9911796707
TMI Blog1969 (8) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 by paying the differences. In the assessment year 1958-59 it paid a sum of Rs. 17,060.10 ; the amount paid in the assessment year 1959-60 was Rs. 2,203. The Income-tax Officer disallowed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 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." (The provisos to Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 reputation by honouring the contract. The contract was thus settled by paying the differences and not by delivery of the commodity. The term "Settled" would only mean " acted upon ". The contract was thus act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Japanese company the difference of the price of iron ore not supplied. The claim for the difference was ultimately settled and the Japanese company agreed to pay the difference and actually paid the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 expenditure ". Such loss should, however, be taken into account in any other business consisting of speculative transactions. The Tribunal took the correct view. We would, therefore, answer the question i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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