1991 (1) TMI 186 - AT - Income Tax

Summary

Issues Involved: Disallowance of a claimed business loss as speculative loss; interpretation of "actual delivery or transfer" under Section 43(5) of the IT Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance of Claimed Business Loss:

The primary issue in this appeal concerns the disallowance of a loss amounting to Rs. 9,175, which the assessee claimed as a "business loss." However, the Income Tax (IT) authorities classified it as a loss from "speculative transactions." The assessee, a registered firm dealing in grain, pulses, oil seeds, and running an oil mill, claimed that the loss arose from transactions involving the purchase and sale of sugar through brokers on an ex-factory delivery basis. The IT authorities noted that these transactions were executed on the same day, with resultant losses recorded in the books, leading them to conclude that the contracts were settled without actual delivery or transfer of the commodity, thus being speculative in nature. Consequently, the loss was not allowed to be set off against other income of the assessee. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the findings and conclusions of the Income Tax Officer (ITO).

2. Interpretation of "Actual Delivery or Transfer" under Section 43(5) of the IT Act, 1961:

The assessee's advocate argued that the IT authorities overlooked the fact that the "saudas" (contracts) for purchasing sugar from factories were made through brokers well before the actual purchase dates, and that ex-factory delivery amounted to "constructive" delivery within the meaning of Section 43(5) of the IT Act, 1961. The Senior Departmental Representative countered that there was no evidence of actual delivery or transfer of the commodity, either directly or constructively, in favor of the assessee. Citing Section 43(5) and relevant case law, it was argued that neither mere intention to take delivery nor symbolic delivery would suffice to meet the requirement of 'actual delivery or transfer' to exclude the transaction from being speculative.

3. Legislative Intent and Legal Interpretation:

Section 43(5) defines a "speculative transaction" as one where the contract for purchase is settled otherwise than by actual delivery or transfer of the commodity. The use of the term 'actual' signifies the need for physical movement of the commodity from seller to purchaser. This physical movement can be direct or through an authorized agent, which would constitute constructive delivery. However, symbolic delivery, where property in goods passes without actual possession, does not meet this requirement. The judgment emphasized that for a transaction to be excluded from the definition of speculative, actual or constructive delivery must be proven.

4. Facts and Evidence in the Instant Case:

The assessee claimed to have contracted to purchase 300 bags of sugar from two factories through a broker, with all bags sold on the same day as purchased. However, it was admitted that no delivery of the sugar bags was taken by the assessee or any authorized person. There was no evidence of delivery or transfer to the alleged purchasers. The contracts were settled periodically without actual delivery. The Tribunal concluded that the transactions were settled otherwise than by actual delivery or transfer, agreeing with the IT authorities that the loss was speculative and not allowable as a business loss.

Conclusion:

The Tribunal upheld the IT authorities' decision, concluding that the loss in question was speculative and not allowable as a business loss. The appeal was dismissed.