1980 (7) TMI 122 - AT - Income Tax

Summary

Issues:
1. Whether a loss incurred in a single transaction involving purchase and sale of cotton bales constitutes a business loss or a speculative transaction.

Analysis:
The judgment pertains to an appeal by the assessee for the assessment year 1974-75, where the Income Tax Officer (ITO) disallowed the claim of the assessee as a business loss, considering it a speculative transaction. The assessee had shown a loss of Rs. 16,426 in the cotton account, which the ITO deemed as speculation since no actual delivery of the cotton bales was made, and a price difference was paid. The ITO suggested carrying forward the loss for adjustment against speculation profits in subsequent years.

The assessee contended before the ld. AAC that the transaction was a business transaction, not speculation. Citing a precedent, it was argued that a solitary transaction cannot be categorized as a speculative business, relying on the decision in the case of Maggaji Shermal & Anr. (1978) 114 ITR 862 (AP). However, the ld. AAC upheld the ITO's decision, considering the transaction as an adventure in the nature of trade.

Upon further appeal to the Tribunal, it was reiterated that the single transaction should be treated as a business loss, not speculation. The Tribunal analyzed the provisions of the Income Tax Act, 1961, specifically s. 43(5) and s. 28, and concluded that for a business to be speculative, there should be more than one speculative transaction. Since there was only one transaction of purchase and sale of cotton bales, it was deemed a business loss under s. 28, not speculative. The Tribunal found support in the decision in the case of Maggaji Shermal and allowed the claim of the assessee as a business loss, overturning the previous decisions.

Ultimately, the Tribunal allowed the appeal, ruling in favor of the assessee and declaring the claimed loss as a business loss, not a speculative transaction. The judgment highlighted the distinction between speculative business and regular business transactions, emphasizing the need for multiple speculative transactions to constitute a speculative business under the Income Tax Act.