1979 (1) TMI 30 - HC - Income Tax

Summary

Issues Involved:
1. Whether the losses for the assessment years 1959-60, 1960-61, and 1961-62 were speculative transactions u/s 24(1) read with Explanation 2.
2. Whether part of these losses related to stocks on hand should be allowed as deductions in computing the assessee's income.

Summary:

Issue 1: Speculative Transactions
The assessee, a registered firm dealing in bullion, claimed losses from forward dealings in bullion for the assessment years 1959-60, 1960-61, and 1961-62, asserting these were hedging transactions to protect against market fluctuations. The ITO, however, found that the forward sales exceeded the stocks available and thus classified these as speculative losses. The AAC upheld this view, rejecting the assessee's reliance on a circular from the Central Board of Revenue (CBR). The Tribunal also agreed, stating that the transactions were speculative as per Explanation 2 to s. 24(1) and not covered by proviso (a).

Issue 2: Deduction of Losses Related to Stocks on Hand
The assessee argued that losses from forward transactions up to the stock on hand should be treated as genuine hedging transactions. The Tribunal, however, did not consider the CBR circular, focusing instead on the statutory provisions. The High Court, referencing the circular, noted that bona fide forward sales to guard against stock value drops should not be treated as speculative losses, provided they do not exceed the total stock. Losses from forward sales exceeding the stock should be treated as speculative. The Court agreed with the assessee's contention that losses up to the stock on hand should be allowed as business losses.

Conclusion:
The Court refrained from interpreting Explanation 2 to s. 24(1) or proviso (a) due to the binding nature of the CBR circular. It directed the Tribunal to work out the allowable part of losses in accordance with the circular, clarifying that only losses from forward sales exceeding the stock should be treated as speculative. Question No. 1 was not answered, while Question No. 2 was answered in the affirmative and in favor of the assessee. Parties were directed to bear their own costs.