TaxTMI 
TaxTMI 
1973 (3) TMI 31
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....ove contracts were entered into in the usual course of yarn trade, that the cancellation of contracts and payment of differences was a normal incident in yarn trade, that the contracts entered into by the assessee did not represent a speculative sale or purchase but represent a normal contract entered into by the assessee in the usual course of business and that the assessee had paid the difference in view of falling prices. In the appeal filed by the department, the Tribunal held that in regard to the first two sales above referred to, the assessee paid a sum of Rs, 4,600 as difference in price, that there was no actual delivery of goods and that the intention of the parties at the time of the original contract was immaterial and, therefore, these are speculative transactions. In regard to other two contracts, it held that it had not been shown that they were by way of damages and that it was for the purpose of the business. Following the decision in Juvvi Subbaramaiah and Co. v. Commissioner of Income-tax, the Tribunal also held that the four transactions are in the nature of speculation business. In that view, the department's appeal was allowed and the order of the Income-tax O....
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..... It stated that with reference to the contract dated July 19, 1962, for the purchase of 25 bales of 60s S. B. M. the purchaser has received Rs. 1,500 as per settlement and that the parties mutually agreed to cancel to contract. There was no bill similar to the one which we have noticed in the other cases, but there was only a receipt for payment of Rs. 1,500. The purchase contract was entered into on September 12, 1962, and the difference in price was paid on September 17, 1962, though the period of delivery is given as September, 1962. A sum of Rs, 1,650 was paid by the assessee as amount payable by him against the cancellation of the contract. Here again no bill as in the first case was prepared. It is seen from the above facts that in the first two cases the procedure adopted is as if there was a notional purchase under the contract of sale and a notional resale to the assessee on the dates of settlement and the difference in prices was received by the purchaser. No actual delivery was effected. In the latter two contracts definite amounts were paid without mentioning about the difference in prices and without showing a notional purchase and a notional resale. It is not clear ....
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....gh notionally, as evidenced by the bills, and that satisfies the tests of delivery of the commodities under the settlement. In this connection, he relied on the decision in Commissioner of Income-tax v. Pioneer Trading Company Private Ltd. In that case the assessee, a private limited company, entered into a contract with a Japanese company and agreed to supply 52,000 long tons of Indian iron ore. This contract was later varied by mutual consent and the supply had to be effected under the varied contracts in three consignments of 24,000, 8,000 and 20,000 long tons, respectively. The agreed basis of payment was by an irrevocable letter of credit in pound sterling, at a particular rate. In terms of the contract, as varied, the first and second parts of the contract were consigned and the payment received. So far as the third part of the contract was concerned under which the assessee was to consign 20,000 tons, a quantity of 12,010 tons was consigned and accepted by the Japanese company ; the remaining quantity of 7,990 tons could not be supplied because the Japanese company defaulted in performance of their part of the contract and did not open a letter of credit as agreed upon. For ....
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....ned in Explanation 2. The nature of the contract, which we have recited hereinbefore, gives no implication that the contract was of speculative nature. If that contract had been settled we do not know whether it would have fallen within the meaning of Explanation 2. We have held that the contract was not settled but damages for breach of the contract were realised. That makes all the difference and the transaction cannot be characterised as speculative transaction within the meaning of Explanation 2." In view of this finding, the learned judges considered that it was not necessary for them to express any opinion on the contention that settlement of a part of the contract would not fall within the Explanation. With great respect to the learned judges, we are of the view that this is a narrow construction of the word "settled" in the definition of the expression "speculative transactions ". It is true that on breach of a contract the cause of action for the claim of damages is based on its breach. But that, in our opinion, does not mean that when the claim is settled, the settlement is not of the contract itself but of the breach alone. The rights and liabilities of the parties flo....
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....Commissioner of Income-tax v. Pioneer Trading Company (Privte) Ltd. The decision in Hoosen Kasam Dada (India) Ltd. v. Commissioner of Income-tax was followed in Abdul Gani Haji Habib v. Commissioner of Income-tax. It was held therein that the transactions which are settled by payment of difference must be treated as speculative transactions even though the assessee did not intend, when the contracts were entered into, to settle them by payment of difference. The intention of the parties is immaterial for the purpose of finding out whether the transaction was a speculative transaction within the meaning of Explanation 2 to section 24(1) of the Indian Income-tax Act, 1922. The Andhra Pradesh High Court also took the same view in Juvvi Subbaramaiah and Co. v. Commissioner of Income-tax. The loss in that case which the assessee claimed to set off arose in respect of two contracts for future delivery of turmeric and they resulted in payment of the difference in price. It was held: "The words 'ultimately settled otherwise than by the actual delivery or transfer of the commodity' are very significant, and must be given effect to. They can only mean, by implication, that even if at the ou....
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....under the first contract. On April 15, 1952, Kedar Nath Hariram firm drew up a bill for Rs. 2,40,441-9-0 against the assessee being the value of 250 bales in pursuance of the second contract dated October 10, 1951. On the same date the assessee drew up a bill against Kedar Nath Hariram firm for Rs. 1,99,905-3-3 in pursuance of the first contract being the cost of 250 bales agreed to be sold by the assessee. The books of the assessee showed a debit entry for Rs. 2,40,441-9-0 and a credit entry for Rs. 1,99,905-3-3 in respect of the above transactions on the date April 15, 1952. Similar bills were drawn by the two parties against each other and similar entries in cash book and the bank pass books are found in respect of deliveries of the remaining 250 bags to be effected on April 30, 1952. It was contended on behalf of the assessee that there was actual delivery or transfer of the goods inasmuch as the parties actually sent pucca delivery orders of the mills along with their bills. These pucca delivery orders, it was contended, represented the goods and as such the transactions never had any speculative element in them. It was held that the word " actual " in Explanation 2 to section....
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....n be set off only against profits, if any, of another speculative business. In the instant case, the four transactions were entered into as part of the general business of the assessee. The assessee is a dealer in yarn and during the assessment year he had entered into a number of forward contracts of which these four transactions were speculative. The transactions were not isolated transactions in the sense that they are totally unconnected with his business as a dealer in yarn. These speculative transactions, which form part of the business, by a fiction of law under Explanation 2 to section 28 of the Act are deemed to be distinct and separate from any other business. The losses incurred in respect of these transactions therefore constituted a loss in a speculation business. This view of ours also finds support in Juvvi Subbaramaiah and Co. v. Commissioner of Income-tax, Hoosen Kasam Dada (India) Ltd. v. Commissioner of Income-tax and Abdul Gani Haji Habib v. Commissioner of Income-tax. In Juvvi Subbaramaiah and Co. v. Commissioner of Income-tax, the Andhra Pradesh High Court considered a similar question and held: " As already stated, the two transactions in question are only a....