Law: Income Tax Act, 1922

Section: 24(1)

Section 73 of the Income-tax Act, 1961 [Corresponding to section 24(1) of the Indian Income-tax Act, 1922] - Losses - In speculation business - Assessment year 1953-54 - Assessee-company was doing business in sale and purchase of gunnies - In view of gradual decline in international markets price of jute goods, assessee entered into a number of settlement contracts without giving actual delivery - Result of such settlement contracts was that at beginning assessee made profits in some cases but later on consistently suffered loss - ITO allowed such losses as were referable to contracts where delivery was given but refused to allow losses where they were subject-matter of settlement contracts and no delivery was given - Whether since under relative settlement contracts, no delivery was given or intended to be given, by force of Explanation 2 to section 24 transaction in question must be held speculative transaction - Held, yes - Whether therefore, losses in respect of same could not be set off against profits and gains on heading which were non-speculative transactions - Held, yes FACTS The assessee-company was doing business in sale and purchase of gunnies. In the early part of the year 1952, in the usual course of business, the assessee had entered into forward contracts in gunnies for the purpose of export through brokers of the Indian Jute Mills Association. In view of certain difficulties caused by some notification of the Controller of Exports in regard to export of jute goods to Pakistan, and the gradual decline in the international market price of jute goods, the assessee entered into a number of settlement contracts. The result of such settlement contracts was that at the beginning, the assessee made profit in some cases but later on consistently suffered loss and the total of such losses amounted to Rs. 6,39,897. The ITO allowed such losses as were referable to contracts where delivery was given, but refused to allow losses where they were the subject-matter of settlement contracts and no delivery was given. On ground that the matter was governed by the proviso to section 24(1) read with Explanation 2. The AAC as well as the Tribunal upheld the said…

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