrational to treat the so-called profit as having a neutral source and not springing out of the same category of speculative business which led to the assessee incurring that loss or liability. Donald Miranda v. Commissioner of Income-tax (1961) 42 ITR 166 (SC) rel. JUDGMENT GROVER, J.-----This is an appeal by certificate from a judgment of the Calcutta High Court answering the following question referred to it in the negative and against the assessee: "Whether, on the facts and in the circumstances of the case, the sum of Rs. 78,749, which was deemed to be the profits and gains of business under section 10(2-A) of the Income-tax Act, can be said to be arising from speculative business?" The assessee carried on both speculative as well as non speculative business. The system of account regularly employed being mercantile, any liability for payment of difference on account of speculative transactions is allowed as a deduction in computing the profit or loss in speculative business. At the commencement of the accounting year relevant for the assessment year 1955-56, i e., July 1, 1953, there was a balance of such liabilities for speculation differences in the account of one Ramnath Narendranath…