DHAWAN M R Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a consolidated reference by the Tribunal in the case of Sri M.R. Dhawan for the asst. yrs. 1955 -56, 1956 -57, 1958 -59, 1959 -60 and 1960 -61, under S. 66(1) of the Indian IT Act, 1922. A common question of law has been referred for the decision of this Court for all the above assessment years. The question reads as follows :

(2.) IT is indeed surprising that the question which arises for our consideration in this case had not come up before this or any other Court earlier. The assessee is a stock broker who is a member of the Delhi and other stock exchanges and, as the narration of facts below will show, the problem is so inherent in his business and of such a nature that it must have actually arisen in a number of cases and in a number of years. It must have been dealt with in such cases on some basis satisfactory or acceptable to both parties, for learned counsel on both sides stated that the question has not been directly taken to Court in any earlier case and that the matter is res integra before us.

(3.) BEFORE proceeding further, we may mention that by amendments to the Indian IT Act, 1922, made by the Finance Act, 1953, speculative transactions in the nature of a business were segregated for separate consideration. Losses sustained by an assessee in speculative transactions are considered as a class by themselves and such losses can be set off only against profits made in speculative transactions, whether in that year or in subsequent assessment years. This provision was introduced into the Act with a view to putting an end to a practice of purchasing losses which was so widely rampant that Chagla C.J. in the case of Keshavlal Premchand (1957) 31 ITR 7 (Bom) took judicial notice of it. It will be seen that the wording of the Explanation is deliberately made direct and simple so as to cut out any indefiniteness attaching to the idea of "speculation". "Speculation", in common parlance, connotes an intention to speculate, gamble, take a chance or risk and the determination of the question whether a transaction was or was not a speculative one was beset with problems on account of difficulties in ascertaining the intention with which the parties entered into the transaction. The Act, therefore, proceeded to give a definition which steered clear of the intention of the parties. Instead, a very simple and objective test for determining whether a transaction is a speculative transaction or not was laid down. Under this definition, all that has to be done is to find out whether the contract was periodically or ultimately settled by actual delivery, transfer or otherwise. If the goods or commodities in respect of which the contracts were entered into were actually taken delivery of pursuant to the contract, it would not be a speculative transaction, even though the commodity or scrip may be a highly speculative one by its very nature and even though, at the time when the contracts were entered into, the parties might have had no idea of taking delivery at all. On the other hand, if the contract is settled otherwise than by actual delivery then it will be a speculative transaction notwithstanding that the nature of the commodity was not one lending itself to possibilities of speculation or that the intention of the parties at the time when the contracts were entered into might have been to take actual delivery but this intention could not be effectuated for one reason or the other. These principles have been laid down in a series of decisions : Juvvi Subbaramaiah & Co. vs. CIT (1964) 51 ITR 742 (AP) : TC19R.412, Hoosen Kasam Dada (India) Ltd. vs. CIT (1964) 52 ITR 171 (Cal) : T 19.407, Abdul Gani Haji Habib vs. CIT (1969) 72 ITR 6 (Cal) : TC19R.440, CIT vs. Ratanlal Mohanlal (1972) 86 ITR 200 (All) : TC19R.441, P.L. KN. Meenakshi Achi vs. CIT (1974) 96 ITR 375 (Mad) : TC19R.443 and A. Mukthukumara Pillai vs. CIT (1974) 96 ITR 557 (Mad) : TC19R.444. Indeed, there is no controversy before us regarding this principle.