1995-VIL-385-GUJ-DT
Equivalent Citation: [1996] 218 ITR 331, 131 CTR 234
GUJARAT HIGH COURT
Date: 22.09.1995
COMMISSIONER OF INCOME-TAX
Vs
ASHOKBHAI B. SHAH
BENCH
Judge(s) : RAJESH BALIA., M. S. SHAH
JUDGMENT
The judgment of the court was delivered by
RAJESH BALIA J.--At the instance of the Commissioner of Income-tax, Baroda, the following questions of law have been referred to the decision of this court which arose out of its order in I. T. A. No. 893/(Ahd) of 1978-79 relating to the assessment year 1975-76. We have heard learned counsel for the Revenue. None appears for the assessee in spite of service :
" 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the loss as was claimed by the assessee in the sum of Rs. 8,128 was not a loss in the nature of speculation as the assessee had sold 195 shares out of stock in hand which he was holding to the tune of 234 ?
2. Whether the findings of the Appellate Tribunal that the loss in the sum of Rs. 8,128 claimed by the assessee being incidental to the business of the assessee and having been occasioned in the normal course of carrying on of business by the assessee, merited to be allowed, is correct in law ?
3. Whether in the absence of actual delivery of the shares in question, the Appellate Tribunal was right in law in holding that the transactions in question did not constitute a speculative transaction and, consequently, the assessee was entitled to the allowance of loss as claimed ? "
The assessee is an individual and he carries on business in shares. The assessee sustained a loss of Rs. 8,128 in the previous year corresponding to the assessment year 1975-76 on certain transactions of shares. The Income-tax Officer disallowed the loss on the ground that the said loss in his opinion was speculation loss. It was on the basis that there was no actual delivery of the shares at the time of purchase or sale. The Appellate Assistant Commissioner confirmed the finding for the said reason. However, the Tribunal found that the loss suffered by the assessee was not a loss in the nature of speculation because the assessee has sold 195 shares out of his stock in hand. The loss being incidental to the business of the assessee and having been undergone in the normal course of carrying on business by the assessee, it had allowed the loss.
The questions referred to us invite the principles governing the applicability of the provisions of section 43 of the Income-tax Act. Sub-section (5) of section 43 defines speculative transaction to mean a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. However, it also provides certain exceptions to the aforesaid. Clause (b) of the proviso to sub-section (5) provides that a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations, shall not be deemed to be a speculative transaction.
This court had an occasion to deal with the interpretation of the aforesaid provisions. In the case of CIT v. Mohanlal Ranchhoddas [1993] 203 ITR 304 (Guj), referring to the provisions of section 43(5)(b), the court held that the only condition which should be satisfied before he can claim that a contract entered into by him should not be considered as a speculative transaction is that he must have entered into such a contract to guard against the loss due to adverse price fluctuations of shares in respect of which he might have entered into contracts of sale by actual delivery.
The court further held (at page 324) :
" True it is, that ultimately in such a transaction loss is caused to the assessee and, therefore, he has claimed the said loss as hedging loss. Section 43(5), proviso (b), permits hedging in respect of stock-in-trade to guard against fluctuations in prices. It is pertinent to note that the transactions connected with the purchase and sale of the said shares which were settled by way of payment of dues ultimately did not exceed the total quantity of scrips handed over to the brokers and, therefore, the genuineness or otherwise of the said transaction cannot be doubted. We are, therefore, of the opinion that when the assessee had, as permitted by law under proviso (b) to section 43(5) of the Act, entered into hedging transactions to hedge against price fluctuations in the aforesaid two scrips, the assessee was entitled to claim hedging loss, and the Tribunal, in our opinion, was right in upholding the claim of the assessee."
We are of the opinion that on the facts found by the Tribunal, the aforesaid principle is clearly applicable to the case of the assessee and the Tribunal was right in its conclusions. Accordingly, we answer the ques tions referred to us in the affirmative in favour of the assessee and against the Revenue. No order as to costs.
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