TMI Blog1967 (9) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, Murlidhar Jhujhunwalla, is an individual who deals, inter alia, in hessian and B. Twill. During the previous year for the assessment year 1955-56, being 2011 Ratha Jatra ending on the 1st of July, 1954, the assessee contracted to sell 2,700 bales of B.Twill to one Subhkaran Jhunjhunwalla under contract dated the 24th November, 1953, delivery to be given in May, 1954, at the rate of Rs. 100-10-0 per 100 bags and on the 5th May, 1954, the assessee contracted to purchase the same quantity of B.Twill, namely, 2,700 bales, from Subhkaran Jhunjhunwalla at the rate of Rs. 112-14-0 per 100 bags. The delivery under the last contract was also to be made in May, 1954. On the 31st of May, 1954, Subhkaran Jhunjhunwalla delivered to the assessee pucca delivery orders in respect of 2,700 bales of B.Twill in fulfilment of his contract for sale and the assessee paid the contract price in full by cheque. The assessee, in his turn, handed back the said delivery orders to Subhkaran Jhunjhunwalla in fulfilment of his own contract for sale and Subhkaran paid to the assessee the contracted price in full by cheque. The Income-tax Officer, in the course of the assessment proceedings, found that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me person on the same date there could be no passing of goods covered by the delivery orders. He, therefore, treated the loss of Rs. 99,225 as the assessee's loss from speculation. This sum, together with other admitted speculative losses of the assessee totalling Rs. 1,07,864 was directed to be carried forward to be set off against speculative profits in future years. The assessee's appeal against the disallowance of his claim of Rs. 99,225 as business loss by the Income-tax Officer was dismissed by the Appellate Assistant Commissioner who purported to follow some earlier decisions of the Income-tax Appellate Tribunal which had held that delivery of pucca delivery orders did not constitute actual delivery of the goods so as to take the transactions out of the mischief of the definition of speculation given in the aforesaid explanation. Before the Tribunal, on further appeal by the assessee against the order of the Appellate Assistant Commissioner, it was contended that the passing of the pucca delivery orders and full payment of the price of the commodity covered by the same amounted to a transaction of sale and purchase, as the pucca delivery orders represented the goods them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tains a loss of profits or gains in any year under any of the mentioned in section 6, he shall be entitled to have the amount of the set off against his income, profits or gains under any other head in that year. Under the first proviso to that sub-section any loss sustained in speculative transactions which were in the nature of a business were, however, not to be allowed to be set off against the income of the assessee from any source other than business consisting of speculative transactions. Explanation 2 to the above sub-section is as follows : " Explanation 2.-A speculative transaction 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 the actual delivery or transfer of the commodity or scrips. " It would be convenient to dispose of the first and the third grounds of Mr. Bhabra before dealing with the second, as Mr. Bhabra laid more stress on the second ground than on the other two. Mr. Bhabra submitted that the contracts themselves provided that the price for the goods would have to be paid in full on the tender and delivery of the pucca delivery orders. Unfort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exchanged pucca delivery orders which authorised the purchaser to take delivery of the stipulated number of bales from the mills concerned but the goods were not actually sent to the other. The payments were made in full for each transaction by cheque and, inter alia, the following contentions were raised before the court on behalf of the assessee : " It was strenuously contended before the Appellate Tribunal and before this court that the said transactions could not be speculative transactions. Special reference was made to the words ' periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips '. It was said that there was actual delivery or transfer of the goods inasmuch as there was no settlement contractor dealing in differences only , the parties actually sent pucca delivery orders of the mills 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. " G. K. Mitter J., with whom Masud J. concurred, after referring to the decision of the Supreme Court in Duni Chand Rataria's case, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Mukherjee, the learned counsel for the revenue, pointed out, the assessee was claiming the loss as business loss. So, the loss arose from the assessee's carrying on of his business but was treated as loss from speculation. This argument of Mr. Bhabra must also be rejected. We now turn to the second ground urged by Mr. Bhabra which, moral or less, formed the main prop for his contention that Explanation 2 was not attracted in the assessee's case. Mr. Bhabra submitted that Explanation 2 contemplated a contract for the purchase and sale of a commodity being periodically or ultimately settled otherwise than by actual delivery of the commodity. Therefore, unless there was a settlement of the contract, Explanation 2 was not attracted. Mr. Bhabra contended that in this case the Tribunal found that the contracts were fulfilled by passing of pucca delivery orders or receiving in full the price of the commodity. There was no finding that the contracts were settled. According to Mr. Bhabra, a contract could be settled only with the consent of the parties to it under section 62 of the Contract Act. In this case there is no finding that there were any settlement contracts or that the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative transaction. " In our opinion, that decision is clearly distinguishable on the facts of the case before us. The finding in Ram Chandra Gupta's case (Income-tax Reference No. 87 of 1962) was that the assessee sold and purchased the delivery orders on full payment of the price and the contracts were fulfilled according to their terms and conditions and not settled. In the case before us the Tribunal has found that the contracts were for the sale and purchase of B. Twill and that there was no stipulation in the contracts that delivery of the goods would be held as fulfilled if in lieu thereof each party delivered to the other only pucca delivery orders. Mr. Mukherjee also pointed out that in the assessment order the Income-tax Officer had recorded a statement by the assessee that the delivery orders were received from Subhkaran Jhunjhunwalla for settlement of the contract for purchase entered into on the 5th May,1954. He submitted that it was the assessee's case that the contracts were settled by the delivery of the delivery orders. As in this case the contracts could not have been said to have been performed by the delivery of the pucca delivery orders, the ratio of the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntracts, leaving only the differences to be paid. We feel that there is sufficient justification for Mr. Mukherjee's contention that the contracts of sale and purchase entered into by the assessee with Subhkaran Jhunjhunwalla were not performed by the delivery of pucca delivery orders but were settled by the payment of differences. The words " settled " or " settlement " in connection with contracts have not been defined in the Act, or in the Contract Act or in the Sale of Goods Act and, so far as we are aware, these words, are not defined in other Indian statute. The following are some of the meanings attributed to the word " settled " in dictionaries : " Determined : deal effectively with ; dispose of ; conclude money or other transactions. " (Concise Oxford Dictionary). " To come to terms or agreement with a person. " (Shorter Oxford Dictionary, volume 2, page 1856). " To arrange matters in disputes ; to come to terms or agreement with a person. " (Oxford Dictionary, volume VIII, part It, page 559). In our opinion the proper meaning to be given to the words " a contract ...... settled " in Explanation 2 to section 24(1) would be " a contract determined or concluded or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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