1990 (1) TMI 8 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal misdirected itself in law by holding that a speculative transaction cannot be considered speculative business u/s Explanation 2, section 28 of the Income-tax Act, 1961.
2. Whether the Tribunal erred in holding that an isolated transaction was a business loss and not speculative business.
3. Whether the Tribunal was correct in allowing the set-off of a speculative loss against other income.
4. Whether the Tribunal's finding that the case involved damages for breach of contract was legally valid.

Summary:

Issue 1: Speculative Transaction vs. Speculative Business
The Tribunal misdirected itself in law by holding that a speculative transaction cannot be considered speculative business within the meaning of Explanation 2, section 28 of the Income-tax Act, 1961. The court clarified that speculative transactions, if they constitute a business, should be treated as distinct and separate from other business activities of the assessee. The court emphasized that even a single transaction could be considered a business activity if it bears clear indicia of trade.

Issue 2: Isolated Transaction
The Tribunal erred in holding that an isolated transaction was a business loss and not speculative business. The court noted that the assessee's transactions were not isolated but part of a series of speculative activities. The assessee had converted his investments into stock-in-trade and engaged in multiple transactions without actual delivery, indicating a speculative business.

Issue 3: Set-off of Speculative Loss
The Tribunal was incorrect in allowing the set-off of a speculative loss against other income. The court held that speculative business is distinct and separate from other business activities, and losses from speculative business cannot be set off against other income.

Issue 4: Damages for Breach of Contract
The Tribunal's finding that the case involved damages for breach of contract was not supported by evidence. The court found no record of disputes or claims for damages between the purchaser and the seller. The transactions bore all characteristics of speculative transactions settled without delivery of goods. Therefore, the Tribunal's finding was unreasonable and perverse.

Conclusion:
Questions Nos. 1, 2, and 3 are answered in the negative and in favor of the Revenue. Question No. 4 is answered in the affirmative and in favor of the Revenue. There will be no order as to costs.