1983 (7) TMI 1

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....red in a speculative transaction within the meaning of sec. 43(5) of the Income-tax Act, 1961 ? " The assessee, M/s. Shantilal Pvt. Ltd., Bombay, is a private limited company. In the assessment proceedings for the assessment year 1971-72, it claimed a sum of Rs.. 1,50,000 paid by it as damages to M/s. Medical Service Centre as a business loss. During the previous year relevant to the said assessment year the assessee had contracted to sell 200 kilograms of Folic Acid USP at the rate of Rs. 440 per kilogram to M/s. Medical Service Centre and the delivery was to be effected on or before November 1, 1969, within about three months of the date of entering into the contract. The case of the assessee is that as the price of the commodity rose ....

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....s breach of contract. The Tribunal took the view that the award of damages for the breach of a contract did not bring the transaction within the definition of "speculative transaction " set forth in sub-s. (5) of s. 43, I.T. Act, 1961. In this, the Tribunal found support in the view expressed by the Calcutta High Court in CIT v. Pioneer Trading Co. P. Ltd. [1968] 70 ITR 347, Daulatram Rawatmull v. CIT [1970] 78 ITR 503 and by the Mysore High Court in Bhandari Rajmal Kushalraj v. CIT [1974] 96 ITR 401, which they preferred to the view expressed by the Madras High Court in R. Chinnaswami Chettiar v. CIT [1974] 96 ITR 353, P.L. KN. Meenakshi Achi v. CIT [1974] 96 ITR 375 and A. Muthukumara Pillai v. CIT [1974] 96 ITR 557. On a careful consider....

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....pting satisfaction of the contract otherwise than in accordance with the original terms thereof. It may be that in a general sense the layman would understand that the contract must be regarded as settled when damages are paid by way of compensation for its breach. What is really settled by the award of such damages and their acceptance by the aggrieved party is the dispute between the parties. The law, however, speaks of a settlement of the contract, and contract is settled when it is either performed or the promisee dispenses with or remits, wholly or in part, the performance of the promise made to him or accepts instead of it any satisfaction which he thinks fit. We are concerned with the sense of law, and it is that sense which must pre....