9911796707
TMI Blog1987 (4) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... ber 15, 1974. On November 11, 1974, M/s. R.C.S. Vanaspati Industries Ltd. demanded the supply of the goods but by that time, the prices had gone up and the assessee expressed his inability to supply the goods and preferred to pay damages at Rs. 45 per quintal and a sum of Rs. 13,050 was paid by the assessee to M/s. R.C.S. Vanaspati Industries on November 11, 1974. The assessee claimed deduction of the aforesaid amount of Rs. 13,050 as loss suffered by him in the sale of groundnut oil. The Income-tax Officer did not allow the said deduction on the ground that the said transaction was of a speculative nature and there was no delivery of goods. He added back the said amount while computing the income of the assessee from business. On appeal; the Appellate Assistant Commissioner upheld the order of the Incometax Officer and found that the transaction in question was a speculative transaction and the loss arising therefrom was speculative loss. On further appeal, the Tribunal, however, held that the loss of Rs. 13,050 claimed by the assessee was in the nature of a trading loss and the transaction in question could not be regarded as a speculative transaction under section 43(5) of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained in Explanation 2 to section 24(1) of the 1922 Act, and it has been held that for income-tax purposes, speculative transaction means what the definition of the expression in Explanation 2 says and whether a transaction is speculative in the general sense or under the Contract Act is not relevant for the purpose of the said Explanation. In that case, the Supreme Court has also held that the words " actual delivery " in Explanation 2 mean real as opposed to notional delivery. Although there is some difference in the language used in Explanation 2 to section 24(1) of the 1922 Act and section 43(5) of the 1961 Act, that is not very material and in spite of the said difference in the language, it can be said that for income-tax purposes speculative transaction means what the definition of that expression contained in section 43(5) of the 1961 Act says and whether a transaction is speculative in the general sense or under the Contract Act is not relevant for the purpose of section 43(5) of the 1961 Act and the words " actual delivery " in section 43(5) of the 1961 Act mean real delivery as opposed to notional delivery. While construing the definition of " speculative transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of contract or after the breach by the payment of the difference without actual delivery of the goods, the transaction is covered by section 43(5) of the Act and has to be treated as a speculative transaction and it is immaterial whether the intention of the parties at the time of the commencement of the contract was that delivery of goods would be given and whether failure of the party to give delivery for reasons beyond its control or for other valid reasons and that what is material is that the contract is being settled without actual delivery of goods. In CIT v. Shantilal Private Ltd. [1983] 144 ITR 57, the Supreme Court has considered the decisions of the High Courts of Calcutta, Karnataka and Madras referred to above and has preferred the view taken by the High Courts of Calcutta and Karnataka and has not approved the view taken by the Madras High Court in R. Chinnaswami Chettiar v. CIT [1974] 96 ITR 353. In that case, the assessee had contracted to sell certain goods and the delivery was to be effected on or before November, 1969, i.e., within about 3 months of the entering into the contract. On account of high rise in prices, the assessee was unable to fulfil the contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which he thinks fit. We are concerned with the sense of law, and it is that sense which must prevail in sub-section (5) of section 43. Accordingly, we hold that transaction cannot be described as a speculative transaction within the meaning of sub-section (5) of section 43, Income-tax Act, 1961, where there is a breach of the contract and on a dispute between the parties, damages are awarded as compensation by an arbitration award." From the aforesaid observations of the Supreme Court, it is clear that a distinction is to be drawn between a settlement of a contract and the settlement of a dispute arising out of the breach of a contract. contract is said to be settled, if instead of effecting delivery or transfer of the commodity envisaged by the contract, the promisee in terms of section 63 of the Contract Act accepts instead of it any satisfaction which he thinks fit. In other words, the contract is said to be settled when it is either performed or the promisee dispenses with or remits, wholly or in part, the performance of the promise made to him or accepts instead of it any satisfaction which he thinks fit. In eases where there is a breach of the contract and by virtue of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the assessee and the buyer, whereunder the assessee agreed to pay to the buyer compensation for non-delivery of the goods at Rs. 45 per quintal, for the reason that the price of groundnut oil at the time when the contract was entered into was Rs. 295 per quintal and on November 11, 1974, it had gone up by Rs. 45 per quintal. This shows that before the last date for the delivery of the goods, the parties to the contract had arrived at a settlement whereunder the assessee agreed to pay to the buyer the difference between the price of the goods on the date of the contract and the price on the date on which the said settlement was arrived at. On November 11, 1974, the date of the said settlement, a breach of the contract had not occurred because the last date for delivery was November 15, 1974, and the breach of the contract could occur only after November 15, 1974, if the assessee had failed to deliver the goods by that date. It cannot, therefore, be said that on November 11, 1974, a breach of the contract had taken place and what was settled was a dispute with regard to the damages for the breach of the contract. The settlement which took place between the parties on November 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
