R CHINNASWAMI CHETTIAR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee carries on business in the purchase and sale of yarn in Tirupur. During the previous year ending October 7, 1962, relevant for the assessment year 1963-64, the assessee entered into a number of contracts. In regard to three contracts of sale dated 13th, 16th and 19th July, 1962, and one contract of purchase dated 12th September, 1962, the assessee did not give or take actual delivery of yarn but the contracts were cancelled. THE assessee paid a sum of Rs. 7, 750 in respect of all these contracts and claimed these amounts at business losses incurred by him. THE Income-tax Officer considered that this is a loss on speculation business and, therefore, could not be set off against the income from business but could be carried forward to be set off against speculation profits. On appeal, the Appellate Assistant Commissioner was of the view that the above contracts were entered into in the usual course of yarn trade, that the cancellation of contracts and payment of differences was a normal incident in yarn trade, that the contracts entered into by the assessee did not represent a speculative sale or purchase but represent a normal contract entered into by the assessee in the usual course of business and that the assessee had paid the difference in view of falling prices. In the appeal filed by the department, the Tribunal held that in regard to the first two sales above referred to, the assessee paid a sum of Rs, 4, 600 as difference in price, that there was no actual delivery of goods and that the intention of the parties at the time of the original contract was immaterial and, therefore, these are speculative transactions. In regard to other two contracts, it held that it had not been shown that they were by way of damages and that it was for the purpose of the business. Following the decision in Juvvi Subbaramaiah and Co. v. Commissioner of Income-tax, the Tribunal also held that the four transactions are in the nature of speculation business. In that view, the department's appeal was allowed and the order of the Income-tax Officer was restored. At the instance of the assessee the following two questions have been referred

(2.) THE receipt dated September 10, 1962, disclosed that this contract was settled and the purchaser under the contract received a sum of Rs. 2, 200 being the difference in price and cancelled the contract. THE date of settlement is not known but it has been treated as if the settlement was also on September 10, 1962, itself and it is on that basis we also proceed to consider the matter. On the date of this settlement and payment therefor, the period of delivery was over. Among the records we find a bill No. 117 dated September 10, 1962, given to the assessee by the purchaser. THE relevant portion of the bill is extracted belowCount Particulars Quantity Rate Bundles Amountin balesRs. P. Rs. P. 80 s. Sakthi TextilesMills Cottonyarn purchasedfrom you on13-7-1962. 20 68.00Resold to you 73.50Difference 5.50 2, 200.00THE contract of sale dated July 16, 1962, is also on identical terms except that the quantity and description of yarn and the difference in price is different. In respect of this contract a sum of Rs. 2, 400 was paid on September 7, 1962, after the period of delivery. A bill similar to the other case was also passed. THE third contract dated July 19, 1962, is also similar to the first contract. But the wording of the receipt was slightly different. It stated that with reference to the contract dated July 19, 1962, for the purchase of 25 bales of 60s S. B. M. the purchaser has received Rs. 1, 500 as per settlement and that the parties mutually agreed to cancel to contract.

(3.) THESE pucca delivery orders, it was contended, represented the goods and as such the transactions never had any speculative element in them. It was held that the word "actual" in Explanation 2 to section 24(1) of the Indian Income-tax Act, 1922, means "real" as opposed to the words "theoretical or probable" and that the pucca delivery orders in that case amounted only to a "notional" and not a "real" delivery of goods as contemplated in Explanation 2 to section 24(1). We are in respectful agreement with this decisionWe are, therefore, of the view that the two contracts of sale dated 13th and 16th July, 1962, which were settled by payment of the sum of Rs. 4, 600 are speculative transactionsIt was next, contended that what section 73 prohibits is the setting off of any loss incurred in a speculation business against the profits and gains of any other business and that if the loss was incurred in a speculation transaction which is not in the nature of a speculation business, such loss could be set off against the profits and gains of the business. This argument of the assessee was met by the Tribunal without giving detailed reasons with a cryptic sentence which reads : "As regards the submission about the transaction being in the nature of business it is also fully met by the decision in Juvvi Subaramaiah and Co. v. Commissioner of Income-tax." *The learned counsel for the assessee submitted that the Tribunal has not given a finding on the question whether it amounted to a speculation business and that the appeal had not been properly disposed of. Though there is some justification for this argument, we do not agree with the learned counsel that the Tribunal had not considered the question. Further, a point of law raised before the Tribunal but not decided could be raised in a reference to this court provided the question of law referred included that point. The questions which have been referred to us require a consideration of this point on the nature of the transactions and whether the transaction is a speculation business. We, therefore, proceed to consider the questions without remanding the matter for fuller consideration by the TribunalExplanation 2 to section 28 of the Act states that when a business is carried on in speculative transaction, that business is deemed to be distinct and separate from any other business. Section 73 enacts that the losses in speculation business cannot be set off under section 70 against any income under the head "business or profession" nor under section 71 against income under any other head, but it can be set off only against profits, if any, of another speculative business. In the instant case, the four transactions were entered into as part of the general business of the assessee.