COMMISSIONER OF INCOME TAX Vs. LAKSHMINARAYANA TRADING CO

JUDGEMENT

(1.) To appreciate the controversy debated before us, it may be relevant to note the facts giving rise to the question referred to this Court by the Tribunal under s. 256(1) of the IT Act, 1961.

(2.) The assessee is a partnership firm doing business in oil. It had entered into a contract with another firm of Gulbarga, Shankerlal Lahoti Oil Mills (seller). The contract was in respect of a tanker of groundnut oil at the rate of Rs. 436 per quintal. It was agreed between the parties that the delivery of the goods should take place on 25th October and 3rd Nov., 1969. The assessee was to furnish C-Form, if required. Pursuant to that contract, the seller took one tanker of groundnut oil by railway freight paid. It also made an invoice regarding the goods covered by railway receipt dt. 4th Nov., 1969, at the rate of Rs. 430 per quintal. That was subject to production of C-Form. So far as the assessee is concerned, it issued C-Form and obtained E-1 Form and thus completed the sale. However, after obtaining the railway receipt, it endorsed the same to Prakash Bros. and thus sold that consignment to that party (hereinafter referred to as "the second purchaser"). In respect of the second sale, the parties entered into a contract on 27th Oct., 1969, but the rate was lesser than the rate at which the assessee agreed to purchase. Consequently, the assessee suffered a loss of Rs. 45,677 which it claimed to set off against the profits from its business. The ITO did not accept the claim being of the view that it was a speculative loss. On appeal to the first appellate authority, i.e., the CIT(A), the contention of the assessee was upheld, but later the first appellate authority under s. 154 of the IT Act, 1961, directed the ITO to deal with the point afresh. This order was upheld by the Tribunal. The ITO thereafter passed a fresh order holding that the loss is a speculative loss. Again the assessee went in appeal before the first appellate authority. The authority took the view that as there was no actual delivery of the goods to the assessee, the transaction was a speculative transaction. This view was, however, not upheld by the Tribunal on further appeal. At the instance of the Revenue, the following question was referred to this Court for opinion :

(3.) Sri Habeeb Ansari, learned standing counsel for the IT Department, urged before us that even before the assessee took delivery of the goods, it sold the goods to the second purchaser, as such, the transaction in question between the seller and the assessee was a speculative transaction and, therefore, the loss suffered by the assessee in the transaction could be set off only against the income from the speculative transaction and not from the income of other business.