TMI Blog1967 (6) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... to " Explanation 2 to the third proviso to section 24(1) " is somewhat misleading. There is no third proviso to section 24(1) at present. There are only two, the first proviso having been omitted by Act XLI of 1954. Then again, Explanation 2 is referable to the second proviso, which is now really the first proviso, because the Explanation explains the expression "speculative transactions " used in that proviso. We should, therefore, read the question in a somewhat changed manner and instead of the words " Explanation 2 to the third proviso to section 24(1) " read " Explanation 2 to section 24(1) ", in order to obviate all criticism. This was agreed upon by the learned counsel appearing for the parties. The above question of law arises in circumstances hereinafter stated in brief. The assessee, a private limited company, entered into a contract,dated July 6, 1953, with Messrs. Iwai and Co. Ltd. of Tokyo, Japan, and agreed to supply 52,000 long tons of Indian iron ore. This contract was leter or varied by mutual consent and the supply of the agreed quantity of iron ore was split up into three parts, namely, a consignment of 24, 0000 long tons to be supplied by way of first delive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) of the Income-tax Act, 1922, defined what a speculative transaction meant under the Act and the contract having been settled otherwise than by actual delivery of the commodity, it could only be a speculative transaction and accordingly the receipt, a speculative receipt. We are not concerned with the other points argued before the Tribunal, regard being had to the nature of the question referred to us. This contention was sought to be repelled on behalf of the revenue with the argument that since there was a clear intention on the part of the assessee to give delivery of the commodity and, on the part of the purchaser to take delivery, the receipt could only be treated as damages for breach of contract and not as speculative profit. The Tribunal quoted the language of Explanation 2 and observed : " The transaction in question having been settled otherwise than by the actual delivery of the commodity, it was a transaction of speculative nature. It was then submitted on behalf of the department that it was only a portion of the contract which was settled otherwise than by actual delivery and therefore, the aforesaid explanation of speculative transaction was inapplicable inasmuc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 24(1) of the Income-tax Act, 1922. In that context his Lordship expressed the opinion that as exchange of Pucca delivery orders amounted only to notional and not real delivery of the goods as contemplated by Explanation 2 to section 24(1), the transactions were speculative transactions and the loss incurred by the assessee could not be set off against the other business income under section 24(1). His Lordship observed : " The Explanation to section 24(1), however, does not prevent persons from entering into contracts in which the buyers and sellers may not actually hand over the goods physically. The Explanation is only designed at segregating for income-tax purposes loss sustained in transactions of a certain kind. It may be that the said transaction are not speculative in the light of section 30 of the Contract Act. It is well-settled that to make a contract wagering within the meaning of section 30 of the Contract Act, there must be a common intention of both the parties to the contract not to give or take delivery but only to deal in differences. The Explanation to section 24(1) goes a step further and takes the transaction out of the domain of intention altogether ; o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 actual delivery or transfer of the commodity or scrips :.... " Now a contract may be performed in terms agreed upon. A promise may also be dispensed with or remitted, within the meaning of section 63 of the Indian Contract Act, which reads as follows : " Every promise may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit. " If a contract be neither performed nor dispensed with nor remitted nor otherwise satisfied, there happens a breach of the contract, the consequences of which are to be found in section 73 of the Contract Act, which reads as follows : " When a contract had been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not settled but damages for breach of the contract were realised. That makes all the difference and the transaction cannot be characterised as speculative transaction within the meaning of Explanation 2. The stand taken by the revenue up to the Appellate Assistant Commissioner was that the claim for damages measured by difference in price was settled. To that aspect of the matter the Tribunal did not advert. The Tribunal proceeded to examine the matter from the point whether only a portion of the contract was settled, otherwise than by actual delivery, and whether that made Explanation 2 inapplicable to the transaction in question. Since the Tribunal was unable to uphold that point, the Tribunal approved of the contention of the assessee and negatived the contention on behalf of the revenue. We are, however, of opinion that the stand taken by the revenue up to the Appellate Assistant Commissioner was a correct stand, in the facts and circumstances of the case, and from that angle of vision the transaction did not fall within the meaning of speculative transaction as in Explanation. Since we are of the opinion that the second branch of the submission of Mr. Mukharji ought to s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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