Law:

Section:

Section 71 of the Income-tax Act, 1961 [Corresponding to section 24(1) of the Indian Income-tax Act, 1922] - Losses - Set off of from one head against income from another head - Assessment years 1958-59 to 1960-61 - Assessee company was a member of association for speculation in cocoanut oil - It also entered into forward contracts on behalf of its clients and received commission in respect of such transactions - Whether commission on forward contact was earned and received by assessee independently of profit or loss sustained by his clients in transaction and therefore, there was no element of speculation in commission income - Held, yes - Held, yes - Whether, therefore, assessee was not entitled to get commission receipts assessed under head "speculation business" - Held, yes FACTS The assessee-company was a member of an association for speculation in cocoanut oil. The assessee also speculated on its own and received orders from its constituents who were not members of the association to speculate on their behalf. On each such transaction, the assessee received a commission from the party on whose behalf the transaction was done. The assessee claimed that such commission received should be set off against its speculation losses on the ground that the commission received from placing forward contracts of this kind should be taken as part of its income from speculation. The ITO rejected this claim. The AAC held that the commission received was profit arising out of speculation and was incidental to the speculation business carried on by the assessee and accordingly deleted the additions from the assessments for three years. The Tribunal upheld the orders of the AAC. On reference, the High Court confirmed the order of the Tribunal. On appeal to the Supreme Court: HELD The receipts of commission business was entirely of a different character from the profits and losses of the speculative transactions. The assessee did speculation business on his own account with the members of the association. The assessee also entered into forward contracts on behalf of his clients. This may result in a profit, in which case he recovered the commission from the clients and paid…

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