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Commissioner of Income-tax Vs. Ratan Lal Mohanlal - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberMiscellaneous Income-tax Reference No. 137 of 1966
Judge
Reported in[1972]86ITR200(All)
ActsIncome Tax Act, 1922 - Sections 10(1) and 24(1)
AppellantCommissioner of Income-tax
RespondentRatan Lal Mohanlal
Appellant AdvocateR.R. Misra, Adv.
Respondent AdvocateB.L. Gupta and ;Ashok Gupta, Advs.
Excerpt:
- - 777 of 1961 is no more good law......a speculation loss. 4. so far as the question, whether speculation loss can be set off against the income, profits or gains of non-speculative business is concerned, the supreme court in the case of commissioner of income-tax v. jagannath mahadeo prasad, [1969] 71 i.t.r. 298 (s.c.) has held that an assessee is not entitled to set off speculative losses against profits from other business activities of the same year for the purpose of computing the income, profits and gains under section 10(1) of the indian income-tax act. in view of this decision, the decision of this court in i.t.r. no. 777 of 1961 is no more good law. 5. in the circumstances, we answer the first question in the affirmative and the second question in the negative. the commissioner of income-tax is entitled to his costs.....
Judgment:

H.N. Seth, J.

1. The Income-tax Appellate Tribunal, Delhi Bench 'B', has referred the following questions of law for the opinion of this court, at the instance of the Commissioner of Income-tax, Lucknow. The questions are:

'(1) Whether, on the facts and in the circumstances of the case, the loss of Rs. 38,026 suffered by the assessee was speculation loss

(2) If the answer to the first question is in the affirmative, whether the said loss could be set off against profits earned by the assessee in non-speculation business

2. The assessee was dealing in oil, oil-cakes, etc. In respect of its business it used to purchase oil and oil-cakes in bulk from the mills or big arhatias and sell them in wholesale and partly in retail basis. Such purchases were mostly made by entering into contracts about the rate and date of delivery. When, for various reasons, these contracts were not fulfilled and delivery of goods was not taken, the transaction used to be settled on the basis of difference between the prevailing market rate and the contractual rate. In this way the assessee suffered a loss of Rs. 38,026, in the previous year pertaining to the assessment year 1960-61. The assessee claimed that these losses represented liquidated damages and were liable to be set off as against the profits earned by it during the year from ready business. The department, however, claimed that these were speculation losses which could be adjusted against the profits of speculation business. The Income-tax Officer rejected the contention of the assessee and declined to set off these losses against the profits earned by the assessee from non-speculation business. In appeal the Appellate Assistant Commissioner upheld the order made by the Income-tax Officer. The assessee fileda second appeal before the Income-tax Appellate Tribunal. The Tribunal came to the conclusion that the losses suffered by the assessee were speculation losses. Relying upon a decision of this court in Income-tax Reference No. 777 of 1961, it held that these speculation losses could be set off against the profits of other business of the assessee. The department then moved an application for referring the two questions for the opinion of this court.

3. It is admitted by the assessee that it suffered a loss of Rs. 38,026, as due to certain reasons the delivery of the goods contracted for could not be effected and that it was worked out on the basis of difference between the contract price and the prevailing market price. According to Explanation 2 to Section 24(1) of the Income-tax Act, 1922, speculative transaction means a transaction in which a contract for purchase and sale of any commodity including stocks and shares is periodically, or ultimately settled otherwise than by actual delivery or transfer of the commodity. In this case there is no dispute that the transactions were ultimately settled otherwise than by actual delivery or transfer of the commodity. It is, therefore, clear that the transaction in question was a speculative transaction within the meaning of Section 24(1), Explanation 2, of the Act and the loss suffered by the assessee was a speculation loss.

4. So far as the question, whether speculation loss can be set off against the income, profits or gains of non-speculative business is concerned, the Supreme Court in the case of Commissioner of Income-tax v. Jagannath Mahadeo Prasad, [1969] 71 I.T.R. 298 (S.C.) has held that an assessee is not entitled to set off speculative losses against profits from other business activities of the same year for the purpose of computing the income, profits and gains under Section 10(1) of the Indian Income-tax Act. In view of this decision, the decision of this court in I.T.R. No. 777 of 1961 is no more good law.

5. In the circumstances, we answer the first question in the affirmative and the second question in the negative. The Commissioner of Income-tax is entitled to his costs which we assess at Rs. 200. Counsel's fee is also assessed at the same figure.


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