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TMI Blog1978 (7) TMI 165X X X X Extracts X X X X X X X X Extracts X X X X ..... e Gujarat High Court in the case of CIT, Gujarat II vs. Patel Brothers and Co. Ltd. And CIT, Gujarat-I vs. Gautamkumar Rajendrakumar and found that the assessee's place of business was situate about a mile away from Tiruchengode town and it had a depot there. The Tribunal further found that having regard to the expenditure incurred in the provision of food and drinks to the customers it could not be said that the expenditure was lavish and extravagant or of wasteful nature, but the same was only in the nature of bare necessity and by way of ordinary courtesy. The Tribunal held that the expenditure was incurred for business purposes and therefore should be allowed. The facts and circumstances in this year remain the same. The Madras Benches ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... livery was effected. It was, therefore thought more profitable to pay compensation and sell the quantity in the market and thereby earn higher profits. As the company failed to fulfil the contract, it was compelled to pay this compensation. This is a payment for non-fulfilment of a contract obligation to supply 25 cases of 100' yarn at a particular price and hence, this will be treated as a penalty. This will be disallowed as a speculative loss following the decisions of the Madras High Court in Muthukumaran Pillai vs. CIT(6), Meenakshi Achi vs. CIT (6) and Chinnasamy Chettiar vs. CIT (2)Rs. 4,000". On appeal the AAC upheld the ITO's order. The learned Counsel for the assessee urged before us that the transaction was not a speculative tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is stated that in view of this the assessee agreed to pay compensation which the other party agreed. The assessee carried on business of running a spinning mill and it is common ground that the above-mentioned contract is a solitary transaction which resulted in non-delivery of goods but payment of compensation. The ITO in the assessment order has found that the contractual obligation was not fulfilled by the assessee. After the contract is broken the assessee has paid the compensation for the breach. The learned counsel for the assessee urged that in such circumstances the transaction cannot be characterised as a speculative transaction under s. 43(5) of the IT Act, 1961 as laid down by the Bombay High Court in the case of CIT vs. India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s against its income from other business. Again the Madras High Court in the case reported in 96 ITR 557 considered a case where the assessee had entered into seven contracts and that the High Court found that it was not the case of the assessee that even if the transactions were considered as speculative they were not in the nature of speculation business. The High Court held that the transactions amounted to a speculative business and therefore under s. 73 of the Act the losses in speculation business could not be set off except against profits and gains of another speculation business. In the instant case as pointed out already the assessee was carrying on the business of running a spinning mill and it did not carry on any speculation bu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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