Obul Reddi, C.J.
1. These two references, though relate to separate assessees, raise two identical questions and, therefore, they may be conveniently disposed of by a common judgment.
2. For the purpose of answering the references, we may refer to the statement of the case in R. C. No. 165/76 and the questions referred therein. This reference is at the instance of the revenue and relates to the assessment year 1968-69. The assessee is a partnership firm carrying on business in purchase of groundnuts, turmeric, etc. The firm came into existence on October 30, 1967, and it was dissolved on March 31, 1968, On November 4, 1967, it entered into a contract with M/s. Mudiam Oil Company, Prodd-atur, for purchase of 1,000 bags of groundnuts at the rate of Rs. 358 per kandi equal to 250 kgs. The delivery of the goods was tq be made in the month of February, 1968. The other terms of the contract are not relevant. On December 16, 1968, there was a fall in the price of groundnuts. and the assessee, therefore, thought fit not to purchase the groundnuts in view of the difference in price. He, therefore, paid Rs. 20,833.33, the difference in value, i.e., at the rate of Rs. 62'50per kandi, to the other contracting party. The other contracting party, M/s. Mudiam Oil Company, received that amount on February 16, 1968, evidenced by a receipt passed by it. It is recited in that receipt:
'The 1,000 (one thousand) groundnut bags (tax paid) were purchased by you from us on 4-11-1967, at the rate of Rs. 358 per kandi. But, since we settled by mutual consent today without reference to the delivery, at the rate of Rs. 62.50 per kandi you may please credit Rs. 20,833.33 to our account.'
3. Corresponding entry was also made in the books of the assessee to the effect that, by mutual consent, without reference to the delivery of the goods, the assessee-firm has to pay to M/s. Mudiam Oil Company Rs, 20,833.33. As there was no actual delivery of the goods, the Income-tax Officer and the Appellate Assistant Commissioner held that the transaction was a speculative transaction and, therefore, the loss should be regarded as a speculative loss. On appeal, the Tribunal accepted the contention of the assessee and held that, though the transaction was speculative transaction, the loss was not speculative. According to it, even though the particular transaction was one under Section 43(5) of the Income-tax Act, loss arising out of that particular transaction cannot be deemed as a speculation loss in order that it must be separately treated without being set off against other profits. In that view, the appeal was allowed. Hence, at the instance of the revenue, the following two questions were referred:
'(1). Whether, on the facts and in the circumstances of the case, the transaction that resulted in loss of Rs. 20,833 is a speculative transaction, within the meaning of Section 43(5) of the Income-tax Act, 1961?
(2) Whether, on the facts and in the circumstances of the case, the loss of Rs. 20,833 is from speculative business?'
'Speculative transaction', as defined in Section 43(5), means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. Admittedly, the. commodity which was the subject-matter of the contract was settled otherwise than by actual delivery of it in accordance with the terms of the contract. It is, therefore, a speculative transaction within the meaning of Section 43(5).
4. The next question is the main question which requires to be answered. The fact that the transaction was a speculative transaction will not, by itself, render it a speculative business. To constitute a speculative business, there should be more than one speculative transaction carried on by an assessee so as to constitute a business. It is only then that businesswill be regarded as a speculative business.
Explanation 2 to Section 28 says
'Where speculative transactions carried on by an assessee are of sucha nature as to constitute a business, the business (hereinafter referred to as'speculation business) shall be deemed to be distinct and separate fromanyother business.'
5. It cannot be said, having regard to the meaning of speculation business,that the transaction in question was such as to constitute a speculationbusiness. There was only one such transaction in both the cases, and they)were isolated instances. Therefore, having regard to the meaning ofspeculation business, we agree with the finding recorded by the Tribunalthat it is a loss in business and not a loss in speculation business.
6. In the result, the first question is answered in the affirmative and infavour of the revenue and the second question is answered in the negativeand against the revenue. The references are answered accordingly withcosts. Advocate's fee Rs. 250 in each.