TMI Blog1974 (1) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... e meaning of section 43(5) of the Income-tax Act, 1961, and, consequently, could not be set off against other income of the asessee ? " The assessee is a registered firm working as commission agent in a number of commodities such as coconut, munghpali, sarson, etc. It also purchased and sold those commodities on its own account. In respect of those commodities the assessee also entered into transactions which admittedly were speculative transactions. During the months of September and October of 1961, which fell within the previous year relevant to the assessment year 1963-64, the assessee had purchased certain quantity of ready sarson. It also entered into forward contracts for sale of 7,169 units of sarson (delivery to be effected duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o adjust the losses suffered by it in respect of these forward contracts as against, the profits earned by it in connection with its non-speculative business. The case of the assessee was not accepted by the Income-tax Appellate Tribunal which held that at the time when during the month of October, 1961, the assessee entered into forward contracts of sale of sarson, it did not enter into any contract for actual delivery of sarson which was already in stock with it. Since there was no contract for sale of ready sarson it was not known what loss the assessee was going to guard against. It observed that, in the circumstances, the assessee could not claim that it sold sarson in the forward market just to protect or guard itself against the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 clause-- (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him ; or (b) 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 ; or (c) a contract entered into by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract for actual delivery of goods manufactured by him or merchandise sold by him," does not necessarily mean that the assessee should only have intended to guard against loss through future price fluctuation in respect of some existing contract for delivery of goods. These words are wide enough to include within their ambit a case where an assessee has a ready stock of merchandise dealt with by it and although there is no existing contract for the sale of the merchandise, it intends to enter into contracts for their sale in future. If, as a result of future price fluctuation, the aseessee is likely to suffer any loss in respect of such future contracts for delivery of goods, a transaction entered into by the assessee with a view to safegua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be suffered in respect of a particular contract. Assessee's contention would have had some force if clause (a) had been enacted on the lines of clause (b). Accordingly, unless the assessee shows that there was some existing contract in respect of which he was likely to suffer a loss because of future price fluctuation and that it was to safeguard such loss that it entered into the alleged forward contracts of sale during the month of October, 1961, he cannot claim the benefit of section 43(5), proviso, clause (a) and to say that the transaction should not be considered to be speculative transaction even if it was ultimately settled without actual delivery of goods. According to the findings recorded by the Income-tax Appellate Tribunal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into contracts for purchase as also for that of sale, depending upon the facts and circumstances of each case. However, it is not necessary for us to go into this question as we have found that the transactions which are apparently speculative transactions within the meaning of section 43(5), proviso, clause (a) have not been entered into in order to safeguard loss through future price fluctuation in respect of any existing contract for actual delivery of merchandise sold by the assessee. On this point the view expressed by the Gujarat High Court is in consonance with that of the Andhra Pradesh High Court with which we respectfully agree. Since in this case the Tribunal has recorded a finding that there was no such contract of ready goods i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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