1968 (6) TMI 10 - HC - Income Tax

Assessee deals in jute and hessian - contracts were for purchase and sale of jute or hessian and, instead of actual delivery - Tribunal was justified in holding that the loss suffered by the transfer or delivery of pucca delivery orders was speculation loss under the second Explanation to the proviso to section 24(1) of the Indian Income-tax Act, 1922

Summary

Issues:
1. Whether the loss incurred by the assessee through the transfer or delivery of pucca delivery orders constitutes speculation loss under the second Explanation to the proviso to section 24(1) of the Indian Income-tax Act, 1922?

Analysis:
The case involved a reference under section 66(1) of the Indian Income-tax Act, 1922, regarding the treatment of a loss sustained by an assessee, a company dealing in jute and hessian, during the accounting year 1958-59. The Income-tax Officer classified the loss as speculative due to the absence of actual delivery of goods in the transactions. The Appellate Assistant Commissioner and the Tribunal upheld this classification. The main question referred to the court was whether the loss incurred through the exchange of pucca delivery orders amounted to speculation loss under the Act.

The court examined the relevant provisions of section 24(1) of the Income-tax Act, particularly the definition of speculative transactions in Explanation 2. It was noted that for a transaction to be speculative, it must be settled periodically or ultimately without actual delivery or transfer of the commodity. The court referred to a previous judgment where it was held that notional delivery through pucca delivery orders did not constitute actual delivery as required by the law.

The court distinguished the present case from previous decisions based on the nature of the contracts and the absence of actual delivery. It emphasized that settlement of contracts without actual delivery falls within the ambit of speculative transactions. The court also discussed the concept of "actual delivery" and concluded that delivery through pucca delivery orders did not meet the criteria of actual delivery as per the law.

Furthermore, the court referenced another judgment highlighting the requirement of actual delivery or transfer of the commodity to exclude a transaction from being classified as speculative. It was emphasized that contracts concluded without actual delivery constitute speculative transactions under the law.

In conclusion, the court answered the referred question in the affirmative, affirming that the loss incurred through the exchange of pucca delivery orders was indeed speculation loss under the second Explanation to the proviso of section 24(1) of the Income-tax Act. The court also ordered the applicant to pay the costs of the reference.

Judge K. L. Roy concurred with the judgment delivered by Sankar Prasad Mitra.