1982 (3) TMI 120 - AT - Income Tax

Summary

Issues: Interpretation of speculative business under Explanation 2 to section 28 of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Interpretation of speculative business under Explanation 2 to section 28
The case involved a dispute regarding whether a single speculative transaction constitutes a speculative business under Explanation 2 to section 28 of the Income-tax Act, 1961. The Assessing Officer (AO) disallowed a loss claimed by the assessee on the grounds of speculation. The AO contended that the loss in a single transaction could not be accepted as genuine speculation since no actual delivery was taken, and the transaction seemed to offset gains from the main business. The Appellate Authority Commissioner (AAC) upheld the disallowance of a portion of the loss but disagreed with the characterization of the entire amount as speculation loss. The AAC relied on a previous judgment of the Chandigarh Bench of the Tribunal to support this decision.

Issue 2: Conflict of judicial opinions
The Revenue challenged the AAC's decision, arguing that there was a conflict in judicial opinions regarding the interpretation of "speculative transactions" in Explanation 2 to section 28. The Revenue cited various High Court judgments to support its contention that a single speculative transaction could constitute a speculative business. The Revenue emphasized that even if different High Courts had differing views, the interpretation favoring the Revenue should be accepted. The Revenue also referred to the Supreme Court's judgment in Devenport & Co. (P.) Ltd. v. CIT to support its argument.

Issue 3: Application of legal principles
The Tribunal analyzed the legal provisions and precedents cited by both parties. The Tribunal noted that Explanation 2 to section 28 provides a specific definition of speculation business, distinct from the general definition of "business" under section 2(13) of the Act. The Tribunal applied the principle that a special provision prevails over a general provision, giving precedence to the specific definition of speculation business under Explanation 2. The Tribunal concluded that a single speculative transaction does not automatically constitute a speculative business under the Act. Due to conflicting judicial opinions, the Tribunal adopted an interpretation favoring the assessee and upheld the AAC's decision to dismiss the Revenue's appeal.

Conclusion:
The Tribunal dismissed the appeal of the Revenue and allowed the cross-objection of the assessee, confirming the AAC's order. The judgment clarified the interpretation of speculative business under Explanation 2 to section 28 and emphasized the importance of specific provisions prevailing over general provisions in tax law interpretation.