TMI Blog1973 (3) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... AMY J. - The assessee carries on business in the purchase and sale of yarn in Tirupur. During the previous year ending October 7, 1962, relevant for the assessment year 1963-64, the assessee entered into a number of contracts. In regard to three contracts of sale dated 13th, 16th and 19th July, 1962, and one contract of purchase dated 12th September, 1962, the assessee did not give or take actual delivery of yarn but the contracts were cancelled. The assessee paid a sum of Rs. 7,750 in respect of all these contracts and claimed these amounts at business losses incurred by him. The Income-tax Officer considered that this is a loss on speculation business and, therefore, could not be set off against the income from business but could be carried forward to be set off against speculation profits. On appeal, the Appellate Assistant Commissioner was of the view that the above contracts were entered into in the usual course of yarn trade, that the cancellation of contracts and payment of differences was a normal incident in yarn trade, that the contracts entered into by the assessee did not represent a speculative sale or purchase but represent a normal contract entered into by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------------------------------------------------------------------------------------------------------------------------------- Rs. P. Rs. P. 80 s. Sakthi Textiles Mills Cotton yarn purchased from you on 13-7-1962. 20 68.00 Resold to you 73.50 ---------- Difference 5.50 2,200.00 ------------------------------------------------------------------------------------------------------------------------------------------------ The contract of sale dated July 16, 1962, is also on identical terms except that the quantity and description of yarn and the difference in price is different. In respect of this contract a sum of Rs. 2,400 was paid on September 7, 1962, after the period of delivery. A bill similar to the other case was also passed. The third contract dated July 19, 1962, is also similar to the first contract. But the wording of the receipt was slightly different. It stated that with reference to the contract dated July 19, 1962, for the purchase of 25 bales of 60s S. B. M. the purchaser has received Rs. 1,500 as per settlement and that the parties mutually agreed to cancel to contract. There was no bill similar to the one which we have noticed in the other cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the parties settled the contracts by paying the difference of price does not establish that it was the intention of the parties even at the time of contract, not to give delivery of the goods and that unless there was evidence of such an intention at the time of contract the transaction cannot be called a speculative transaction. It was further contended that there was a breach of the contracts when the deliveries of the goods were not effected before the periods of delivery fixed for contracts and that the amounts paid by the assessee were, therefore, damages for breaches of contract and the damages were measured and settled on the difference of prices. The word "settled" in section 43(5) of the Act means, according to the learned counsel, " settled before breach ". The learned counsel also submitted that under the settlement there was a purchase and resale to the assessee, though notionally, as evidenced by the bills, and that satisfies the tests of delivery of the commodities under the settlement. In this connection, he relied on the decision in Commissioner of Income-tax v. Pioneer Trading Company Private Ltd. In that case the assessee, a private limited company, entered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts hereinbefore mentioned, it appears that the assessee proceeded on the footing of a breach of contract by the purchasing Japanese company, namely, its default in opening a letter of credit and on that footing claimed damages, measured on the difference of price on the date of the breach. As we read Explanation 2 to section 24(1), we do not feel that a claim based on breach of contract comes within the meaning of contract settled as used in Explanation 2. In our reading, the expression 'contract settled' means 'contract settled before breach'. After breach of contract, the cause of action is no longer based on the contract itself but on its breach. Since the money which the assessee received in the instant case, in our reading of the facts, was the amount of damages suffered by it by reason of breach of the contract, the nature of the transaction was not speculative transaction as defined in Explanation 2. The nature of the contract, which we have recited hereinbefore, gives no implication that the contract was of speculative nature. If that contract had been settled we do not know whether it would have fallen within the meaning of Explanation 2. We have held that the contract was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here delivery was given, but he had refused to allow losses where they were the subject-matter of settlement contracts and no delivery was given. The case arose under the Indian Income-tax Act, 1922, and the court held on the scope of Explanation 2 to section 24(1): "It has been provided that, subject to three exceptions, a speculative transaction means a transaction in which there is a contract for purchase and sale of commodities, where there is a periodical or ultimate settlement otherwise than by the actual delivery or transfer of the commodity. Simply put, it means that where there is no delivery under a settlement contract, it is a speculative transaction. On the other hand, however speculative the transaction might be, if there is delivery, it cannot be considered as a speculative transaction for the purposes of section 24. " This decision of the same court was not referred to in Commissioner of Income-tax v. Pioneer Trading Company (Privte) Ltd. The decision in Hoosen Kasam Dada (India) Ltd. v. Commissioner of Income-tax was followed in Abdul Gani Haji Habib v. Commissioner of Income-tax. It was held therein that the transactions which are settled by payment of differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act is a " real " delivery and not a " notional " delivery. In fact, the section uses the words " actual delivery ". Mere making of entries as if there was a purchase and resale without effecting actual delivery of the commodity will not satisfy the test of actual delivery in section 43(5). A similar view was taken by the Calcutta High Court in D. M. Wadhwana v. Commissioner of Income-tax. In that case, the assessee, among other contracts, entered into a contract with one Kedar Nath Hariram firm to sell to the said firm 500 bales of heavy cess at the rate of Rs. 180 for 100 bags on September 1, 1951. Out of this 250 bales were deliverable on April 30, 1952. On October 31, 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 100 bags ; deliveries under the second contract were to be made as under the first contract. On April 15, 1952, Kedar Nath Hariram firm drew up a bill for Rs. 2,40,441-9-0 against the assessee being the value of 250 bales in pursuance of the second contract dated October 10, 1951. On the same date the assessee drew up a bill against Kedar Nath Hariram firm f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal had not considered the question. Further, a point of law raised before the Tribunal but not decided could be raised in a reference to this court provided the question of law referred included that point. The questions which have been referred to us require a consideration of this point on the nature of the transactions and whether the transaction is a speculation business. We, therefore, proceed to consider the questions without remanding the matter for fuller consideration by the Tribunal. Explanation 2 to section 28 of the Act states that when a business is carried on in speculative transaction, that business is deemed to be distinct and separate from any other business. Section 73 enacts that the losses in speculation business cannot be set off under section 70 against any income under the head " business or profession " nor under section 71 against income under any other head, but it can be set off only against profits, if any, of another speculative business. In the instant case, the four transactions were entered into as part of the general business of the assessee. The assessee is a dealer in yarn and during the assessment year he had entered into a number of forward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st not lose sight of the fact that in the proviso to section 24 (Indian Income-tax Act, 1922) not only the words 'speculative transactions' are mentioned but they are followed by the words 'which are in the nature of a business'. He argues that if you have a business including a number of transactions of the same nature, then if you are going to single out certain specified transactions as speculative transactions they must form a distinct or separate group. He argues that, in the present case, the facts are otherwise. In other words, in a series of transactions in gunnies, some transactions were non-speculative and others were speculative. Under such circumstances, the proviso does not apply. I must admit that I am unable to understand the logic of this argument. Perhaps, it is putting forward the views of Messrs. Kanga and Palkhivala in another form. I must point out that if that was so, the introduction of Explanation 1 would have been utterly superfluous. Explanation 1 says that where 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. In considering the proviso, ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
