1973 (4) TMI 5 - SC - Income Tax

Whether the amounts claimed by the appellants as their losses in transactions in gunny bags which were concluded by the transfer or delivery of pucca delivery orders were speculative losses under Explanation 2 to the proviso to s. 24(1) - authorities under the Act have completely misdirected themselves as to the questions of fact to be decided. Hence, there is need for a fresh enquiry. Therefore it will be in the interest of the parties to remand the cases to the Tribunal for a fresh enquiry

Issues Involved:
1. Whether the losses claimed by the appellants in transactions involving gunny bags settled by pucca delivery orders (P.D.Os.) are speculative losses under Explanation 2 to the proviso to section 24(1) of the Indian Income-tax Act, 1922.

Issue-wise Detailed Analysis:

Issue 1: Speculative Losses under Explanation 2 to Section 24(1)
The primary issue revolves around whether the losses claimed by the appellants (assessees) in transactions involving gunny bags, which were concluded by the transfer or delivery of pucca delivery orders (P.D.Os.), are speculative losses under Explanation 2 to the proviso to section 24(1) of the Indian Income-tax Act, 1922.

Facts of the Case:
- The assessee, a company dealing in jute and jute goods, claimed losses in the sale and purchase of gunny bags for the assessment years 1957-58, 1958-59, and 1960-61.
- The Income-tax Officer classified these losses as speculative, stating that the contracts were settled by P.D.Os. rather than actual delivery of goods.
- The Appellate Assistant Commissioner reversed this decision, considering the transactions as purchases and sales of jute goods, thus allowing the losses as business losses.
- The Income-tax Appellate Tribunal, following the Calcutta High Court's decision in D.M. Wadhwana v. Commissioner of Income-tax, reinstated the speculative classification.
- The High Court upheld the Tribunal's decision, leading to the current appeals.

Legal Provisions:
- Section 24(1) of the Act allows for the set-off of losses against other income, but its proviso excludes speculative losses from being set off against non-speculative business profits.
- Explanation 2 defines a speculative transaction as one settled otherwise than by the actual delivery or transfer of the commodity.

Court's Analysis:
- The Tribunal concluded that the assessees did not deliver the goods covered by the P.D.Os. to their buyers, a finding not contested by the appellants.
- However, the appellants argued that the Tribunal failed to investigate whether the ultimate buyers of the P.D.Os. took actual delivery of the goods.
- The court emphasized that a valid transfer does not necessitate actual delivery to the immediate transferee; delivery to the ultimate buyer suffices.
- The court referenced previous decisions, including Duni Chand Rataria v. Bhuwalka Brothers Ltd. and Bayyana Bhimayya v. Government of Andhra Pradesh, to support the notion that intermediate transfers of delivery orders can culminate in actual delivery to the final buyer, thereby validating the initial transfers.

Conclusion:
- The Tribunal and High Court erred by not examining whether the ultimate buyers of the P.D.Os. took actual delivery.
- The court acknowledged the trade practice in Calcutta where P.D.Os. are frequently transferred until the goods are delivered to the final buyer, usually a shipper.
- The court remanded the cases to the Tribunal for fresh inquiry, instructing it to investigate the trade practice and whether the ultimate buyers took delivery of the goods covered by the P.D.Os.

Order:
- The appeals were allowed, the High Court's answers vacated, and the cases remanded to the Tribunal for fresh disposal according to law. The Tribunal was directed to consider additional evidence and the relevant bye-laws of the East India Jute and Hessian Exchange Ltd., Calcutta.

Costs:
- The costs in the Supreme Court and the High Court were to be costs in the cause.

Final Disposition:
- Appeals allowed. Cases remanded.

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