TMI Blog2003 (8) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... suffered by him in these transactions cannot therefore be set off against other income. (ii) The CIT(A) failed to consider the contention of the appellant that the appellant is an investor in shares of Tata Steel and during the year he entered into share badla (i.e. hedging transactions) of Tata Steel. (iii) The CIT(A) erred in rejecting the ground of appeal that the appellant has incurred net loss of Rs. 4,59,740 in share badla i.e. hedging transactions and he is entitled for set off of this loss against other income of the appellant. (iv) The CIT(A) failed to consider in proper perspective the written submissions before rejecting the grounds of appeal claiming the set off of loss of Rs. 4,59,740 against other income of the appellant. (v) The CIT(A) erred in rejecting the contention of the appellant that the transactions of the appellant is single transaction of speculation, and this transaction is distinct from speculation business. (vi) The CIT(A) further erred in holding that as this transaction was carried over, over seven settlement dates, this cannot be termed as single transaction. (vii) The CIT(A) further erred in holding that the appellant had entered into ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to rejection of assessee's claim of set off of share badla business loss Rs. 1,14,375 is similar as in the case of Shri Kanubhai A. Patel and the only difference is that the transaction for purchase and sale of 500 shares of Reliance Industries Ltd. resulting in a loss of Rs. 1,14,375 as against the loss of Rs. 4,59,740 suffered in the case of Shri Kanubhai A. Patel in the transaction of 2000 shares of Tata Steel. 11. The learned representatives of both sides admitted that the facts relating to assessee's claim for set off of loss in respect of share badla business against other income in the same assessment year are similar in all the three cases. The learned representatives of both sides therefore contended that the arguments in the main case of Shri Kanubhai A. Patel [IT Appeal No. 579 (Ahd.) of 1998] will govern various grounds raised in all the three appeals. 12. The learned counsel submitted that these assessees derived income by way of share from partnership firms, income from property and income from other sources such as dividend income and interest etc. They were not dealers of shares. They made investments in shares of TISCO in their capacity as an investor and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied on by the assessee are of such a nature as to constitute a business, such speculative business shall be deemed to be distinct and separate from any other business. The assessee has not carried on any business of speculative transaction. Hence Explanation 2 to section 28 is not applicable. Likewise section 73(1) provides that any loss computed in respect of speculative business carried only the assessee, shall not be set off except against the profits and gains, if any, of another speculative business. This section will also not apply to the facts of the present case as the assessee has not carried out any speculation business. Section 43(5) defines speculative transaction means a transaction in which the contract for the purchase and sale inter alia of any share is periodically or ultimately settled otherwise than by actual delivery or transfer of scripts/shares. Various exceptions have been carved out in proviso to section 43(5). One of the exceptions contained in proviso (b) is that a contract in respect of stock and shares entered into by a dealer or investor therein to guard against loss in his holding of stock and shares through price fluctuation shall not be deemed to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les the person dealing with the actual commodity to hedge themselves, i.e. to insure themselves against adverse price fluctuation. 18. The Full Bench of the Hon'ble Gujarat High Court in the case of Pankaj Oil Mills v. CIT[1978] 115 ITR 824 has explained the subtle and significant distinction between speculative transaction and hedging transaction. It will be imperative to reproduce the relevant extracts from the said judgment in order to properly understand the true meaning and scope of these expressions: "It would be profitable to appreciate in proper perspective how hedge transactions are commercially understood before we determine about the true scope and width of prov. (a) to section 43(5). As the very name suggests, hedge contracts are those contracts which hedge against prejudicial price fluctuations. Speculative transactions are not the same as agreements by way of wager. In speculative transactions the modus operandi of persons indulging in them is that when one enters into a contract of purchase, he also simultaneously enters into one or more contracts of sale against the same quantity deliverable at the same time either to the original vendor or to some one else, so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was made by the assessee to the share broker at the time of purchase of these shares. The settlement period when this transaction of purchase was made on 2-4-1992 was 26-3-1992 to 9-4-1992. On the close of the settlement period, 2000 shares were sold on 9-4-1992 as "closing badla" at the rate of Rs. 520 per share for total consideration of Rs. 10,40,000. Thus there was loss of Rs. 3,60,000 at the close of the aforesaid settlement period. As against this, the assessee had given Rs. 4 1akhs to the broker on 24-4-1992. Seven transactions of purchase and sale of 2000 shares of TISCO during seven settlement periods shows that the transaction of purchase and sale was settled at the end of each badla period and the amount of loss was determined and payment against such loss was made by the assessee to the broker. There is no material on records to show that all these transactions in shares were made for the purpose of insuring against adverse price fluctuations of the existing shares. The onus lies on the assessee to prove that the transactions in question were hedging transactions. The assessee has not brought adequate material on records to prove various ingredients of hedging transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction and did not qualify for adjustment against the other income of the assessee. The Tribunal however held that a single speculative transaction would not amount to speculative business. On these facts the Hon'ble Calcutta High Court held as under: "We are in respectful agreement with the views expressed by the Madhya Pradesh High Court. In our judgment, a solitary speculative transaction by an assessee will not prevent the transaction from being speculative business. If the transaction amounted to an adventure in the nature of trade, then the profits of such trade will have to be treated as business income. But, if the transaction was settled without actual delivery of goods, then the adventure in the nature of trade will be an adventure in speculative business. Speculative business is only a species of general business where contracts for purchase and sale of commodities are settled without actual delivery of the commodities. There is a further point to be noted in the case that the assessee had entered into at least two transactions where goods were not delivered one for the sale of shares on August 22, 1973, and the other for the purchase of shares on September 20, 197 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dging. We have already examined the facts of the present case in the light of principles of law laid down by the Full Bench of the Hon'ble Gujarat High Court in the case and are of the view that the facts of the present case do not demonstrate that the transactions in question were hedging transactions. The transactions in shares made by the assessee are dearly speculative transactions which on the facts of the present case constitute speculative business. The assessee is therefore not entitled to the benefit of set off of such speculative loss against any other income of the year under consideration. The view taken by the Assessing Officer and confirmed by the CIT(A) in all these cases relating to denial of benefit of set off is therefore held to be perfectly valid and justified. 24. The next common ground in the appeals of Shri Kanubhai A. Patel and Shri Kantibhai A. Patel relates to withdrawal of interest allowed under section 244A of the Act. The learned CIT(A) has held that no appeal lies against the action of the Assessing Officer of withdrawing the interest already allowed under section 244A. 25. The learned counsel drew our attention to the order dated 21-4-2003 passed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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