P.L.KN. Meenakshi Achi vs Commissioner of Income Tax, Madras.

Ramaswsmi, J.—The following question has been referred u/s 256(1) of the Income Tax Act, 1961, at the instance of the assessee :

Whether, on the facts and in the circumstance of the case, the disallowance of the claim for the set off of the loss of Rs. 6,187, against the

assessees business income on the ground that it was a speculation loss was justified in law ?

One Kannappa Chettiar was carrying on business in yarn. On January 20, 1961, he entered into two contracts of sale-one of which was for 50

bales of 60s of yarn of Bhavani Mills and the other was for 50 bales of the same count of Pioneer Mills-with one N. K. Nagappa Chettiar. The

delivery period was March-April, 1961. The market price of these counts of yarn was rising during the period of delivery and the difference

between the contract price and the market price was Rs. 14,000. These contracts for sale were not covered by any item of purchases contract.

Yarn was not delivered under these contracts, but a sum of Rs. 9,500 was paid to Nagappa Chettiar and the contracts were settled. There were

13 of other sales contracts in which deliveries were not effected, but in theses cases the assessee received the price difference amounting to Rs.

3,313.

For the assessment year 1962-63 the assessment was completed in the hands of the petitioner herein as the legal representative of Kannappa

Chettiar. The petitioner claimed a sum of Rs. 9,500 as a business loss. The Income Tax Officer considered this amount as a speculative loss and

disallowed it; at the same time he assessed the sum of Rs. 3,313 as business income. On appeal, the Appellate Assistant Commissioner held that

these contracts were entered into with the idea of making purchases from particular mills which were allotting yarn in the usual course, that these

transaction were not speculative transaction and that the payment of Rs. 9,500 was simply a case settlement of the difference in prices and no

speculation aspect is involved in these transactions. He accordingly allowed the claim as a business loss. The department filed an appeal to the

Tribunal. The Tribunal held that since there was no actual delivery of the goods contracted under the settlement of the contracts they were

speculative transactions and, therefore, the sum of Rs. 9,500 was a speculation loss. On the same reasoning the Tribunal treated the sum of Rs.

3,313 received by the assessee as profit in speculation business and allowed a set-off against the sum of Rs. 9,500. For the balance of Rs. 6,187 it

was held that since it was a speculative loss, it could not be set off against the income form other sources of business. At the instance of the

assessee the above question has been referred.

Section 43(5) of the Income Tax Act, 1961, defines ""speculation transaction"" as meaning a transaction in which a contract for the purchase or

sale of any commodity including stocks and shares is periodically or ultimatum settled otherwise then by actual delivery or transfer of the

commodity or scrips. The section provides for a simple test for deciding what a speculation transaction means for the purpose of the Income Tax

Act. If the contract for sale or purchase is ultimately settled and no actual delivery of the goods is effected under the settlement then it is a

speculative transaction. The requirement u/s 30 of the Indian Contract Act of the existence of the intention of the parties even at the time of the

original contract not to give or take delivery of the goods in order to make it a speculative or wagering transaction is dispensed with for the

purpose of the Income Tax Act. If actual delivery of the goods is not given under` the settlement of contract, then the intention of the parties at the

time of the contract is immaterial. We have considered this point fully in T.C. No. 130 of 67 and we have held that wherever delivery of the goods

is not effected under the settlement the transaction will be a speculative transaction irrespective of the intention of the parties at the time of the

contract. In this case there is no dispute about the transactions being in the nature of a business because, as pointed out by the Tribunal, the

assessee had entered into a number of similar contracts some of which had resulted in profits as well. The assessee is, therefore, not entitled for the

set-off of the loss of Rs. 6,187 against his income from other business. The question referred is accordingly answered in the affirmative and against

the assessee. The respondent will be entitled to his costs. Counsels fee Rs. 250. Question answered in the affirmative.