A MUTHUKUMARA PILLAI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee was a dealer in yarn. In the return of income of its business for the previous year ending April 12, 1962, corresponding to the assessment year 1962-63, it claimed a deduction of Rs. 16, 000 as payments made in settlement of certain contracts entered into by it. THE assessee had entered into seven contracts with Kothari Textiles Ltd. for the purchase of 180 bales of 40's yarn at Rs. 28.75 per bundle. A few days later and in one or two cases on the same day, after the contracts had been entered into, the assessee also entered into contracts for the purchase of 120 bales of 80's at Rs. 76.75. During the previous year the Indian Cotton Mills Federation, Bombay, had fixed a sort of an unofficial ceiling of price of cotton yarn up to 40's. THE purchase price of Rs. 28.75 fixed under the contract above referred to was in accordance with the schedule of rates fixed by the Indian Cotton Federation.

(2.) THE nature of the transaction could be better described with reference to one lot as an illustrative case. On April 4, 1962, the assessee-firm entered into a contract for the purchase of 20 bales of 40's at Rs. 28.75 and on the same day it also entered into another contract with the same company for purchase of 40 bales of 80's at Rs. 76 75. THE assessee took delivery of the 20 bales of 40's but the contract for purchase of 40 bales of 80's was cancelled and a sum of Rs. 3, 000 was paid to Kothari Textiles Ltd., representing the difference of price between the agreed contract rate of Rs. 76.75 and the market rate on the date of cancellation. THE yarn was not taken delivery of by the assessee under the contracts. THE total payment to Kothari Textiles Ltd. in respect of all the transactions for 80's was Rs. 11, 500. THE assessee had also entered into a contract on March 16, 1962, for purchase of 50 bales of 50's at Rs. 42.50 with Shri Ramalinga Choodambikai Mills Ltd. This mills agreed to repurchase the contract and its letter dated March 16, 1962, reads as follows "As desired by Sri V. V. Balakrishnan of Madurai we send you enclosed the repurchasing contract in duplicate for 50 bales of 50's yarn together with the repurchase letter of which kindly send us one copy duly signed in token of confirmation. Please also send us the difference amount of Rs. 4, 500 and the despatch instructions for 25 bales of 40's cotton yarn. On receipt of the above, we shall send our contract for 25 bales of 40's cotton yarn." *As per this arrangement of repurchase the contract dated March 16, 1962, was settled and without effecting any delivery a sum of Rs. 4, 500 was paid by the assessee to Shri Ramalinga Choodambikai Mills on March 25, 1962. On March 29, 1962, the assessee entered into a contract for the purchase of 25 bales of 40's at Rs. 28.25 per bundle. It is stated that the assessee had taken delivery of 25 bales of 40's. THE assessee claimed the total sum of Rs. 16, 000 (Rs. 11, 500 +Rs. 4, 500) as a business lossTHE Income-tax Officer treated the payment of Rs. 16, 000 as loss in speculation on the ground that the assessee-firm had not taken delivery of the yarn covered by these contracts. He also pointed out that the assessee was a speculator as was clear from the assessment of the prior years. Accordingly, he disallowed the claim and held the loss as a speculation loss that could be carried over and set off against speculative profits of the subsequent years.