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TMI Blog1982 (11) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... d., Hindustan Lever Ltd., Godrej Soaps Ltd., etc., for ready delivery of rice bran oil manufactured by it over last several years, and it has been fulfilling most of the contracts entered into. However, during the accounting years relating to the aforesaid three assessment years, it could not deliver oil in pursuance of some of the contracts on account of non-availability of the wagons. The Tribunal has now found as a fact that though the assessee was possessed of sufficient quantity of oil to be supplied towards the said contracts, it could not deliver the same on account of circumstances beyond its control, viz., non-availability of wagons. According to the contracts between the assessee and the said purchasers, the obligation to find or secure the requisite number of railway wagons lay upon the assessee. The following term of the contract, which has been set out in the Tribunal's order, makes the matter clear: " When the contract is entered into on the basis of 'despatch' condition or 'tendering of R.R.' condition, the sellers shall not put forward non-availability or non-performance of the contract. The sellers must intimate the buyers, within 72 hours of the last due date o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 1966-67, the assessee manufactured 652.05 metric tons of oil and sold 643 metric tons, the value thereof is about thirteen lakhs. As against this quantity, the quantity which remained undelivered to the purchasers was 233 M. tons, covered by 12 contracts. For the assessment year 1967-68, the undelivered quantity is only 19 M. tons, covered by only one contract and for the assessment year 1971-72, the undelivered quantity is 76 M. tons covered by two contracts. Against the orders of the AAC, the assessee filed an appeal before the Tribunal and there it urged on the basis of the decisions of the Calcutta and Karnataka High Courts, that the contracts in question cannot be called speculative transactions within the meaning of s. 43(5) and, therefore, the ITO and the AAC were in error in holding otherwise. It was also urged alternately that in the facts of this case, Expln. 2 to s. 28 of the I.T. Act is not attracted. In other words, the contention was that the speculative transactions (assuming that the contracts in, question were of such nature) do not constitute a business, so that under the said Explanation, it can be deemed to be a distinct and separate business. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s by payment of money, such a case will equally fall within the definition. We will now refer to some of the decisions, taking the majority view. The first among them is in. CIT v. Pioneer Trading Co. P. Ltd. [1968] 70 ITR 347 (Cal). That was a case where the assessee, a private limited company, entered into a, contract dated July 6, 1953, with a Japanese party to supply 52,000 long tons of Indian iron ore, to be delivered in three consignments of 24,000, 8,000 and 20,000 tons. The agreed basis of payment was by irrevocable letter of credit in pound sterling at the rate of 71 shillings per each dry long ton, to be provided by the Japanese party. The assessee supplied the first two consignments, but not the whole of the third consignment. Only 12,010 tons were supplied towards the third consignment leaving a balance of 7,990 tons. This quantity could not be supplied because the Japanese party defaulted in the performance of their part of the contract and did not open the letter of credit as agreed upon. On this breach of contract, the assessee-company claimed and obtained an amount of Rs. 22,627 towards the difference in amount. For the relevant assessment year the assessee sought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sary to refer to the facts of each case in detail. We must, however, think it relevant to refer to the facts of another decision of the Calcutta High Court in CIT v. Anglo-Indian Jute Mills Co. Ltd. [1980] 124 ITR 384, because one of the clauses concerned therein is identical to the clause in the present contract, which we have referred to hereinabove. In this case the assessee claimed a set-off of Rs. 11,50,000 received by it from one M/s. Tolaram Prakash Chand on settlement of its claim for damages for breach of certain transferable specific delivery contracts, against speculative losses suffered by the assessee on settlement of certain other transferable specific delivery contracts. Clause 3 of the bye-laws governing the contracts between the assessee and M/s. Tolaram Prakash Chand provided that in case of non delivery the buyer has the option to cancel the contract and charge the seller with the difference between the contract and the market price prevailing on the date on which the option is exercised. On the basis of the said clause, it, was contended by the Department that the amount received by the assessee was not on account of the breach but under the contract itself and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l delivery or transfer of the commodity or scrips, it is a speculative transaction. It was further observed that the word " settled " is used in s. 43(5) without any restriction as to whether it was arrived at before or after the breach of contract and observed that where actual delivery of the goods is absent it is immaterial whether the settlement is arrived at before the breach or after the breach. It was observed that the Act has provided an artificial definition of speculative transaction and that in construing the same the concepts obtaining under the Indian Contract Act and the Sale of Goods Act are not relevant. It was further observed that even where the contract is highly speculative and amounts to a wagering contract, it will not be a speculative transaction within the meaning of s. 43(5), if it is settled by actual delivery ; on the same parity of reasoning, even if a transaction is entered into bona fide with the intention of delivering the goods or commodities or scrips, as the case may be, agreed to thereunder, but if for some reason goods, etc., are not delivered, but the contract is settled otherwise, it will be speculative transaction. The same view has been tak ..... X X X X Extracts X X X X X X X X Extracts X X X X
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