1965 (10) TMI 10 - SC - Income Tax

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there was actual delivery of the commodity within the meaning of Explanation 2 to section 24(1) of the Indian Income-tax Act, 1922 ? Whether, on the facts and in the circumstances of the case, the term scrips in Explanation 2 to section 24(1) of the Indian Income-tax Act, 1922, can refer to scrips pertaining to any commodity or to stocks and shares alone ? Held that - We need not express an opinion at this stage on the soundness of the view of the Appellate Tribunal in the present case and of are of the opinion that fairly arguable questions of law arise and the High Court should have directed the Appellate Tribunal to state the case and refer it to the High Court. Accordingly, the appeal is accepted and we direct the Appellate Tribunal to state the case and refer it to the High Court.

Summary

Issues:
1. Disallowance of loss incurred in speculative transactions.
2. Interpretation of "actual delivery" and "scrips" in Explanation 2 to section 24(1) of the Income-tax Act.
3. Rejection of application under section 66(2) by the High Court.

Analysis:

The case involved an appeal against the disallowance of a loss incurred in speculative transactions by M/s. Shri Govind Commercial Co. The Income-tax Officer disallowed the loss on the grounds that the transactions were speculative in nature as deliveries were not taken. The appellant contended that although physical delivery was not taken, the receiving and making over of delivery orders constituted "actual delivery or transfer of the commodity or scrips" as per Explanation 2 to section 24(1). The Appellate Assistant Commissioner rejected the contentions, but the Appellate Tribunal accepted them, stating that payments were made for the full value of goods purchased, making the transactions non-speculative.

The Commissioner of Income-tax raised questions regarding the interpretation of "actual delivery" and "scrips" in Explanation 2 to section 24(1) before the Appellate Tribunal. The Tribunal rejected the application, citing the decision in Duni Chand Rataria's case as precedent. Subsequently, the Commissioner filed an application under section 66(2) before the High Court, which was dismissed. The High Court held that the questions raised were covered by the Supreme Court decision in Duni Chand Rataria's case, and hence, the second question did not arise.

The Supreme Court allowed the appeal, stating that the questions raised were arguable questions of law. The Court opined that the High Court should have directed the Appellate Tribunal to state the case and refer it to the High Court for further examination. The Court did not express an opinion on the soundness of the views taken by the Appellate Tribunal or the Calcutta High Court in a related case. The appeal was allowed, and the Appellate Tribunal was directed to state the case for reference to the High Court, with no order as to costs in the Supreme Court.