9911796707
TMI Blog1980 (7) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... Reg. Item (i): The assessee claimed bad debt of Rs. 52,105 in the account of M/s. Radheyshyam Ramkishan of Nidwai which was a proprietary concern of Sri Radheyshyam. This concern was doing commission agency in food grains, etc. The assessee was purchasing oil seed through this party. There were regular transactions and these were that in the previous year relevant for asst. yr. 1972-73 the assessee paid by way of advances Rs. 9,84,431 and against that goods purchased amounted to Rs. 9,29,102 so that at the close of the previous year there was debit balance of Rs. 55,310. In the next previous year further advances were made and the total including the closing debit balance aforementioned was Rs. 2,48,192 against which the value of the goods purchased was Rs. 1,40,356. This left closing debit balance of Rs. 1,07,836. In the previous year relevant for asst. yr. 1974-75, with which we are concerned in the present appeal, no further advances were made to this party as the assessee started doubting the credit-worthiness of the party and during the year Rs. 55,731 was recovered leaving the balance of Rs. 52,105 which was written off on the last day of the previous year. Before writing off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te off such huge amount without first trying the law in a Court of law. I, therefore, hold that on the facts and in the circumstances of the case, the ITO was justified in disallowing the claim for bad debt amounting to Rs. 52,105 and hence the addition is confirmed". 4. Against the decision of the lower authorities, the assessee has come up in appeal to the Tribunal. Before us a detailed paper book has been filed and our attention has been drawn to the letter dt. 22nd July, 1976 which was written to the ITO, certificate of the, Chairman, Municipal Board, Nidwai dt. 4th Nov., 1973, the registered notice dt. 5th Nov., 1973 served on the party and also the written submissions made before the learned AAC which are at pages 15 to 19 of the assessee's paper book. The ld. counsel for the assessee emphasised that the assessee has regular dealings with this party and only when creditworthiness of the debtors became doubtful, the assessee stopped business dealings and insisted upon recovery of the balance due from the debtor. After continuous efforts the assessee could recover Rs. 55,731 only. Local enquiries were made which showed that this party did not have any assets. This fact was ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Basudeo Prasad. Rs. 1,500 had to be paid to this party by way of settlement. The authorities below treated this amount as speculation loss on the ground that no delivery of the goods had been given. The ld. Counsel for the assessee invitees our attention to para 3 of the letter dt. 22nd July, 1976 written to the ITO which is at page 5 of the assessee's paper book to show that in fact one wagon of oil was duly despatched but since there was fall in prices, the party concerned refused to take delivery and in order to persuade the party to accept the goods, Rs. 1,500 was paid by way of settlement. It has thus a case in which delivery of the goods was given. The loss in question had arisen in the regular course of business and should have been allowed as business loss. In drum account there was debit balance Rs. 3,539 representing the value of drums. As these were totally damaged by constant use, the assessee had written off the entire amount. Out of this ITO disallowed Rs. 500 on the ground that even if the drums were damaged, there would have some value. The ld. AAC sustained the disallowance. Before us it is urged that the drums are used by the assessee either for storage of oil o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard to levy of the cess on sale of oil, the amount in question was not paid to the Government and was credited to "Amanat account". It was stated by the assessee that it was not a trading receipt and that the amount represented liability of the assessee which the assessee would have to fulfil in case the dispute was decided against the assessee. In support of the view that in these circumstances the receipt of Rs. 6,275 could not be treated as revenue receipt, reference was made to Bombay High Court decision in the cases reported at 62 ITR 34 and 102 ITR 428. The ITO, however, took a different view and he included the amount in question on the ground that it was amount received in the course of the assessee's business and was assessable since it was not payable to the Govt. Before the ld. AAC it was pointed out that the ITO was not right in his conclusion that the amount in question was not payable to the Government. In fact, the dispute with regard to the cess on oil was going and, therefore, the amount had been credited in the "Amanat for cess account". The amount, it was stated, could not be treated as the assessee's trading receipt. Support was derived from Bombay High Court de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute with the Government, the assessee had not paid these amounts in the Govt. Treasury. No expenditure was also claimed by the assessee on the ground of accrual of the liability for the expenditure under the mercantile system of accounting. The claim of the assessee was that the amount in question was held in trust either for the customers or for the Government and, therefore, it could be treated as a trading receipt of the assessee. It was a statuary collection which the assessee would pay to the Govt. In the event of a decision in favour of the levy of the cess and otherwise, it will be obligatory on the part of the assessee to refund these amounts to the customers. In support of the proposition that the amount was held in trust either for the Government or for the customers, reference has been made to Supreme Court decision in the case of Tolly gunge Club Ltd. And another, Supreme Court decision in the case of Bijli Cotton Mills (P) Ltd (7). In the former case the club, according to it sown resolution passed in 1945 at a General body meeting, was collecting from its members, over and above the admission fee a surcharge of 8 which was to go to the Red Cross fund. Subsequentl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso has not arisen. Revenue's reference to Gujarat High Court decision in Motilal Ambaidas vs. CIT is obviously misconceived as the issue involved therein, is entirely different. 10. The decisions cited by the assessee's counsel are more appropriate and applying the same to the facts of the case, we held that the net receipt of Rs. 6,257 could not be assessed as the trading receipt of the assessee. Hence we direct that the addition be deleted. 11. Reg. Item (v): ITO found a sum of Rs. 17,316 debited to the oil and khal account as payment made on settlement to various parties. It was claimed as business loss having been incurred in the normal course of the trading in oil and khal. ITO treated the same as speculation loss since in these cases delivery of the goods had not taken place and hence he rejected the assessee's claim. The ld. AAC also noticed that the delivery of the goods had not taken place in these cases and, therefore, in this view also the ITO was right in treating the amount in question as speculation loss. 12. Before us it is vehemently urged by the ld. counsel for the assessee that the amount in question represented payment of damages for breach of contract mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract or after the breach of the contract, in either case it is settlement of the contract, by payment of difference and without the delivery of the goods. On that view it was urged that the authorities below had rightly treated the amount in question as speculation loss. 14. We have considered the rival submissions. We have also gone through the various decisions referred to on both sides. At the very outset we must that the Supreme Court decisions referred to by the Revenue have no application to the present case. In those cases the question before Their Lordships was whether in a case wherein only delivery orders changed hands without actual delivery of the goods, it could be said that the transaction amounted to a speculative transaction in terms of s. 24(1) of the IT Act, 1922. Sec. 43(5) of the IT Act, 1961. Their Lordships laid down no doubt that actual delivery for the purpose of these provisions meant real as opposed to national or constructive delivery. Their Lordships, however, were not considered with a case in which breach of the contract had taken place. They were concerned with the case in which contracts subsisted and the delivery orders had changed hands. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the contract, what can be settled is only the right to damages resulting from the breach itself. Their Lordships of the M.P. High Court in the case of Thankurlal Shiv Prasad Poddar vs. CIT (13) observed. "By the use of the expression 'settled' in the definition of a speculative transaction, the legislature meant to deal with the performance of a contract by the parties and not with its non-performance. If the contract is performed by actual delivery of the contracted commodity, such a transaction falls outside the purview of a speculative transaction as defined in Expln. (2) to s. 24(1) of the Act. If the contract is, however, performed otherwise than by actual delivery or transfer of the contracted commodity, then the contract is so settled as to constitute it a speculative transaction as defined by the aforesaid provision. Therefore, the expression "contracts settled" occurring in Expln. (2) to s. 24(1) of the Act to be construed as contract performed. It cannot be held to cover a case where, in consequence of non-performance of a contract, parties resolve their disputes arising out of the breach of the contracts. Such a settlement, in the sense of arranging matters in disput ..... 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