TaxTMI 
TaxTMI 
1973 (1) TMI 3
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....ated 12th July, 1957, agreed to purchase 2 lakhs feet of disposal pipes of 4 inch type at the rate of Rs. 2.25 per foot. He was unable to take delivery of these pipes and the Calcutta firm informed him that because of this failure the goods had been sold on the assessee's account resulting in a loss of Rs. 75,000 which was payable by him in accordance with clause 4 of the aforementioned agreement. This amount was partly paid in the accounting year in question and partly in November, 1958, and February, 1960. The loss of Rs. 75,000 was claimed as a business loss which was disallowed by the Income-tax Officer as a speculative loss. The interest claimed on the amount borrowed to pay the loss was also disallowed. On appeal to the Appellate Assistant Commissioner, it was held that there was no business loss as no business in pipes was ever started ; the loss was accordingly treated as a capital loss and disallowed. On appeal to the Tribunal, it was held on a consideration of the agreement that the assessee did not take delivery of the goods and, therefore, there was only a proposal to start business which never materialised and, hence, there was no allowable loss. The interest cla....
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....1957, to say that the goods should be held on his account up to 14th August, 1957, as the market was turning unfavourable. On 17th August, 1957, the vendor wrote to the assessee to say that the goods had not been taken delivery of and a last opportunity was being given to take delivery up to the 31st of the month failing which the goods would be sold on the assessee's account. On 23rd August, 1957, the assessee wrote that he could not take delivery due to a sudden fall in the market. He also said that the vendor should hold the goods for another one month. On 2nd September, 1957, the vendor wrote saying that he could only hold the goods for another seven days failing which the goods would be sold in the open market. On 18th September, 1957, the vendor again wrote to state that the goods had been sold in the open market at a loss of Rs. 75,000. Later, the assessee went to Calcutta and an award was given by the arbitrator in favour of the vendor to the extent of Rs. 75,000. The amount in question was to be paid in three instalments, Rs. 20,000 on or before 10th October, 1957, Rs, 40,000 on or before 15th November, 1958, and Rs. 15,000 on or before 22nd February, 1960. As appears ....
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....placed on Rutledge v. Commissioners of Inland Revenue. The assessee in that case was a money-lender who happened to be in Berlin in 1920, where he took the opportunity of purchasing a large quantity of paper very cheaply. The paper was resold at a substantial profit on the assessee's return to Scotland. It was held that the profit from the transaction was taxable as an adventure in the nature of trade. It was observed thus: " An adventure it certainly was; for the appellant made himself liable for the purchase of this vast quantity of toilet paper obviously for no other conceivable purpose than that of re-selling it at a profit ; and that is just what he did. The element of adventure accordingly entered into the purchase from the first. " The present case shows that the assessee entered into an agreement to purchase two lakhs feet of pipes. Obviously, this large quantity of pipes could not have been purchased except for the purpose of making profit. It so happens that the assessee has made a loss. If he had made a profit, it would certainly be considered an adventure in the nature of trade. It, therefore, follows that the loss is also a business loss. The factor which seems t....
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....e presence of such an intention is a relevant factor and, unless it is offset by the presence of other factors, it would raise a, strong presumption that the transactioin is an adventure in the nature of trade ". Applying this test to the present case, on has got to ask the question : What was the, object of the assessee in entering into this transaction ? Obviously, the disposal pipes were not income yielding in the sense of house property or investments like debentures or shares. The only object of such a transaction could be to either utilise the pipes in some works or construction or to re-sell them at a profit. There is no material to show that the assessee required the pipes for any works or construction or that such a huge quantity of pipes could be used by the a,ssessee except to re-sell the same. Thus, all the ingredients necessary or making the transaction an adventure in the nature of trade were presenent. It would, therefore, follow that the fact that the assessee made a loss in this adventure in the nature of trade would make that loss just as much a business loss as a profit in the same transaction would have resulted in a business profit. In In re Kalyan Mal Budhal ....
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....ld that it was a capital loss and not a loss from a trading activity. It is noticeable that the transaction was one relating to shares which are capable of being purchased both for purposes of investment or for purposes of profit, i.e., for trading purposes. It is not possible to hold that pipes can be bought for purposes of investment except in very special circumstances. A transaction relating to two lakhs feet of pipes as in the present case could not be treated as an investment and hence this authority is not at all applicable to the present case. Reference has also been made to Associated Mining Industries Ltd. v. Commissioner of lncome-tax which was the case of an assessee claiming a deduction in business on account of prospecting operations in relation to mica mines. It was held that no business had been commenced and, therefore, there could be no business expense. This case clearly relates to a situation where there had been no trading at all. In view of the fact that, in the present case, there has been both a purchase of pipes as well as a sale of the same, it is difficult to hold that there has been no adventure in the nature of trade. In Commissioner of Income-tax v. ....