V N SARSETTY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under Section 256(2) of the Income-tax Act, 1961. The question referred by the Income-tax Appellate Tribunal, Bangalore Bench, is :

(2.) FOR the assessment year 1970-71, the assessee, who is a merchant in groundnut, kapas, cotton and cotton-seeds claimed a deduction of Rs. 35,150 paid to M/s. B. S. Munavalli of Gokak for non-delivery of certain quantities of cotton under the agreement dated February 5, 1969. As per the terms of the agreements, delivery of the cotton was required to be effected and repeated demands by the buyers were also unheeded by the assessee. On May 23, 1969, a sum of Rs. 35,000 was paid by the assessee as per the decision of panchas. The assessee claimed deduction of that amount stating that there was a breach of the contract resulting in the payment of damages therefor. The Income-tax Officer rejected the claim and held that the loss on account of the payment was "speculative loss" within the meaning of Section 43(5) of the Act.

(3.) FOR determining the question it will be necessary first to read the terms of the agreement. Clause 2 of the contract reads :