TMI Blog2001 (1) TMI 243X X X X Extracts X X X X X X X X Extracts X X X X ..... the first agreement (5-6-1989) 500 bags were to be supplied at the rate of Rs. 675 per bag in November 1989. As per the second agreement (15-6-1989), 700 bags were to be supplied at the rate of Rs.700 per bag in November 1989. Later on, on 30-12-1989, the first contract was settled without delivery of goods. The assessee agreed to pay a sum of Rs. 51,000 to M/s. Manilal Shah Sons in respect of this contract. In respect of second contract, on 1-12-1989, a settlement was arrived at, in which the assessee agreed to pay Rs. 50,400 without delivery of the goods. These agreements and settlements were on letter pads. 3. The assessee had claimed deduction in respect of these losses aggregating to Rs. 1,01,400. The Assessing Officer treated these losses as arising out of "speculation business", in view of the definition of speculation transaction contained in section 43(5) of the Income-tax Act. As there was no actual delivery of goods and as the transaction was settled otherwise than by actual delivery, the loss arising out of such transaction was treated as "speculation loss". 4. The decision of the Assessing Officer was challenged before the learned CIT(A) before whom written subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Award. There was no dispute between the parties. The settlement is only on a piece of paper in respect of an agreement which was also entered into on a letter-pad of the assessee. There are some over-writings on the agreement which show that the agreements or settlements were not entered into in the normal course of business transactions. (4) The assessee had claimed loss in respect of two contracts which were ultimately settled without actual delivery of goods. The contention that the two transactions even if they are recorded as speculative in nature will not constitute speculation business cannot be accepted. A single transaction also would constitute a business, if it is an adventure in the nature of trade. Reliance has been placed on the decision of the Madhya Pradesh High Court in CIT v. Bhikamchand Jankilal [1981] 131 ITR 554. In view of what he held as above, the learned CIT(A) ultimately confirmed the order of the Assessing Officer accepting that the loss was arising from speculation business, which could not be set off against the assessee's other business income. 5. Aggrieved by the order of the CIT(A), the assessee is in appeal before us. Shri K.A. Sathe, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in Kirtilal Jaisinglal Co. v. CIT [1980] 121 ITR 279. He submitted that the CIT(A) in the present case relied upon the decision of the Bombay High Court in Seksaria Riswan Sugar Factory, Ltd.'s case, while the assessee relies on the above decision of the Bombay High Court in Kirtilal Jaisinglal Co.'s case. In point of time, Kirtilal Jaisinglal Co.'s case decision was given on 25-1-1979 while Seksaria Riswan Sugar Factory Ltd.'s case decision was given on 5-2-1979. The Hon'ble Judges who decided both the cases are same. In normal rule of precedence, it would have been the later judgment of Seksaria Riswan Sugar Factory Ltd.'s case which would have been of binding nature. But according to the learned counsel, it is found that apparent conflict between the decisions of Kirtilal Jaisinglal Co.'s case and Seksaria Riswan Sugar Factory Ltd.'s case can be easily resolved. In Kirtilal Jaisinglal Co.'s case the Board's Circular referred to earlier was discussed at length by the Hon'ble Bombay High Court. After considering its binding nature and holding that such Circular was restricted to such items of the assessee's stock which are of his ownership although the phrase "in ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1980] 121 ITR 54, where the assessee, a dealer in paper, hessian and B. Twill, entered into several transactions of sale and purchase with different parties. The transactions were settled by handing over delivery orders and payment by cheque. There was no evidence that actual delivery of the goods was ever effected either to the assessee or to subsequent purchasers from the assessee, and accordingly, the Hon'ble Supreme Court held that the transactions were 'speculative transactions' within the meaning of Explanation 2 to section 24(1) of the Indian Income-tax Act, 1922 and the loss suffered thereon could not be set off under section 24(1). He submitted that the learned counsel's reliance on Board's Circular No. 23(XXXIX)B of 1950 dated 12-9-1960 is of no assistance to the assessee because as held by the Hon'ble Supreme Court in the case of ANZ Grindlays Bank v. CIT [1994] 210 ITR 129 "Circulars of the Central Board of Direct Taxes cannot detract from or override the provisions of the Act". In this connection, he also relied upon the judgment of the Hon'ble Supreme Court in the case of UCO Bank v. CIT [1999] 237 ITR 889. 7. We have considered the rival submissions and perused t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is in respect of this contract for sale there should be another contract to guard against the loss through future price fluctuations. 8. 'Hedging' is defined in Black's Law Dictionary as under: "Hedging: A means by which traders and exporters of grain or other products, and manufacturers who make contracts in advance for the sale of their goods, secure themselves against the fluctuations of the market by counter-contracts for the purchase or sale of an equal quantity of the product or of the material of manufacture. Whorley v. Patton-Kjose Co., 90 Mont. 461, 5 P. 2d 210, 224.A means by which a party who deals in the purchase of commodities in large quantities for actual delivery at some future time insures itself against unfavourable changes in the price of such commodities by entering into compensatory arrangements or counterbalancing transactions on the other side. Ralston Purina Co. v. McFarland, C.A.N.C. 550 F. 2d 967, 970. A transaction where an identified forward exchange contract is locked into an identified agreement to purchase or sell goods in the future. Siegel v. Titan Indus. Corp. C.A.N.Y., 779 F. 2d. 891, 893." The scope of clause (a) of the proviso to sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce and this resulted in a loss. It was held that the loss incurred by the assessee was a speculative loss since the course of transactions did not fall within the four corners of clause (a) of the third proviso to section 24(1) and could not be deemed not to be speculative transactions. To the same effect is the ratio laid down by the Hon'ble Bombay High Court in Seksaria Riswan Sugar Factory Ltd.'s case. 10. In the case before the Hon'ble Bombay High Court, the assessee was a company owning a sugar factory. In the accounting year relevant to the assessment year 1953-54, the assessee had debited Rs. 1,68,731 to sugar sales account in forward transactions in sugar. These transactions were entered into between 9-6-1952 and 20-6-1952, for August, 1952 delivery. The ITO observed that as the assessee was not able to fulfil his obligations on the delivery date, the contract was settled by payment of difference between the ruling rate on the settlement date and the rate at which delivery was promised. The aggregate amount came to Rs. 1,68,731 and it was treated by the ITO as speculation loss to be allowed against similar profits in future. The order of the ITO was confirmed on appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tlement was arrived at in which the assessee agreed to pay Rs. 50,400 without delivery of the goods. Thus, the delivery of goods was absent and accordingly, the transactions entered into by the assessee were not hedging transactions within the parameters of the definition of hedging reproduced supra in para 8. 11. As regards the reliance placed by the learned counsel for the assessee on the judgment of the Bombay High Court in Kirtilal Jaisinglal Co.'s case, we find that in point of time, Kirtilal Jaisinglal Co.'s case decision was given on 25-1-1979, while Seksaria Riswan Sugar Factory Ltd.'s case decision was given on 5-2-1979. Accordingly, in normal rule of precedence, we hold that the latter judgment in Seksuria Riswan Sugar Factory Ltd.'s case is of binding nature. 12. In the light of above discussion, we hold that the assessee entered into speculative transactions and the loss suffered by the assessee was of speculative nature and accordingly, the authorities below were right in holding such loss as speculation loss. This ground accordingly fails and is dismissed. 13. The next grievance of the assessee is that the CIT(A) is not justified in confirming the disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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