Law:

Section:

section 43(5) of the income-tax act, 1961-speculative transaction-assessee, carrying on speculation business, settled forward contract in shares by delivery after taking shares on loan-assessee thereafter purchased shares and partly used them for return of loan and balance was sold-whether profit in later transaction was profit from speculative business liable to be set off against speculative losses-held, no Facts The assessee carrying on speculative business entered into a contract for forward delivery of shares of a company. The party wanted to close the deal by actual delivery of shares. The assessee borrowed 300 shares of the said company from a lady on loan and delivered the same to the party. Thereafter, the assessee purchased 530 shares of the said company and after returning 200 shares to the lady, sold out the balance, of 330 shares in the market and made a net profit of Rs. 38,060. The assessee incurred a loss of Rs. 39,898 in his regular speculative business and claimed to set off the profit of Rs. 38,060 against that loss. The ITO rejected the claim on the ground that since the profit arose from a transaction where actual delivery of shares took place, it was not a speculative transaction and as such, profit, earned in that transaction could not be set off against speculative loss under section 73(1). Both the AAC and the Tribunal upheld the ITO's order. On reference: Held The profit of Rs. 38,060 arose from the sale of 330 shares by actual delivery and as such, did not fall within the definition of speculative transaction under section 43(5). Since a transaction, which is otherwise speculative would not be a speculative transaction if actual delivery of commodity or scrips took place. Hence, the profit earned in that transaction could not be set off against the speculation loss. Case review Davenport & Co. Pvt. Ltd. v. CIT [1975] 100 ITR 715 (SC) Followed. Case referred to Davenport & Co. P. Ltd. v. CIT [1975] 100 ITR 715 (SC). JUDGMENT Chandurkar, J.-The assessee-firm carries on speculation business in shares, bullion and various other commodities. It is dealing in forward contracts in respect of Morarjee Gokuldas Spinning and Weaving…

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