DAULATRAM RAWATMULL Vs. COMMISSIONER OF INCOME TAX CENTRAL

JUDGEMENT

(1.) This reference under Section 66(1) of the Indian Income-tax Act, 1922, arises out of the assessment proceedings for the assessment year 1956-57. The relevant previous year is the Deshera year commencing on October 7, 1954, and ending on October 25, 1955. The assessee is a registered firm. Its head office is in Calcutta. It has branch in Bombay which was carrying on the business of exporting groundnut oil. The assessee had regular transactions with Messrs. N. Schrok, N. V. Rotterdam. During the relevant year the assessee fulfilled severa contracts with the Rotterdam party by making deliveries of the goods contracted for. On November 4, 1953, the assessee entered into a contract with the party at Rotterdam for delivery of 200 tons (of 2,240 lbs. each) of Indian crude groundnut oil for January and/or February, 1954, shipment at 125 per ton. But the assessee could not secure the export licence for shipping the goods. On the date of the contract the Government of India had not announced its export policy but during the first half of the year exports were normally permitted. The Tribunal observed that the assessee must have thought that by January-February, 1954, the export permit would be available and it would be able to make the supplies of the contracted goods. But the assessee's expectations were belied and it failed to supply the goods contracted for. In pursuance of the contract an arbitrator was appointed. The arbitrator gave an award on December 30, 1954, There was an appeal against this award but the award was confirmed. In the award the assessee was directed to pay the difference between the market rate of 141 per ton (less 1%) and the contract rate of 125 per ton. In Indian money the difference came to Rs. 44,226. The assessee remitted this sum of Rs. 44,226 to the foreign party with the sanction of the Reserve Bank of India.

(2.) The assessee claimed deduction of the said sum of Rs. 44,226 in the assessment for the relevant year. The Income-tax Officer did not accept the claim. He held that since the contract had been settled by payment of differences, the loss was a loss in speculation falling within the scope of Explanation 2 of Section 24(1) of the Act of 1922.

(3.) The Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. The assessee's contention before the Tribunal was that the aforesaid sum was paid by way of liquidated damages and could not be treated as a loss in speculation. The assessee submitted that it was, therefore, an expenditure allowable under Section 10(1) or Section 10(2)(xv) of the Act. The Tribunal has held that the said sum of Rs. 44,226 was rightly treated as a loss in speculation.