9911796707
TMI Blog1995 (3) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... vered by railway receipt dated November 4, 1969, at the rate of Rs. 430 per quintal. That was subject to production of C-Form. So far as the assessee is concerned, it issued C-Form and obtained E-1 Form and thus completed the sale. However, after obtaining the railway receipt, it endorsed the same to Prakash Brothers and thus sold that consignment to that party (hereinafter referred to as "the second purchaser"). In respect of the second sale, the parties entered into a contract on October 27, 1969, but, the rate was lesser than the rate at which the assessee agreed to purchase. Consequently, the assessee suffered a loss of Rs.45,677 which it claimed to set off against the profits from its business. The Income-tax Officer did not accept the claim being of the view that it was a speculative loss. On appeal to the first appellate authority, i.e., the Commissioner of Income-tax (Appeals), the contention of the assessee was upheld, but later the first appellate authority under section 154 of the Income-tax Act, 1961, directed the Income-tax Officer to deal with the point afresh. This order was upheld by the Tribunal. The Income-tax Officer thereafter passed a fresh order holding that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the delivery or transfer of the commodity or the scrips. They are dealt with for purposes of setting off and carrying forward of losses. The effect of treating such transaction as speculative transaction is that the loss suffered in such transaction can only be set off against the income earned from speculative business and not against income from other business as contemplated in section 73 of the Act. We also make it clear that the nature of the transaction as speculative does not carry any stigma as such either with regard to its legality or otherwise. The provision is designed to check the practice of buying up speculative losses and, accordingly, the provisions were amended so as to allow speculative losses to be set-off only against speculative gains. To that extent there is no difficulty. The difficulty arises in construing the phrase "otherwise than by the actual delivery or transfer of the commodity or scrips" in the definition. What does this signify ? Having regard to the wording in clause (5) of section 43, as stated above, the intention is not to allow buying up of speculative losses and to permit setting off of speculative losses against income earned from other spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence, the High Court of Calcutta agreed with the view of the Tribunal. The Supreme Court held that to have a valid transfer of a commodity to be effective it was not necessary that the transfer in question should be followed up by actual delivery of the goods to the transferee and that in a case where the goods were transferred or delivered to the transferee's transferee, the first transfer would be valid and would not be a speculative transaction. A close reading of that judgment shows that there the gunny bags were with the original seller who did not part with the same. This judgment of the Supreme Court was considered in Davenport and Co. P. Ltd. v. CIT [1975] 100 ITR 715 (SC) by a Bench of three judges but was not approved. The learned judges considered the cases relied upon in Raghunath Prasad's case [1973] 90 ITR 140 (SC) and held that the transaction involved in that case was speculative business. What actually happened there was that a private company which carried on business in tea garden tools and requisites acted as agent for selling tea. It entered into certain transactions for the purchase of jute goods and their sale and for the first time entered into a transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 24(1) of the Indian Income-tax Act, 1922. In that case the transactions in question were forward transactions in jute and hessian. The assessee-company was dealing in sugar, hessian, gunny bags, etc. In the business it suffered a loss and sought to set off the loss against its other business income. The Income-tax Officer negatived this claim but he apportioned 50 per cent. of the amount to speculative transactions and 50 per cent. to non-speculative transactions. On appeal the Appellate Assistant Commissioner agreed with the view of the Income-tax Officer that the transactions were speculative transactions. The assessee unsuccessfully appealed before the Tribunal. On a reference to the Bombay High Court it was held that since the assessee failed to give the necessary particulars the transactions were speculative transactions as there was no delivery of the goods. From the above narration of facts it is clear that the transactions were forward transactions where the goods were not received or delivered. It is also a case where the first seller did not part with the goods. Under the Income-tax Act, 1961, the question whether the transaction was a speculative transaction fel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lative transaction within the meaning of section 43(5) of the Income-tax Act, 1961 ? " After considering the definition of "speculative transaction" contained in clause (5) of section 43, it was observed that the law had spoken of a settlement of the contract and a contract was settled when it was either performed or the promisee dispensed with or remitted, wholly or in part, the performance of the promise made to him or accepted, instead of it, any satisfaction which he thought fit and in that sense section 43(5) had to be understood and it was held that the transaction could not be described as a speculative transaction within the meaning of clause (5) of section 43 as there was a breach of the contract and on a dispute between the parties damages were awarded as compensation by way of arbitration award. The question was thus answered in the affirmative and in favour of the assessee and against the Revenue. In view of the above discussion of case law with regard to the provisions of section 43(5), we may now revert to consider the scope of that section under general principles. Any trader in commodities generally intends to buy and sell the commodity with a stipulation that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
