1967 (9) TMI 35 - HC - Income Tax

Speculative transactions - Whether, Tribunal was justified in holding that the passing of pucca delivery orders did not amount to actual delivery of goods and the loss incurred in the transactions of purchase and sale was speculative loss within the meaning of Explanation 2 to section 24(1) of the Income-tax Act, 1922 - Held, yes

Summary

Issues Involved:
1. Whether the passing of pucca delivery orders amounted to actual delivery of goods.
2. Whether the loss incurred was speculative within the meaning of Explanation 2 to section 24(1) of the Indian Income-tax Act, 1922.
3. Whether the transactions were in the nature of a business within the meaning of the first proviso to section 24(1).

Issue-wise Detailed Analysis:

1. Whether the passing of pucca delivery orders amounted to actual delivery of goods:

The assessee argued that the delivery of pucca delivery orders signified the delivery of goods themselves. However, the Tribunal observed that there was no stipulation in the contracts that delivery of B.Twill would be fulfilled by delivering pucca delivery orders. The Tribunal noted that the chain of purchasers and sellers indicated no intention of passing the title to the goods covered by the delivery orders. The court cited the case of *D. M. Wadhwana v. Commissioner of Income-tax*, where it was held that the delivery orders did not constitute actual delivery of goods. The court concluded that there must be actual delivery or transfer of the commodity itself to take the transaction out of the definition of speculative transactions. Thus, the first ground of the assessee was rejected.

2. Whether the loss incurred was speculative within the meaning of Explanation 2 to section 24(1) of the Indian Income-tax Act, 1922:

The assessee's argument was that the transactions were fulfilled and not settled, and hence Explanation 2 was not attracted. The court distinguished the case from *Commissioner of Income-tax v. Ram Chandra Gupta and Co.*, where it was found that the contracts were fulfilled according to their terms and conditions and not settled. In the present case, the Tribunal found that the contracts were for the sale and purchase of B.Twill, with no stipulation for delivery orders. The court noted that the contracts were concluded without actual delivery of the commodity, thus falling within the definition of speculative transactions. The court referred to dictionary meanings of "settled" and concluded that the contracts were determined or concluded without actual delivery. Therefore, the second ground of the assessee was also rejected.

3. Whether the transactions were in the nature of a business within the meaning of the first proviso to section 24(1):

The Income-tax Officer observed that the assessee's deals in gunnies and B.Twills appeared to have no actual delivery of goods in most cases. The officer accepted the assessee's contention regarding other deals but treated the two transactions with Subhkaran Jhunjhunwalla as speculative. The court noted that the assessee was claiming the loss as a business loss, which arose from the assessee's business but was treated as a loss from speculation. Thus, the third ground of the assessee was rejected.

Conclusion:

All the contentions raised by the assessee failed. The court answered the question referred to it in the affirmative and against the assessee, concluding that the Tribunal was justified in holding that the passing of pucca delivery orders did not amount to actual delivery of goods and the loss incurred was speculative within the meaning of Explanation 2 to section 24(1) of the Indian Income-tax Act, 1922. The assessee was ordered to pay the costs of the reference.