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TMI Blog1965 (4) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... Act?" The facts taken from the statement of case are as follows : The assessment year concerned is 1953-54, the corresponding accounting year being 2008 Gujarati Diwali year ending on October 18, 1952. The assessee is a member of the Gunny Trades Association and is a registered dealer in jute and hessian. In the accounting year mentioned above, the assessee entered into three transactions for purchase and sale of hessian bags, heavy cess, etc., with Kedar Nath Hariram. Under the first contract, the assessee agreed to sell to the said firm 500 bales of heavy cess at the rate of Rs. 180 per hundred bags, on September 1, 1951. Out of these, 250 bales were deliverable on April 30, 1952. On October 13, 1951, the assessee entered into a second contract with the same party agreeing to purchase 500 bales of the same quality of heavy cess at Rs. 216-8-0 per hundred bags. The deliveries under the second contract were to be made as under the first contract. The assessee incurred a total loss of Rs. 81,072 on the two contracts. The assessee entered into an agreement to purchase 300 bales of hessian from the said firm on August 20, 1951, deliverable on November 15, 1951. On September 22, 1951 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... none of the contracts were followed up by actual delivery of the goods. He, therefore, did not allow the set-off of the net loss against the business income of the assessee in view of the proviso to section 24(1) of the Income-tax Act. The Appellate Assistant Commissioner confirmed the disallowance. Elaborate arguments were put up before the Appellate Tribunal. In order to appreciate the same it is necessary to refer to the salient features of the terms and conditions of the contracts which were all in the same form. One of these contracts is an annexure to the statement of the case bearing date October 13, 1951. The firm of Kedar Nath Hariram appeared to have acted as the brokers in the transaction. The document shows that the said firm had bought by the order of International Trading Company (name and style in which the assessee worked) and on the assessee's account two lakhs bags of European mills' standard make, quality, etc., as per margin at the rate of Rs. 216-8-0 per hundred bags free alongside export vessel in the port of Calcutta. In the margin the quality of the bags, their weight, etc., are shown. The important terms and conditions of the contract were : " (1) Buyer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the words " periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips ". It was said that there was actual delivery or transfer of the goods inasmuch as there was no settlement contract or dealing in differences only : the parties actually sent pucca delivery orders of the mills along with their bills. These pucca delivery orders, according to the learned advocate for the assessee, represented the goods and as such the transactions never had any speculative element in them. The whole question before us is whether, by the exchange of delivery orders, the transactions avoided the mischief of the Explanation. It was argued that the exchange of delivery orders was one of permissible modes of delivery. This was sought to be supported by the decision of the Supreme Court in the case of Dunichand Rataria v. Bhuwalka Brothers Ltd. As that case proceeds largely on the construction and effect of the issue of pucca delivery orders by jute mills as expounded earlier in the case of Anglo-India Jute Mills Co. v. Omademull 2, it would be appropriate to take a note of the views expressed in that case. The facts in the Anglo-India Jute Mill Co.' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said that the defendant-company could not be heard to advance this plea, and for substantially the same reasons as precluded them from showing that cash had not been paid. He observed that "having regard to the terms of the delivery order, the known course of dealing in this market, Mr. Young's representations (who in reply to the enquiry as to whether the delivery orders were in order said that they were all right) and their own conduct, the defendant-company must be taken to have appropriated goods of the required quantity and description to this delivery order, and they cannot now be heard to deny that they held these goods for the plaintiffs. And it must be borne in mind that we have not to consider whether property passed as between the original sellers and buyers but whether, in the events that have happened, the sellers can assert this against the plaintiffs who have acted on the faith of the seller's representation that no lien existed and that they held goods to answer the delivery order. In my opinion, the defendant-company's contention on this head must also fall, for, in the circumstances, the defendant-company have represented that the delivery order would pass and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessary for the storage and supply of jute goods. The court had to consider certain provisions of the West Bengal Jute Goods Future Ordinance, 1949, section 2 whereof provided that unless there was anything repugnant in the subject or context " a contract relating to jute goods futures " means a contract relating to the sale or purchase of jute goods made on a forward basis : (a) providing for the payment, or receipt, as the case may be, of margin in such manner and on such dates as may be specified in the contract, or (b) by or with any person, not being a person who,-- (i) habitually deals in the sale or purchase of jute goods involving the actual delivery of possession thereof, or (ii) possesses, or has control over, a godown and other means and equipments necessary for the storage and supply of jute goods. " The terms and conditions of the standard form of the Indian Jute Mills Association contained clauses (1), (3) and (4) which are the same as clauses 1, 2 and 3 of the contract in this case. The Supreme Court noted that " in respect of the goods deliverable under the contracts the mills would, in the case of goods sent by them alongside the vessel in accordance wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cting parties that the shipper obtains the goods from the manufacturer and if only actual delivery of possession as contrasted with symbolical or constructive delivery were contemplated it would be impossible to carry on the business. If the narrow construction which was put by the appeal court on the expression 'actual delivery of possession' was accepted, it would involve each one of the intermediate parties actually taking physical or manual delivery of the goods from their sellers and again in their turn giving physical or manual delivery of the goods which they had thus obtained to their immediate buyers. Such an eventuality could never have been contemplated by the Government and the only reasonable interpretation of the expression 'actual delivery of possession' can be that actual delivery as contrasted with mere dealing in differences was within the intendment of the Ordinance and such actual delivery of possession included within its scope symbolical as well as constructive delivery of possession. The court laid great stress on the words used in section 2(1)(b)(1) 'involving the actual delivery of possession thereof' and held that the word 'involving' in the context meant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... livery means voluntary transfer of possession from one person to another--the definition being the same as that given in section 62(1) of the English Sale of Goods Act. A symbolical delivery of goods divesting the seller's possession and lien may be sufficient compliance with the Sale of Goods Act. In enacting the Explanation 2 of section 24(1) of the Income-tax Act, the legislature did not intend to affect any transaction of sale wherein the goods were not physically delivered by the seller to the buyer but only laid down that if there was no actual or physical delivery, the loss, if any, would be a loss in a speculative transaction which could be allowed to be set off only against a profit in a transaction of the same nature. Even before the enactment of the Sale of Goods Act on the statute book it was held in Chaplin v. Rogers by Lord Kenyon that " where goods are ponderous and incapable of being handed over from one to another, there need not be an actual delivery, it may be done by that which is tantamount, such as the delivery of the key of a warehouse in which the goods are lodged, or by delivery of other indicia of property. " The question as to whether property in jute g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the holders of the delivery orders being the owners of the property who had not been served with the orders of acquisition and requisition, the property in the goods had passed to Government on September 30, 1946. The Supreme Court found on the evidence " that the goods covered by the pucca delivery orders are not ascertained at the time such orders are issued and ascertainment takes place in the shape of appropriation when the goods are actually delivered in compliance therewith. Therefore, till appropriation takes place and goods are actually delivered, they are not ascertained. The contract represented by the pucca delivery orders is a contract for the sale of unascertained goods and no property in the goods is transferred to the buyer in view of section 18 of the Indian Sale of Goods Act till the goods are ascertained by appropriation, which, in this case, takes place at the time only of actual delivery." The Supreme Court pointed out that the AngloIndia Jute Mills Co.'s case" merely lays down the rule of estoppel as between the mill and the holder of the pucca delivery order and in a suit between them the mill will be estopped from denying the title of the holder of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fected from the mills. Delivery was to be effected within a period of three months from the date of the contract. The buyer was required. to make a deposit of Rs. 15 per bale within 24 hours after the contract was handed over. Thereafter, the mills issued delivery orders directing delivery of goods as per the contract and these were handed over to the buyer on his honouring a hundi for the value of the goods. It was common ground that by the date when the delivery orders were issued there were goods answering the contract description and of quantity sufficient to comply with the relative term in the contract, in the godowns of the mills wherefrom, on the terms of the contract, delivery was to be effected. It was open to the buyer himself to have gone to the mills and taken delivery of the goods but this was not done. Instead of taking delivery himself, the assessee endorsed the delivery orders and these passed through several hands before the ultimate holders of the delivery orders presented them to the mills and obtained delivery of the gunnies. It was held by the Supreme Court that at the date of the contract there was no completed sale of goods by the assessee because there was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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