1979 (2) TMI 39 - HC - Income Tax

Summary

Issues involved: Assessment of speculative loss in forward transactions and apportionment of expenses between speculative and non-speculative transactions.

Assessment of Speculative Loss:
The assessee claimed a loss in forward transactions, contending it was a hedging transaction, but the ITO deemed it speculative under Expln. 2 to s. 24(1) of the Indian I.T. Act, 1922. The AAC and Tribunal upheld this view, rejecting the hedging argument. The Tribunal emphasized that Expln. 2 was exhaustive and did not allow general contract law notions. The Supreme Court's decision in Davenport & Co.'s case clarified that actual delivery determines speculation under the Act, not general commercial sense. Despite a conflicting view in Thakurlal Shivprakash Poddar v. CIT, the High Court held that transactions without actual delivery are speculative as per Expln. 2, affirming the lower authorities' decision.

Apportionment of Expenses:
The ITO apportioned expenses between speculative and non-speculative transactions due to lack of details from the assessee. The AAC and Tribunal upheld this apportionment method, finding it reasonable given the assessee's failure to provide necessary particulars. The High Court affirmed this decision, stating that the apportionment was equitable and not improper. Consequently, both questions regarding speculative loss assessment and expense apportionment were answered in favor of the revenue authorities, requiring the assessee to pay costs of the reference to the Commissioner.