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1966 (4) TMI 15 - HC - Income TaxBasic ingredients of speculative transactions are that the contracts are to be periodically or ultimately settled, and, the settlement would be otherwise than by actual delivery or transfer of commodity - there is no finding that there was any settlement of the contracts of purchase and sale and therefore one of the vital limbs of Expln. 2 to s. 24(1) of the IT Act is not found -transaction cannot brought within the mischief of a speculative transaction.
Issues:
1. Whether the transaction resulting in a loss of Rs. 33,736 was a speculation transaction under Explanation 2 to section 24(1) of the Indian Income-tax Act, 1922, disallowing the set-off of the said loss? Analysis: The case involved a partnership firm engaged in the business of paper bags, gunny bags, and other commodities. The firm entered into transactions involving the purchase and sale of delivery orders for gunny bags, a common practice in the Calcutta jute trade where actual delivery of goods does not occur. The Income-tax Officer disallowed the loss claimed by the firm, deeming the transactions speculative under Explanation 2 to section 24(1) of the Income-tax Act due to the absence of actual delivery. The Appellate Assistant Commissioner, however, held that the transactions were not speculative based on a Supreme Court decision and the legal transfer of title through delivery orders. The Appellate Tribunal upheld the Appellate Assistant Commissioner's decision, emphasizing that the transfer of title to goods in transit can be legally effected by transferring relevant documents of title. The Tribunal concluded that the transactions were not speculative as they were in line with the principles laid down by the Supreme Court. The revenue contended that the transactions were speculative as per the Act's provisions, arguing that a delivery order does not constitute a document of title unless goods are ascertained and set apart. On the other hand, the firm's counsel argued that the essence of a speculative transaction lies in the settlement of transactions without actual delivery or transfer of the commodity. The counsel highlighted that there was no settlement contract in the present case, as the delivery orders were sold against full price, negating speculation. The counsel did not rely on the Supreme Court's decision in a similar case, emphasizing the absence of settlement in the transactions. In analyzing the legal provisions and precedents, the Court considered the meaning of "settled" in the Act and the significance of actual delivery or transfer of the commodity. The revenue's reliance on previous judgments regarding the transfer of title and ascertainment of goods was countered by the firm's counsel, who argued that the Act's essence lies in settlement without actual delivery. The Court ultimately held that as there was no evidence of settlement in the transactions, the loss incurred was not due to a speculative transaction. In conclusion, the Court answered the question in the negative, ruling in favor of the assessee and awarding costs of the reference to them. Both judges concurred with the decision, and the issue regarding the speculative nature of the transactions was resolved in favor of the firm.
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