TMI Blog1993 (9) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... on of this court in CIT v. Indokem Pvt. Ltd. [1981] 132 ITR 125. In that view of the matter, we answer question No. 1 in the affirmative, i.e., in favour of the assessee and against the Revenue. As regards question No. 2, the submission of counsel for the assessee is that it is covered in favour of the assessee by the decision of the Supreme Court in CIT v. Shantilal P. Ltd. [1983] 144 ITR 57 and the decisions of this court in CIT v. Asian Chemical Co. [1992] 197 ITR 634 and CIT v. Jaydwar Textiles [1993] 202 ITR 569. Mr. G. S. Jetly, counsel for the Revenue, however, does not agree with the above submission. He contends that the decisions relied upon by the assessee have no application to the facts of the present case. According to him, in the instant case, the assessee had paid the difference between the agreed price of the goods and the market price. It is not a case where any "liquidated damages" had been paid. The decisions of this court and the decision of the Supreme Court referred to above are applicable only to cases "where damages are paid for breach of contract and not to payments made in fulfilment of a contract whereunder purchase or sale of goods is settled otherwis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We are concerned with the sense of law, and it is that sense which must prevail in sub-section (5) of section 43. Accordingly, we hold that a transaction cannot be described as a 'speculative transaction' within the meaning of sub-section (5) of section 43, Income-tax Act, 1961, where there is breach of the contract and on a dispute between the parties damages are awarded as compensation. The above observation makes it abundantly clear that a transaction cannot be described as a "speculative transaction" within the meaning of section 43(5) of the Act where there is a breach of the contract and on a dispute between the parties damages are awarded as compensation. Section 73 of the Contract Act deals with the consequences of breach of contract and payment of compensation for loss or damage caused by breach of contract. This section, so far as relevant, reads : " 73. Compensation for loss or damage caused by breach of contract. -When a contract has 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h payment cannot be termed as "payment made on periodical or ultimate settlement of the contract for purchase and sale of the commodity otherwise than by actual delivery or transfer of the commodity" contemplated by section 43(5) of the Act. That would happen only in cases falling under section 63 of the Contract Act which provides : "63. Promisee may dispense with or remit performance of promise.-Every promisee 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." We may now consider the facts of the present case in the light of the above discussion to determine whether the payments made by the assessee can be held to be payments made in satisfaction of the contract as contemplated by section 63 of the Contract Act or these are payments by way of compensation for breach of contract within the meaning of section 73 of the Contract Act. The assessee carried on the business of manufacture and sale of metal tubes and rods. For that purpose, it used to purchase brass sheets from different parties for use as raw materials in the manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of differences on the settlements made prior to or on the date of delivery. " Hence this reference at the instance of the Revenue. Learned counsel for the Revenue contends that it is a case of fulfilment of the contract by payment of the difference between the contracted price and the market price on the due date of delivery within the meaning of section 63 of the Contract Act. On the other hand, the contention on behalf of the assessee is that it is a case of breach of contract for which compensation had been paid by the assessee. On a careful consideration of the rival submissions in the light of the provisions of sections 63 and 73 of the Contract Act and the ratio of the decision of the Supreme Court in CIT v. Shantilal P. Ltd. [1983] 144 ITR 57, we are of the clear opinion that it is a case of breach of contract and the payments made by the assessee are by way of damages caused thereby. It clearly falls in illustration (c) of section 73 set out above. It is not a case of performance of the contract within the meaning of section 63 of the Act. The payment of Rs. 5,85,093 by the assessee, therefore, cannot be termed as a "speculative transaction" within the meaning of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for that assessment year: Provided that the business or profession for which the loss was originally computed continued to be carried on by him in the previous year relevant for that assessment year ; and (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on : . . . ..." "73. Losses in speculation business.-(1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business. (2) Where for any assessment year any loss computed in respect of a speculation business has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and (i) it shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year ; and (ii) if the loss cannot be wholly so set off, the amount of loss no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r concern in the nature of trade, commerce or manufacture." It is evident from the above definition, that "an adventure in the nature of trade" has also been included in the expression "business". Dealing with the effect of inclusion of "an adventure in the nature of trade" in the definition of "business", the Supreme Court, in G. Venkataswami Naidu and Co. v. CIT [1959] 35 ITR 594 (at pages 607-608) observed: "When section 2, sub-section (4), refers to an adventure in the nature of trade it clearly suggests that the transaction cannot properly be regarded as trade or business. It is allied to transactions that constitute trade or business but may not be trade or business itself. It is characterised by some of the essential features that make up trade or business but not by all of them ; and so, even an isolated transaction can satisfy the description of an adventure in the nature of trade. Sometimes it is said that single plunge in the waters of trade may partake of the character of an adventure in the nature of trade. This statement may be true ; but in its application due regard must be shown to the requirement that the single plunge must be in the waters of trade. In other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of dealings either actually continued or contemplated to be continued with a profit motive. In State of Gujarat v. Raipur Manufacturing Co. Ltd. [1967] 19 STC 1, the Supreme Court held that whether a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit motive. By the use of the expression "profit-motive" it is not intended that profit must in fact be earned. Nor does the expression cover a mere desire to make some monetary gain out of a transaction or even a series of transactions. It predicates a motive which pervades the whole series of transactions effected by the person in the course of his activity. Moreover, the burden of proving that the transactions carried on by an assessee were of such a nature as to constitute "speculation business" is on the taxing authorities. If the authorities come to a conclusion without making necessary investigation in that regard, such an inference cannot be sustained. In the instant case, even if the transaction of payment of the sum of Rs. 5,85,093 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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