COMMISSIONER OF INCOME TAX Vs. DINA LAL GUPTA

JUDGEMENT

(1.) : In this reference made at the instance of the Revenue, the Tribunal, Jaipur Bench, Jaipur (hereinafter referred to as " the Tribunal ") has referred the following question for the opinion of this Court :

(2.) THIS reference relates to the asst. yr. 1975-76. Shri Dina Lal Gupta, respondent herein (hereinafter referred to as " the assessee,"), was carrying on the business of adat in the name of Dinalal Narendra Kumar, at Jaipur.. The assessee entered into an agreement on October 26, 1974, with R.C.S. Vanaspati Industries, Ltd., Jaipur, for the sale of 290 quintals of groundnut oil at Rs. 795 per quintal. The said goods were to be supplied on any date till November 15, 1974. On November 11, 1974, R.C.S. Vanaspati Industries Ltd. demanded the supply of the goods but by that time, the prices had gone up and the assessee expressed his inability to supply the goods and preferred to pay damages at Rs. 45 per quintal and a sum of Rs. 13,050 was paid by the assessee to R.C.S. Vanaspati Industries on November 11, 1974. The assessee claimed deduction of the aforesaid amount of Rs. 13,050 as loss suffered by him in the sale of groundnut oil. The ITO did not allow the said deduction on the ground that the said transaction was of a speculative nature and there was no delivery of goods. He added back the said amount while computing the income of the assessee from business. On appeal, the AAC upheld the order of the ITO and found that the transaction in question was a speculative transaction and the loss arising therefrom was speculative loss. On further appeal, the Tribunal, however, held that the loss of Rs. 13,050 claimed by the assessee was in the nature of a trading loss and the transaction in question could not be regarded as a speculative transaction under s. 43(5) of the IT Act, 1961 (hereinafter referred to as " the 1961 Act "). Feeling aggrieved by the aforesaid order of the Tribunal, the Revenue moved for referring the question of law arising out of the order of the Tribunal for the opinion of this Court and thereupon the Tribunal has referred the question mentioned above for the opinion of this Court.

(3.) IN CIT vs. Pioneer Trading Co. P. Ltd. (1968) 70 ITR 347 (Cal), the Calcutta High Court while dealing with Expln. 2 to s. 24(1) of the 1922 Act has drawn a distinction between the settlement of a contract and settlement of a claim arising out of a breach of a contract and has observed as under : " As we read Expln. 2 to s. 24(1), we do not feel that a claim based on breach of contract comes within the meaning of contract settled as used in Expln. 2. IN our reading, the expression 'contract settled' means 'contract settled before breach'. After breach of contract, the cause of action is no longer based on the contract itself but on its breach."