Law:

Section:

Section 73 of the Income-tax Act, 1961 [Corresponding to section 24(1) of the Indian Income-tax Act, 1922] - Losses - In speculative business - Assessment year - Assessee carried on business of purchase and sale of jute and hessian - Instead of delivering goods contracted for assessee purchased pucca delivery orders for identical goods and made over some to its purchases - In said transactions assessee incurred losses - Whether since instead of actual delivery of goods, assessee settled contracts by delivery of P.D.Os, transactions were to be regarded as speculative transactions within meaning of explanation to section 24(1) of Act 1922 - Held, yes - Whether therefore said loss could not be carried forward and set-off against future profits - Held, yes FACTS The assessee was engaged in business of jute and hessian. The transactions in business were concluded by payment of difference where no actual delivery of goods were taken in which it earned or given profit. There were also transactions in which delivery of goods was effected by exchange of pucca delivery orders (PODs) in which assessee suffered loss. After adjustment of profit aforesaid assessee claimed certain amount as loss from business. The assessee claimed carry forward and set off said loss in future profits. The ITO found that the assessee did not maintain any godown and there was no actual delivery of goods in any case. In the absence of physical delivery the ITO held that the said loss was a speculative loss and allowed it to be carried forward to be set off against future speculation profits under section 24(1) of the Act 1922. The assessee preferred an appeal against this order of the ITO before the AAC. He held that the transactions in which the actual delivery of P.D.Os. had been given or taken could not be considered as speculative transactions within the meaning of Explanation 2to section 24(1) and the loss claimed by the assessee must be treated as a business loss and set off against other income of the assessee, if any. On appeal, the Tribunal set aside the AAC's order and allowed the appeal of ITO. On reference : HELD For purposes of the instant case the plain meaning of Explanation 2 to…

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