9911796707
TMI Blog1984 (7) TMI 236X X X X Extracts X X X X X X X X Extracts X X X X ..... , entered into a contract through its commission agent Hukumatrai Assudomal Bros., Bombay, to supply 9 1/2/10 tons of linseed oil at the rate of Rs. 46.50 per 10 kgs. to Godrej Soaps (P.) Ltd., Bombay. As per the contract, the goods were to be tendered between 1-4-1977 to 15-4-1977. The goods were, however, not delivered by the assessee to the purchaser. As per the instructions of the assessee the commission agent paid a sum of Rs. 21,937.50 as damages to the buyer and debited the assessee's account in their books on 19-4-1977 with this amount as also the expenses incurred in this behalf amounting to Rs. 717.82. These details were made available to the assessee by the commission agent as per the debit note No. 5 dated 22-4-1977. This amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in fact, he had in his possession ready goods, which could be supplied at the time of the settlement of the transaction if he had so intended and, therefore, the difference paid actually represented damages for breach of contract and accordingly allowed the appeal of the assessee. He came to this conclusion after taking into account the fact, that, during the period from 1-4-1977 to 15-4-1977, when the linseed oil as per the contract was to be supplied to the buyer, the assessee had actually in its possession manufactured linseed oil to the extent of 10,595 kgs. and, therefore, the settlement of the contract by payment of difference between the ruling price and the contracted price amounted to a hedging transaction, inasmuch as, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tehchand v. CIT [1976] 102 ITR 131 (Mad.) and Bhandari Rajmal Kushalraj v. CIT [1974] 96 ITR 401 (Mys.). 5. After careful consideration of the facts and circumstances of the case, we are of the opinion, that the sum of Rs. 21,937 paid to the buyer as a result of the failure of the assessee to deliver the goods as per the contract actually represents liquidated damages and, therefore, the same cannot be treated as a loss arising in a speculative transaction as defined in section 43(5). The assessee, no doubt entered into a forward contract for supply of 10 tons of linseed oil at Rs. 46.50 per 10 kgs. During the period 1-4-1977 to 15-4-1977, when the contract was to be performed, the assessee had also in its possession 10,595 kgs. of linsee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock in existence at the time of settlement and it had full capacity to fulfil the contract if it had so intended. In CIT v. Pioneer Trading Co. (P.) Ltd. [1968] 70 ITR 347, the Calcutta High Court held that a claim based on breach of contract does not come within the meaning of Explanation 2 to section 24(1) of the Indian Income-tax Act, 1922 corresponding to section 43(5) of the 1961 Act. They held that a contract settled means a contract settled before breach. According to them, after breach of contract, a cause of action is no longer based on the contract itself but on its breach. In this light, the Hon'ble High Court proceeded to hold that the damages received for breach of contract would not amount to a speculation profit. The Mysor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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