Court rules transactions as speculative, rejects set-off claim under Indian Income-tax Act

DM Wadhwana Versus Commissioner Of Income-Tax, West Bengal.

DM Wadhwana Versus Commissioner Of Income-Tax, West Bengal. - [1966] 61 ITR 154 Issues Involved:
1. Whether the transactions between the assessee and Messrs. Kedar Nath Hariram were speculative transactions under section 24(1) of the Indian Income-tax Act.
2. Whether the Appellate Tribunal erred in rejecting the set-off of the loss claimed by the assessee under section 24(1) of the Indian Income-tax Act.

Issue-wise Detailed Analysis:

Issue 1: Speculative Transactions
The primary issue was whether the transactions between the assessee and Kedar Nath Hariram were speculative within the meaning of section 24(1) of the Indian Income-tax Act. The facts indicate that the assessee entered into several contracts for the purchase and sale of hessian bags with no physical delivery of goods. Instead, the parties exchanged pucca delivery orders, which authorized the purchaser to take delivery from the mills but did not involve actual transfer of goods.

The Income-tax Officer and the Appellate Assistant Commissioner classified these transactions as speculative because they were settled without actual delivery of the goods. The Appellate Tribunal upheld this view, emphasizing that the transactions fell within the scope of Explanation 2 of section 24(1), which defines a speculative transaction as one settled otherwise than by actual delivery or transfer of the commodity.

The court examined the nature of delivery orders and the legal precedents, including the Supreme Court's decision in Dunichand Rataria v. Bhuwalka Brothers Ltd., which discussed the nature of delivery orders in jute transactions. It was argued that delivery orders represented the goods and thus constituted actual delivery. However, the court concluded that mere exchange of delivery orders did not amount to actual delivery or transfer of goods under Explanation 2 of section 24(1). The court noted that the term "actual" in this context means "real" as opposed to "theoretical or probable."

The court also referred to the Supreme Court's decision in Jute and Gunny Brokers Ltd. v. Union of India, which held that property in goods covered by pucca delivery orders does not pass until actual delivery occurs. Therefore, the transactions between the assessee and Kedar Nath Hariram were speculative as they did not involve actual delivery of goods.

Issue 2: Rejection of Set-off of Loss
The second issue was whether the Appellate Tribunal erred in rejecting the set-off of the loss claimed by the assessee under section 24(1). The assessee claimed a net loss of Rs. 40,570 from the transactions and sought to set it off against other business income.

The court noted that under section 24(1), losses from speculative transactions cannot be set off against income from non-speculative business. Since the transactions in question were deemed speculative, the loss could not be set off against the assessee's other business income. The court upheld the Appellate Tribunal's decision to reject the set-off of the loss.

Conclusion
The court answered the first question in the affirmative, confirming that the transactions were speculative under section 24(1) of the Indian Income-tax Act. The second question was answered in the negative, upholding the rejection of the set-off of the loss claimed by the assessee. The assessee was ordered to pay the costs of the reference.

Both judges concurred with the judgment, and the reference was answered accordingly.