Speculative loss includes settlement after breach where no actual delivery occurs under the income-tax definition.

A contract for sale is treated as speculative for income-tax purposes if it is settled otherwise than by actual delivery, and the statutory expression "contract settled" is wide enough to include settlement after breach. The majority held that damages paid on compromise of a manganese ore sale contract, where no delivery of the contracted goods occurred, fell within the speculative loss definition under the Income-tax Act. The character of the payment as damages did not exclude the statutory rule, because the Act gives "speculative transaction" a special meaning independent of general contract law. A later delivery transaction with another purchaser did not alter the character of the earlier settlement.

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Issues: Whether compensation paid on settlement of a contract for sale of manganese ore, after breach and without actual delivery of the contracted goods, constituted a speculative loss under Explanation 2 to Section 24(1) of the Indian Income-tax Act, 1922, corresponding to Section 43(5) of the Income-tax Act, 1961, or a normal trading loss.

Analysis: The governing test under the statutory definition is whether a contract for purchase or sale of a commodity is periodically or ultimately settled otherwise than by actual delivery or transfer of the commodity. The majority held that the expression "contract settled" is wide enough to include settlement after breach, and that the decisive factor is the absence of actual delivery. The nature of the claim as damages for breach does not take it outside the statutory definition, because the Income-tax Act gives a special meaning to speculative transaction independent of general contract law. The majority also held that a separate later transaction involving actual delivery to another purchaser could not alter the character of the earlier transaction with the first purchaser.

Conclusion: The payment of Rs. 30,000 was a speculative loss within Explanation 2 to Section 24(1) of the Indian Income-tax Act, 1922, and not a normal trading loss.

Ratio Decidendi: For income-tax purposes, a contract for sale is a speculative transaction if it is settled otherwise than by actual delivery, and the statutory expression "contract settled" is not confined to settlements before breach.

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