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TMI Blog1984 (5) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... as M/s. Ganesh Flour Mills Co. Ltd., to whom a substantial portion of its goods was sold. There was a contract for supplying 50 M.Ts. of cotton seed oil dated July 30, 1968, out of which 2.9992 tons remained undelivered on August 30, 1968. There was another contract to sell 25 M. Ts. of til oil, out of which 11.171 tonnes remained undelivered on that date. There was yet another contract for the supply of 75 M.Ts. of which 36.381 tonnes remained undelivered. Finally, there was a contract for supply of 100 M.Ts. which was also unfulfilled. On August 30, 1968, the assessee had to supply 150.544 M.Ts. of various types of oils to M/s. Ganesh Flour Mills. All these contracts were cancelled and an amount of Rs. 25,000 was debited against the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the departmental representative that the loss will have to be considered as a speculative loss if it is found to be a loss in speculation business as defined in section 43(5) of the Act ; we also agree that for purposes of section 43(5), a speculative transaction is a transaction in which a contract for purchase or sale of any commodity is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity. The decisions cited by the departmental representative also make it clear that what is important to be found out is what transpired ultimately and not the original intention of the parties. But the question is whether in the present case it can be said that a contract for the delivery of a commodity ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e settlement of the dispute between the two parties. In regard to the pending bargains, the company agreed to cancel the same. In other words, this is a case where the assessee having committed breach of contract, had agreed to pay a lump sum to the other party by way of compensation, and this, in our opinion, is a normal loss incidental to the assessee's business. That such a transaction is not covered by the definition of speculation business in s. 43(5) is amply borne out by the two decisions of the Calcutta High Court on which the assessee has placed reliance. Respectfully following the principle of these decisions, we hold that the sum of Rs. 25,000 was an ordinary commercial loss and not speculation loss. " There are two judgments o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of arguments. In Raghunarayan Rice Mills v. CIT [1970] 75 ITR 682 (Orissa), there was a frustration of the contract on account Of restrictions imposed by the Government of Orissa, but the assessee made a settlement by paying differences. It was held that this was a speculative transaction. In Davenport Co. P. Ltd. v. CIT [1975] 100 ITR 715 (SC), it was held by the Supreme Court that the mere transfer of delivery notes was not actual delivery and, hence, the transaction was speculative. In Hoosen Kasam Dada (India) Ltd. v. CIT [1964] 52 ITR 171, the Calcutta High Court held that there were several transactions which were settled by delivery and some were not. It was held, that where delivery was not given, the transactions were speculativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is to say, non-supply. We do not think that all these can be classified as speculative within the meaning of s. 43(5). What the section visualises is a contract which is settled by means of a cross-contract, i.e., there is a purchase contract which is settled by a sale contract. If the contract is settled, for some other reasons, by payment of damages, or even without payment of damages, it may or may not be a speculative transaction dependent on the circumstances of the case. There is a difference of opinion between the Calcutta High Court and the Madras High Court. According to the Madras view contained in R. Chinnaswami Chettiar's case [1974] 96 ITR 353, it is immaterial whether there is a claim for damages on account of a breach, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act. On the facts, we find that there is a letter showing the reason for the settlement between the parties. This letter states as follows i " With reference to your letter dated the 22nd August, 1968, informing us the market settlement due to failure of some oil suppliers in Delhi, as oil rates fluctuated abruptly causing breakdown in oil supplies and refusal of three major oil suppliers directly affecting you, we, after scrutinizing all the effects and after prolonged discussion with your Shri Karshanbhai Patel with the undersigned, have agreed to cancel or settle all the pending bargains as on date with you. Keeping in view your representation dated 11th September, 1968, showing inability to shoulder any further burden due to blockag ..... X X X X Extracts X X X X X X X X Extracts X X X X
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