January 2009
Speculative loss/business loss : S. 28(i) & S. 43(5) : Transaction of purchase and sale ultimately settled by actual delivery : Not speculative transaction : Loss arising is business loss and not speculative loss.
By K. B. Bhujle, Advocate
Reading Time 2 mins
New Page 1
II. Reported :
42 Speculative loss/business loss : S. 28(i)
and S. 43(5) of Income-tax Act, 1961 : A.Y. 1990-91 : Transaction of purchase
and sale ultimately settled by actual delivery : Not speculative transaction:
loss arising is business loss and not speculative loss.
[Sripal Satyapal v. ITO, 217 CTR 337 (Raj.)]
The assessee is a cotton merchant and carries on business
of purchase and sale of cotton bales. In the previous year relevant to A.Y.
1990-91 the appellant purchased certain cotton bales from one R through the
commission agent J, but however did not take delivery. He subsequently sold
the said goods to Os Co. through commission agent Om. The ultimate purchaser
Os Co. took delivery of the goods from R. The Assessing Officer treated the
loss arising out of the transaction as speculative loss on the ground that the
appellant had not taken delivery of the goods. The Tribunal upheld the
decision of the Assessing Officer.
In appeal the following question was raised before the
Rajasthan High Court :
“Whether the Tribunal was justified in disallowing the
claim for set-off of business loss of Rs.2,54,068 in the hands of the
appellant by applying S. 43(5) of the IT Act, 1961 and treating the same as
speculative loss merely for the reason that transportation charges were not
shown to be paid by the appellant ?”
The Rajasthan High Court reversed the decision of the
Tribunal and held as under :
“The fact of taking physical delivery of the goods by the
assessee is not the test for determining the speculative transaction in
terms of S. 43(5), but the test is settlement of the transaction entered
into by the assessee or on his behalf otherwise than by actual delivery of
the commodity. Even though the assessee itself or its agent did not obtain
actual delivery of the goods, but the goods having been specifically
identified at the godown and actual delivery to purchaser from the assessee
having been effected by transport of goods directly from the godown,
transaction entered into by the assessee could not be termed as speculative
transaction.”
