1986 (1) TMI 51 - HC - Income Tax

Summary

Issues involved: Whether speculation loss can be set off against brokerage income earned from transactions involving pucca delivery orders (PDOs).

Summary:
The Department contested the Tribunal's decision to allow the set off of speculation loss against brokerage income, arguing that the loss from speculative transactions should not be adjusted against income from business activities. The Appellate Assistant Commissioner clarified that transactions in pucca delivery orders (PDOs) not settled by delivery of goods are speculative. The Commissioner noted that the assessee consistently treated PDO transactions separately to show profit or loss, while also separately accounting for brokerage income. The Tribunal upheld the assessee's position that brokerage income and PDO transaction results were inseparable, as evidenced by past treatment of these transactions as business income. The Tribunal found that the Income-tax Officer had previously treated brokerage and PDO transactions as interconnected under the 'Business' head.

The High Court concurred with the Tribunal's decision, emphasizing that the assessee's dealings in PDOs, including earning brokerage income and incurring PDO losses, were inherently linked. The Court highlighted the Income-tax Officer's historical treatment of these transactions as business activities, indicating that the set off of loss against profit was appropriate. The Court noted that had the brokerage income been earned from settled transactions while the loss arose from unsettled ones, the outcome might have differed. Ultimately, the Tribunal's decision was deemed correct, and the question was answered in favor of the assessee.