Law:

Section:

Section 43(5) of the Income-tax Act, 1961 - Speculative transactions - Whether where a contract is settled otherwise than by actual delivery of commodity or scrips it will be a speculative transaction notwithstanding the fact that when transaction was entered into the parties intended to deliver commodity or scrips - Held, yes Explanation 2 to section 28 of the Income-tax Act, 1961 - Speculative business - Whether to be treated as speculative business, it is enough that speculative transaction be, such as to constitute a business and it is not necessary that there should be several speculative transactions connected by a common thread - Held, yes Facts In the course of its business of manufacture and sale of groundnut oil, the assessee-firm entered into several contracts for the supply of groundnut oil. As it failed to supply the requisite oil - in the case of some of these contracts due to the shortage of wagons, it settled these unfulfilled contracts by paying the price difference. The assessee's claim for set off of the amount of loss arising from contracts settled by the payment of the price difference, against the profits of its business, was disallowed by the ITO on the ground that since these contracts in question were settled otherwise than by delivery of goods, they were speculative transactions. The AAC upheld the ITO's order on appeal but, on further appeal, the Tribunal took the contrary view and accepted the assessee's claim. On reference: Held The definition of' speculative transaction' in section 43(5) makes it clear that the intention of the parties is immaterial or irrelevant. If a contract is settled otherwise than by the actual delivery of the commodity or scrips, it will be a speculative transaction, notwithstanding the fact that when the transaction was-entered into, the parties had intended to deliver the commodity or scrips. All that Explanation 2 of section 28 says is that the speculative transactions must be such as to constitute a business; if so, they should be deemed to be a distinct and separate business from other business. It is not necessary that a common thread must run through the several speculative transactions to treat them…

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