TMI Blog1966 (3) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, on the facts and circumstances of the case, the loss of Rs. 47,250 was sustained in speculative transactions within the meaning of the first proviso to sub-section (1) of section 24, read with Explanations 1 and 2 and clause (a) of the proviso to Explanation 2 ?" The facts and circumstances which have occasioned this reference are as follows : The assessee is a Hindu undivided family and derives income from property and business. The assessee's business consists in purchasing cotton kapas (raw cotton), ginning it and them selling the lint and cotton seeds. Between 21st October, 1956, and 4th April, 1957 (the relevant accounting year was the period from 3rd November, 1956, to 23rd October, 1957), the assessee entered into fourteen fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 59,644 made up of Rs. 1,304 from property and Rs. 58,304 from business. In determining the income from business, the Income-tax Officer allowed against other business income, loss arising out of the forward contracts for the sale of lint. It, however, appeared to the Commissioner of Income-tax that the assessment order passed by the Income-tax Officer was erroneous and prejudicial to the interests of the revenue to the extent of an unjustifiable deduction of Rs. 47,250 (loss Rs. 48,468 minus profit Rs. 1,218), as in the Commissioner's view that amount represented a loss arising from speculative transactions within the meaning of Explanation 2 to section 24(1) of the Income-tax Act. After due notice to the assessee, the Commissioner, in e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness shall not be taken into account except to the extent of the amount of profits and gains, if any, in any other business consisting of speculative transactions ..... Explanation 1. --- Where the speculative transactions carried on are of such a nature as to constitute a business, the business shall be deemed to be distinct and separate from any other business. Explanation 2. --- A speculative transaction means a transaction in which a contract for purchase and 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 : Provided that for the purposes of this section, --- (a) a contract in respect of raw materials or mercha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin the meaning of the proviso to sub-section (1) of section 24. What was contended before us was that the transactions in question are saved from falling under the category of speculative transactions, by reason of clause (a) of the proviso to Explanation 2 to section 24(1) of the Act. It was argued that the transactions in question were hedging contracts to guard against possible loss from another set of transactions and, therefore, cannot be deemed to be speculative transactions. On the established facts of this case and having regard to the nature of the business done by the assessee, this contention has not a leg to stand on. The nature of the business conducted by the assessee was buying kapas (raw cotton), ginning it and selling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 of section 24(1). It was then contended on behalf of the assessee that the business carried on by the assessee was not a manufacturing business. We find it difficult to accept this contention. What the assessee was doing was to buy kapas, gin it, convert it into lint in a factory with the aid of machinery and then sell it. That this is a manufacturing process has been held by a Division Bench of this court consisting of Satyanarayana Raju and Venkatesam JJ. in Kotak Co. v. State of Andhra Pradesh, and we are in respectful agreement with that view. Our attention has been drawn to a decision of a Division Bench of the Punjab High Court in Patel Cotton Co. Private Ltd. v. State of Punjab, in which the learned judges took the view that no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits or gains from another head, but section 24 does not apply to a case where an assessee seeks to set off the loss from one source as against another source under the same head. In other words, section 24 applies to a plurality of heads and not to a single head. The next step in the argument was that in cases of that nature, section 10 is the appropriate section and section 10 makes no distinction between speculative and non-speculative transactions. In the first place, we are of the view that this question is not one which has been referred to us under section 66 of the Act and we find it difficult to agree with the learned advocate for the assessee that this question arises out of the order of the Tribunal. Before all the authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X
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