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March 2015

Speculative transaction- Section 43(5)- Stock and share broker- Hedging transactions- Loss due to price of shares continuing to rise- Not speculative loss- Transaction within the ambit of exception- Not disallowable-

By K. B. Bhujle Advocate
Reading Time 2 mins
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Maud Tea and Seed Co. Ltd. vs. CIT; 370 ITR 603 (Cal):

The assessee, a stock and share broker, entered in to three transactions of sale and purchase of shares for the purpose of hedging. It suffered loss of Rs. 14.82 lakh by reason of price of shares continuing to rise. The assessee claimed that the transaction is not a speculative transaction as it came within the exception provided for. The Revenue held that the loss of Rs. 14.82 lakh incurred by the assessee fell outside the purview of proviso (b) to section 43(5), because the market price of ACC shares continued to rise and there was no adverse price fluctuation. This was upheld by the Tribunal.

On appeal by the assessee, the Calcutta High Court reversed the decision of the Tribunal and held as under:

“The undisputed facts in the case contained the ingredients of hedging. The result of those transactions, however, was a gain in the holding of shares by the assessee. By incurring a loss in the sum of Rs. 14.82 lakh, the value of the holding of the assessee in the shares in that period increased. Therefore, when ultimately the assessee sold those shares at an even greater value, it was denied the wind fall profit it would have made if it had not hedged at all. The loss was allowable.”

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