- (1.) THIS appeal was admitted on two substantial questions of law. The first of such questions was formulated as by order dated 1st October, 2002 to be: - "1.Whether on a proper construction of the provisions of Section 43(5) and in particular proviso (b) thereto, the transactions entered into by the appellant in respect of ACC shares and the loss of Rs. 14.82 lacs incurred therein fell outside the purview of the said proviso (b) because the market price of ACC shares continued to rise and there was no adverse price fluctuation -
(2.) MR . Khaitan, learned senior advocate appeared on behalf of the appellant assessee and referred us straight away to section 43(5) read with proviso (b) thereto of the Income Tax Act, 1961. It will be useful to set out below the said provision: - "43.(5) "speculative transaction" means a transaction in which a contract for the purchase or 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 purpose of this clause? (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; shall not be deemed to be a speculative transaction."
(3.) HE submitted the transactions his client had entered into were those stated by the stock and share broker and dealer Babulal Dhanuka in answering summons under section 131 of the said Act by letter dated 28th February, 1994. It would appear from the said letter the assessee entered into three transactions of sale and purchase of 2850 shares of ACC Ltd. between 27th July, 1990 and 29th August, 1990. Mr. Khaitan submitted his client entered into those transactions for the purpose of hedging. Of the shares held by his client, on 27th July, 1990 it had sold 2850 shares at the rate of Rs.913/ - per share which were purchased subsequently on 8th August, 1990 at the rate of Rs. 1,060/ - per share. On the next day the assessee again sold those shares at the rate of Rs. 1,044.50 per share to purchase them subsequently on 22nd August 1990 at the rate of Rs. 1,350/ - per share. Lastly, on 23rd August 1990 the assessee sold those shares at the rate of Rs. 1,367.50 per share and thereafter on 29th August 1990 purchased them at the rate of Rs. 1,435/ - per share.;