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TMI Blog1965 (4) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... nting year mentioned above, the assessee entered into three transactions for purchase and sale of hessian bags, heavy cess, etc., with Kedar Nath Hariram. Under the first contract, the assessee agreed to sell to the said firm 500 bales of heavy cess at the rate of Rs. 180 per hundred bags, on September 1, 1951. Out of these, 250 bales were deliverable on April 30, 1952. On October 13, 1951, the assessee entered into a second contract with the same party agreeing to purchase 500 bales of the same quality of heavy cess at Rs. 216-8-0 per hundred bags. The deliveries under the second contract were to be made as under the first contract. The assessee incurred a total loss of Rs. 81,072 on the two contracts. The assessee entered into an agreement to purchase 300 bales of hessian from the said firm on August 20, 1951, deliverable on November 15, 1951. On September 22, 1951, the assessee entered into another agreement to sell 300 bales of the same commodity to the same party deliverable on the same date (November 15, 1951). As a result of the two last mentioned contracts, the assessee made a profit of Rs. 40,500. Thus, as a result of this series of transactions, the assessee suffered a ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were put up before the Appellate Tribunal. In order to appreciate the same it is necessary to refer to the salient features of the terms and conditions of the contracts which were all in the same form. One of these contracts is an annexure to the statement of the case bearing date October 13, 1951. The firm of Kedar Nath Hariram appeared to have acted as the brokers in the transaction. The document shows that the said firm had bought by the order of International Trading Company (name and style in which the assessee worked) and on the assessee's account two lakhs bags of European mills' standard make, quality, etc., as per margin at the rate of Rs. 216-8-0 per hundred bags free alongside export vessel in the port of Calcutta. In the margin the quality of the bags, their weight, etc., are shown. The important terms and conditions of the contract were : " (1) Buyers to give seven clear working days' notice to place goods alongside. (2) Goods to be packed, folded, well pressed, marked and shipped by sellers in covered cargo boats in iron bound bales of 400 pcs. each. (3) payment to be made in cash in exchange for delivery orders on sellers, or for railway receipts, or for dock's re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s along with their bills. These pucca delivery orders, according to the learned advocate for the assessee, represented the goods and as such the transactions never had any speculative element in them. The whole question before us is whether, by the exchange of delivery orders, the transactions avoided the mischief of the Explanation. It was argued that the exchange of delivery orders was one of permissible modes of delivery. This was sought to be supported by the decision of the Supreme Court in the case of Dunichand Rataria v. Bhuwalka Brothers Ltd. As that case proceeds largely on the construction and effect of the issue of pucca delivery orders by jute mills as expounded earlier in the case of Anglo-India Jute Mills Co. v. Omademull 2, it would be appropriate to take a note of the views expressed in that case. The facts in the Anglo-India Jute Mill Co.'s case were as follows. The company sold 3,00,000 yards of hessian cloth on March 1, 1908. In the sold note sent to them by the brokers the sale was expressed to be to the brokers' principals. Under the conditions of the contract, payments were to be made in cash in exchange for delivery orders or on certain other specified terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e enquiry as to whether the delivery orders were in order said that they were all right) and their own conduct, the defendant-company must be taken to have appropriated goods of the required quantity and description to this delivery order, and they cannot now be heard to deny that they held these goods for the plaintiffs. And it must be borne in mind that we have not to consider whether property passed as between the original sellers and buyers but whether, in the events that have happened, the sellers can assert this against the plaintiffs who have acted on the faith of the seller's representation that no lien existed and that they held goods to answer the delivery order. In my opinion, the defendant-company's contention on this head must also fall, for, in the circumstances, the defendant-company have represented that the delivery order would pass and confer a good title, and they put it in the power of Messrs. Janki Dass & Co. to indorse the delivery order with this representation to the plaintiffs, who, dealing in good faith and for value, were induced to alter their position on the faith of the representation so made." It will be noted from the above that Jenkins C.J. stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chase of jute goods made on a forward basis : (a) providing for the payment, or receipt, as the case may be, of margin in such manner and on such dates as may be specified in the contract, or (b) by or with any person, not being a person who,-- (i) habitually deals in the sale or purchase of jute goods involving the actual delivery of possession thereof, or (ii) possesses, or has control over, a godown and other means and equipments necessary for the storage and supply of jute goods. " The terms and conditions of the standard form of the Indian Jute Mills Association contained clauses (1), (3) and (4) which are the same as clauses 1, 2 and 3 of the contract in this case. The Supreme Court noted that " in respect of the goods deliverable under the contracts the mills would, in the case of goods sent by them alongside the vessel in accordance with the shippers' instructions in that behalf, obtain the mate's receipts in respect of the same and such mate's receipts would be delivered by the mills to their immediate buyers who in their turn would pass them on to their respective buyers in the chain of contracts resting with the ultimate shipper. If the mills held goods in their god ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion' was accepted, it would involve each one of the intermediate parties actually taking physical or manual delivery of the goods from their sellers and again in their turn giving physical or manual delivery of the goods which they had thus obtained to their immediate buyers. Such an eventuality could never have been contemplated by the Government and the only reasonable interpretation of the expression 'actual delivery of possession' can be that actual delivery as contrasted with mere dealing in differences was within the intendment of the Ordinance and such actual delivery of possession included within its scope symbolical as well as constructive delivery of possession. The court laid great stress on the words used in section 2(1)(b)(1) 'involving the actual delivery of possession thereof' and held that the word 'involving' in the context meant 'resulting in' and this condition would be satisfied if the chain contracts as entered into in the market resulted in actual delivery of possession of goods in the ultimate analysis". In my opinion the decision of the Supreme Court does not lay down the broad proposition contended for by the learned advocate for the assessee before us th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24(1) of the Income-tax Act, the legislature did not intend to affect any transaction of sale wherein the goods were not physically delivered by the seller to the buyer but only laid down that if there was no actual or physical delivery, the loss, if any, would be a loss in a speculative transaction which could be allowed to be set off only against a profit in a transaction of the same nature. Even before the enactment of the Sale of Goods Act on the statute book it was held in Chaplin v. Rogers by Lord Kenyon that " where goods are ponderous and incapable of being handed over from one to another, there need not be an actual delivery, it may be done by that which is tantamount, such as the delivery of the key of a warehouse in which the goods are lodged, or by delivery of other indicia of property. " The question as to whether property in jute goods of the kind covered by the contracts in the present case passes with the transfer of the delivery orders came up for consideration before the Supreme Court in Jute and, Gunny Brokers Ltd. v. Union of India. In that case the Government of India issued an order on September 30, 1946, to the managing agents of practically all the jute mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he time such orders are issued and ascertainment takes place in the shape of appropriation when the goods are actually delivered in compliance therewith. Therefore, till appropriation takes place and goods are actually delivered, they are not ascertained. The contract represented by the pucca delivery orders is a contract for the sale of unascertained goods and no property in the goods is transferred to the buyer in view of section 18 of the Indian Sale of Goods Act till the goods are ascertained by appropriation, which, in this case, takes place at the time only of actual delivery." The Supreme Court pointed out that the AngloIndia Jute Mills Co.'s case" merely lays down the rule of estoppel as between the mill and the holder of the pucca delivery order and in a suit between them the mill will be estopped from denying the title of the holder of pucca delivery orders ; but that does not mean that in law the title passed to the holder of the pucca delivery order as soon as it was issued even though it is not disputed that there was no ascertainment of goods at that time and that the ascertainment only takes place when the goods are appropriated to the pucca delivery orders at the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to the buyer on his honouring a hundi for the value of the goods. It was common ground that by the date when the delivery orders were issued there were goods answering the contract description and of quantity sufficient to comply with the relative term in the contract, in the godowns of the mills wherefrom, on the terms of the contract, delivery was to be effected. It was open to the buyer himself to have gone to the mills and taken delivery of the goods but this was not done. Instead of taking delivery himself, the assessee endorsed the delivery orders and these passed through several hands before the ultimate holders of the delivery orders presented them to the mills and obtained delivery of the gunnies. It was held by the Supreme Court that at the date of the contract there was no completed sale of goods by the assessee because there was no appropriation of the goods: the transaction so far as he was concerned consisted merely of the endorsement of the delivery order issued by the mills. The Supreme Court referred to its earlier decision in Bayyana Bhimayya v. Government of Andhra Pradesh, where, on facts very similar to those in the case in 1962, the court had held that : At ..... X X X X Extracts X X X X X X X X Extracts X X X X
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