1979 (10) TMI 4 - SC - Income Tax

Assessee's gunny-bag transactions held speculative under Expln.2 to s.24(1) I.T. Act to deny ordinary business loss

SC dismissed the appeal and upheld the HC decision for the revenue, holding the assessee's gunny-bag transactions to be speculative under Expln. 2 to s. ... Whether the transactions in which the assessee was engaged were 'speculative transactions 'as defined by Expln. 2 to s. 24(1) - hold that the High Court was right in answering the question in favour of the revenue and against the assessee. Issues:- Whether the transactions in which the assessee was engaged were 'speculative transactions' as defined by Expln. 2 to s. 24(1) of the Indian I.T. Act, 1922.Analysis:The case involved the question of whether certain transactions carried out by the assessee in gunnies constituted 'speculative transactions' under the Indian Income Tax Act. The assessee claimed a loss of Rs. 2,25,450 due to transactions with a specific party involving the purchase and sale of gunny bags. The Income Tax Officer (ITO) considered these transactions as speculative, as there was no physical delivery of goods, only transfer of delivery orders. The assessee appealed, and the Appellate Tribunal found that the loss occurred in a transaction where there was no physical delivery of goods, but the payment was made through cheques, following trade usage. The Tribunal considered it a transaction of delivery for cash, not a speculative one.The High Court was asked to determine whether the loss of Rs. 2,25,450 was a speculative transaction under the Act. The High Court ruled in favor of the revenue, holding that actual delivery or transfer of the commodity is necessary to exclude a transaction from being speculative. The assessee argued that the transfer of pucca delivery orders constituted actual delivery of goods, but the court disagreed. The court emphasized that Expln. 2 to s. 24(1) requires a real or factual delivery, not a notional one.The Supreme Court referred to previous decisions by the Calcutta High Court and its own rulings regarding speculative transactions. It noted that unless there is actual delivery or transfer of the commodity, a transaction would be considered speculative. The Court highlighted a previous judgment where it was held that if actual delivery of goods sold was made to the ultimate purchaser of the delivery orders, the transaction would not be speculative. However, a later decision overruled this view and preferred the strict interpretation adopted by the Calcutta High Court.In the present case, as there was no actual delivery or transfer of the gunny bags, and the contracts were settled by the transfer of delivery orders only, the Supreme Court upheld the High Court's decision in favor of the revenue. The appeal was dismissed, affirming that the transactions in question were speculative, resulting in a loss that could not be treated as an ordinary business loss.