TMI Blog1969 (8) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment for the years 1958-59 and 1959-60 respectively ? " The facts appearing in the statement of the case may be noticed in brief. The assessee is a registered firm carrying on business in rice, paddy and paddy milling. The assessment years are 1958-59 and 1959-60. The corresponding accounting years are Diwali year ending on October 21, 1957 and November 10, 1958, respectively. The assessee, during the relevant accounting periods, entered into various agreements for supply of rice to its constituents at Calcutta. During this period, however, the rice could not be dispatched due to restrictions imposed by the Government of Orissa on the movement of paddy and rice. The assessee, accordingly, made settlement with the purchasers in Calcutta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f against his income, profits or gains under any other head in that year : Provided that in computing the profits and gains chargeable under the head 'Profits and gains of business, profession or vocation', any loss sustained in speculative transactions which are in the nature of a business shall not be taken into account except to the extent of the amount of profits and gains, if any, in any other business consisting of speculative transactions:... Explanation 1.- Where the speculative transactions carried on are of such a nature as to constitute a business, the business shall be deemed to be distinct and separate from any other business. Explanation 2.-A speculative transaction means a transaction in which a contract for purchase an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the Government there was a breach of the contract and the payment of the differences was made on account of this breach and not in settlement of the contract, as enjoined upon by Explanation 2. We are unable to accept this contention. Once there was restriction on the movement of goods, the assessee was helpless and could not have honoured the contract by delivery of the commodity. Two courses were open. The petitioner could have taken the stand that the contract was unenforceable on account of frustration and, as such, it had no liability to pay the dues to its constituents in Calcutta. Such a stand would be legally tenable. The petitioner did not choose this course. On the other hand, it preferred to maintain its business reputatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Calcutta constituents was not settlement of the contract. Before indicating the fallacy of this reasoning, it would be appropriate to refer to the facts of the aforesaid case on the basis of which it was held therein that the payment of the difference in price was not a speculative transaction. The assessee in that case entered into a contract with a Japanese company at Tokyo. The first two parts of the contract were complied with. The third part was to consign certain tons of Indian iron ore to the Japanese company. This could not be supplied as the Japanese company defaulted in performance of their part of the contract and did not open a letter of credit as agreed upon. For breach of the contract, the assessee-company claimed from the Jap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was no breach of contract. By frustration, the contract became unenforceable. It was open to the petitioner to resile from the contract and take the stand that the residual contractual obligation, after the Orissa law came into operation, was incapable of performance. Without doing so and without any pressure from the Calcutta constituents, the petitioner, to save its business reputation, honoured the contract which amounts to settlement of the contract within the meaning of Explanation 2. On the aforesaid analysis, we hold that the impugned transactions were speculative. Under the proviso to section 24(1), the loss so sustained in the speculative transactions which are in the nature of a business cannot be construed as " business ..... X X X X Extracts X X X X X X X X Extracts X X X X
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