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TMI Blog2014 (12) TMI 808X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the assessee as business loss since it was a loss sustained in speculation business – also in Commissioner of Income Tax vs. Shree Textiles [1993 (5) TMI 14 - RAJASTHAN High Court] it has been held that it was a speculation transaction and as such could not be adjusted against the business income. In a case where a trader carries on a business part of which (even one transaction) is in the category of "speculative transaction" as defined under section 43(5) and part of which falls in the category of business, then the object of Explanation 2 is to treat them separately. A single transaction may constitute a speculative business so as to be treated differently from other business under section 28. – Decided against assessee. - TA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied out by the appellant on the ground that the same were falling u/s.43(5) as speculative transactions which were settled without giving or taking delivery. The appellant contended that the same were not speculative transactions relying on proviso (b) to section 43(5) as well as the Circular of the CBDT dated 12.9.1660. 5. The case of the appellant was that he bought 2000 shares of TISCO on 2.4.1992 and the same were carried forward from settlement to settlement by way of badla and were finally settled on 29.6.1992 and the appellant paid the amount of difference payable to the broker and the said transaction in TISCO resulted in loss of ₹ 4,59,740/- which was not a speculative loss as defined by section 43(5) of the Act. The A.O r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions. Hence, this appeals are filed at the instance of the assessee. 8. While admitting the appeal, the court had formulated the following question of law: Whether, on the facts and circumstances of the case, a single transaction of purchase of shares of TISCO carried forward from settlement to settlement can be said to be series of transactions so as to constitute a speculation business within the scope of Section 73 of the Act depriving the appellant of set off of loss therein against other business profits? 9. Mr. Kazi, the learned advocate appearing on behalf of the appellant-assessee contended that the CIT(A) erred in holding that the appellant had entered into series of speculative transaction amounting to spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter considering all the facts, has partly allowed the appeals. Therefore, he requested this court not to interfere with the impugned orders. 12. We have heard learned advocate for both the parties and perused material on reocord. While deciding the appeals, the Tribunal in paragraph-18 has observed as under: 13. The Full Bench of the Hon'ble Gujarat High Court in the case of Pankaj Oil Mills vs. CIT (1978) 115-ITR-824 (Guj.) has explained the subtle and significant distinction between speculative transaction and hedging transaction. It will be imperative to reproduce the relevant extracts from the said judgment in order to properly understand the true meaning and scope of these expression: It would be profitable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions a seller might never have intended to give delivery and the purchaser did not expect him to deliver, but that does not convert a contract otherwise innocent into a wager. Heading transactions are, however, to be distinguished from the speculative transactions, inasmuch as they are genuine transactions entered into for purposes of insuring against adverse price fluctuations. In hedging transactions neither delivery nor transfer is contemplated and yet they cannot be treated as speculative transactions in the commercial parlance. The technique of hedge trading is very pithily explained by a well known Economist, W R Natu, in his book Regulation of Forward Markets, at page 9, as under: The hedge contract is so called bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income Tax Act, 1961, only the three exceptions given in clauses (a) (b) and (c) are deemed not to be speculative transactions and if a transaction falls within the main clause, it cannot be excluded from the category of speculative transaction . The object of Explanation 2 to section 28 is to demarcate and classify separately out of the various transactions, speculative business, Explanation 2 states what would constitute a speculative business. Speculative business has to be treated and deemed to be separate from any other business. Speculative transactions carried on by the assessee should be of such a nature so as to constitute a business. The definition of business, therefore, becomes more relevant when it has to be seen as to whe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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