COMMISSIONER OF INCOME TAX Vs. ASIAN CHEMICAL CO

JUDGEMENT

(1.) THE Income -tax Appellate Tribunal has referred to this court under section 256(1) of the Income -tax Act, 1961, the following question as a question of law :

(2.) THE proceedings relate to the assessee's assessment year 1971 -72. The assessee had on August 10, 1970, entered into a contract with M/s. N. Mansotta and Bros. for the purchase of 150 kgms. of Vitamin B -2 and 100 kgms. of Vitamin B -6, which the latter was to obtain by shipment in October, 1970. The price fixed under the contract was Rs. 540 per kg. for Vitamin B -2 and Rs. 440 per kg. for Vitamin B -6 ex -godown, Bombay. In October, 1970, when the assessee was to take delivery of the goods as per the contract, the price of these two goods had considerably gone down and the trend was for the price to slide down further. The assessee did not accept the delivery of the goods. Thereafter, the liability in regard to the breach of contract between the assessee and M/s. N. Mansotta and Bros. was settled by the assessee for a lump sum of Rs. 30,000 as damages.

(3.) WHEN the dispute came up before the Tribunal, it was seen that the Calcutta High Court in the case of CIT v. Pioneer Trading Co. Pvt. Ltd. : [1968]70ITR347(Cal) and in the case of Daulatram Rawatmull v. CIT : [1970]78ITR503(Cal) and the Mysore High Court in the case of Bhandari Rajmal Kushalraj v. CIT : [1974]96ITR401(KAR) , had taken the view that sub -section (5) of section 43 of the Income -tax Act would be attracted only if the contract for purchase and sale was settled otherwise than by actual delivery and not where the settlement was for damages for the breach of contract. The Tribunal also noticed the Madras High Court decision in the case of R. Chinnaswami Chettiar v. CIT : [1974]96ITR353(Mad) , where a contrary view was taken. However, the Tribunal preferred to follow the Calcutta and Mysore High Court decisions and held that the payment herein being in the nature of damages for breach of contract, the payment was not a loss in speculative business.