COMMISSIONER OF INCOME TAX Vs. RAJAMOHAN CASHEWS LIMITED

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal has referred the following two questions of law for the decision of this court at the instance of the Revenue :

(2.) THE respondent is an assessee to income-tax. It is a dealer in cashew. It also exports cashew kernels. It could not fulfil the contracts entered into by it for exports. THE respondent/assessee has to pay damages. THE original claim was for Rs. 8,47,406. At the stage of the Tribunal, the amount swelled up to Rs. 12,07,677. THE claim was disallowed by, the Income-tax Officer. It was affirmed in first appeal by the Commissioner of Income-tax (Appeals). In second appeal, the Appellate Tribunal, following the decisions of the Calcutta, Delhi and Karnataka High Courts, held that the settlement in pursuance of which damages were payable by the respondent/assessee would not amount to speculative loss. THE Tribunal did not follow the decision of the Madras High Court to the contrary. On this basis, appropriate directions were given to the Income-tax Officer to verify certain details and afford relief to the assessee.

(3.) IN the light of the decision of the Supreme Court, the conclusion of the Appellate Tribunal, that the amounts paid or settled by way of damages, after the breach of contracts entered into by the assessee, should not be treated as losses arising Cut of speculative transactions as defined in Section 43(5) of the INcome-tax Act, is justified and valid in law.