D M WADHWANA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE questions referred to this Court under s. 66(2) of the Act are as follows :

(2.) THE facts taken from the statement of case are as follows : THE assessment year concerned is 1953-54, the corresponding accounting year being 2008 Gujarati Diwali year ending on 18th Oct., 1952. THE assessee is a member of the Gunny Trades Association and is a registered dealer in jute and hessian. In the accounting year mentioned above, the assessee entered into three transactions for purchase and sale of hessian bags, heavy cess, etc., with Kedar Nath Hariram. Under the first contract, the assessee agreed to sell to the said firm 500 bales of heavy cess at the rate of Rs. 180 per hundred bags, on 1st Sept., 1951. Out of these, 250 bales were deliverable on 30th April, 1952. On 13th Oct., 1951, the assessee entered into a second contract with the same party agreeing to purchase 500 bales of the same quality of heavy cess at Rs. 216-8-0 per hundred bags. THE deliveries under the second contract were to be made as under the first contract. THE assessee incurred a total loss of Rs. 81,072 on the two contracts. THE assessee entered into an agreement to purchase 300 bales of hessian from the said firm on 20th Aug., 1951, deliverable on 15th Nov., 1951. On 22nd Sept., 1951, the assessee entered into another agreement to sell 300 bales of the same commodity to the same party deliverable on the same date (15th Nov., 1951). As a result of the two last mentioned contracts, the assessee made a profit of Rs. 40,500. Thus, as a result of this series of transactions, the assessee suffered a net loss of Rs. 49,570. THE contracts were in the standard form of contract prescribed by the Indian Jute Mills Association, the relevant clauses of which will be noted hereafter. It is admitted that there was no physical delivery of the commodity agreed to be purchased and sold. THE parties to the contract exchanged pucca delivery orders which authorised the purchaser to take delivery of the stipulated number of bales from the mills concerned, but the goods were not actually sent by any party to the other. THE mode of payment adopted under the contract was as follows: On 15th April, 1952, Kedar Nath Hariram drew up a bill for Rs. 2,40,441-9-0 against the assessee in pursuance of the second contract dt. 10th Oct., 1951, being the value of the 250 bales of heavy cess purchased by the assessee. On the same date the assessee drew up a bill against Kedar Nath Hariram for Rs. 1,99,905-3-3 in pursuance of the first contract dt. 1st Sept., 1951, being the cost of the 250 bales agreed to be sold by the assessee. THE books of the assessee showed a debit entry of Rs. 2,40,441-9-0 and a credit entry of Rs. 1,99,905-3-3 in respect of the transactions just now mentioned under dt. 15th April, 1952. THE bank pass book of the assessee corroborated the statement and showed a credit entry in favour of the assessee of Rs. 1,99,905-3-3 and a debit entry of Rs. 2,40,441-9-0. Similarly, bills were drawn by the two parties against each other and similar entries in the cash book and the bank pass book are to be found in respect of the deliveries to be effected on 30th April, 1952. Again with regard to the contracts for the purchase and sale of 300 bales of heavy cess, bills were drawn up and delivery orders attached to the bills in the same manner and similar debit and credit entries for the entire amount in respect of the pucca delivery orders were to be found in the books of account of the assessee including the bank pass book.

(3.) THE impact of the above provision on the affairs of the assessee was that if the transactions with Kedar Nath Hariram were speculative transactions within the meaning of s. 24(1) of the IT Act, the net loss of Rs. 40,571 could not be allowed to be set off against the income of the assessee from other business.