1971 (3) TMI 30 - HC - Income Tax

Whether, the loss suffered by the assessee was speculation loss -whether the said loss could be set off against profits earned by the assessee in non-speculation business

Summary

Issues:
1. Whether the loss suffered by the assessee was speculation loss?
2. If the loss was speculation loss, whether it could be set off against profits earned in non-speculation business?

Analysis:
The High Court of Allahabad heard a case where the Income-tax Appellate Tribunal referred questions of law at the instance of the Commissioner of Income-tax, Lucknow. The first question was whether the loss of Rs. 38,026 suffered by the assessee was speculation loss, and the second question was regarding the set off of this loss against profits earned in non-speculation business. The assessee dealt in oil and oil-cakes, purchasing in bulk and selling wholesale and partly retail. Due to unfulfilled contracts, a loss of Rs. 38,026 arose, claimed by the assessee as liquidated damages. The Income-tax Officer and the Appellate Assistant Commissioner denied setting off these losses against non-speculation business profits. However, the Tribunal deemed the losses as speculation losses, citing a previous court decision. The department then sought the court's opinion on these questions.

Regarding the first issue, the court found that the transaction leading to the loss was settled without actual delivery, falling under speculative transactions as per Explanation 2 to section 24(1) of the Income-tax Act, 1922. Therefore, the loss incurred by the assessee was classified as speculation loss. Moving on to the second issue, the court referred to a Supreme Court decision in Commissioner of Income-tax v. Jagannath Mahadeo Prasad, which stated that speculative losses cannot be set off against profits from other business activities in the same year for income computation purposes under section 10(1) of the Indian Income-tax Act. Consequently, the court answered the first question affirmatively and the second question negatively. The Commissioner of Income-tax was awarded costs, along with counsel's fee, both assessed at Rs. 200.

In conclusion, the judgment clarified that the loss suffered by the assessee was indeed speculation loss and could not be set off against profits from non-speculation business activities based on relevant legal provisions and court precedents.