1. The following question is involved in this reference under Section 256(2) of the Income-tax Act, 1961:
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the loss claimed by the assessee in respect of the sum of rupees one lakh seventy-nine thousand and two hundred paid by it to M/s. Khardah Company Ltd. was not a loss arising from a speculative transaction and in directing the said sum to be allowed as a loss against the other business income of the assessee ?'
2. The assessment year is 1961-62. The accounting period ended on November 7, 1961. The assessee is a firm. The facts stated and found by the Tribunal may be briefly stated as follows : The firm is a dealer and a jute broker. Several contracts for sale and for specific delivery of jute goods by instalments were entered into by the firm in the accounting year. In this reference, we are concerned with only one contract, namely, the contract between the firm and Messrs. Khardah Co. Ltd. The firm failed to deliver those goods on due dates and committed a breach of the said contract and became liable to pay Rs. 1,79,200 as damages to M/s. Khardah Co. Ltd. in the accounting year.
3. The Income-tax Officer has rejected the firm's claim for deduction of the said amount with a finding that it was a speculative transaction. The Appellate Assistant Commissioner has sustained the said finding and has dismissed the appeal filed by the firm, but the Tribunal has reversed the said finding and has allowed further appeal by the firm. Hence, the above question is now before us at the instance of the Commissioner.
4. Mr. B. L. Pal, the learned counsel for the revenue, has contended before us that the loss claimed by the assessee was a speculative loss within the meaning of that expression used in Section 43(5) of the Income-tax Act, 1961, and, therefore, it should not have been allowed by the Tribunal. It is also the submission of Mr. Pal that if the goods are not actually delivered even after the breach of contract and difference is paid by way of settlement, it will be a speculative transaction as defined by Section 43(5) of the Act. In support of his first contention he has cited the decision of the Supreme Court in the case of Davenport & Co. Private Ltd. v. Commissioner of Income-tax : 100ITR715(SC) and for the last contention he has relied on the decision of the Madras High Court in the case of R. Chinnaswami Chettiar v. Commissioner of Income-tax : 96ITR353(Mad) .
5. We are, however, not impressed by his contentions. Pucca delivery orders changed hands resulting in a loss in Davenport's case : 100ITR715(SC) and it was held by the Supreme Court that the words 'actual delivery' in Explanation 2 to Section 24(1) of the Indian Income-tax Act, 1922, meant a real as opposed to a notional delivery of the goods or the scrips. The said Explanation does not invalidate the speculative transactions which are otherwise legal but categorises them in a separate group for the purposes of the Income-tax Act as held by the Calcutta High Court in the case of D. M. Wadhwana v. Commissioner of Income-tax : 61ITR154(Cal) and followed by the Supreme Court in Davenport's case : 100ITR715(SC) by dissenting from its earlier view in the case of Raghunath Prosad Poddar v. Commissioner of Income-tax : 90ITR140(SC) .
6. Raghunath Prosad Poddar's case : 90ITR140(SC) was also on pucca delivery orders like Wadhwana's case : 61ITR154(Cal) but the present case before us is not on any pucca delivery order as found by the Tribunal but on a breach of contract resulting in damages which were paid by the firm to M/s. Khardah Co. Ltd. Hence, reliance on Davenport's case : 100ITR715(SC) was misplaced by Mr. Pal. Further, in Davenport's case : 100ITR715(SC) the Supreme Court was not even concerned with the question as to whether on a breach of contract to deliver the goods resulting in a liability for damages and payment of such damages will be a speculative transaction within the meaning of the said Explanation to Section 24(1) of the 1922 Act.
7. In the case of Chinnaswami Chettiar v. Commissioner of Income-tax : 96ITR353(Mad) the assessee did not deliver the goods and the contract was cancelled. Thereafter, the claim of the other party was settled at Rs. 7,750 and the assessee paid this amount and claimed it as a business loss. It was held by the Madras High Court that though the said loss arose out of a breach of the said contract and claim arising out of it was settled, it was not a settlement of the claim but a settlement of the contract itself. It was also held that if a settlement is made after the breach of a contract and a payment is made in terms of a settlement subsequently arrived at between the parties it will still be a speculative transaction within the meaning of Section 43(5) of the Act. But we respectfully dissent from their Lordships of the Madras High Court.
8. Section 43(5) of the Act reads as follows:
' 'Speculative transaction' 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.'
9. Save as to an arbitration clause, a breach puts an and to the contract and creates a liability in damages. No question of delivery of goods can ever arise after the contract is killed by its breach. Though the parties can enter into a settlement contract for delivery of goods, it does not revive the old contract, for it is a new contract between them and new rights and liabilities flow from it. Section 43(5) of the Act does not say that 'a settlement of a claim for damages arising out of a breach of contract will be a speculative transaction' and, therefore, to accept the contention of Mr. Pal is to rewrite this Section but this court has no power to do so and, therefore, his contention must fail.
10. A settlement of a claim for damages arising out of breach of contract cannot be hit by the mischief of this Section. It has been observed by this High Court in the case of Commissioner of Income-tax v. Pioneer Trading Company Private Ltd.  70 ITR 347 as follows :
'As we read Explanation 2 to Section 24(1) we do not feel that a claim based on breach of contract comes within the meaning of contract settled as used in Explanation 2, In our reading the expression 'contract settled' means 'contract settled before breach'. After breach of contract, the cause of action is no longer based on the contract itself but on its breach.'
11. No doubt, their Lordships of the Madras High Court have dissented from the above case laid down by this High Court but, as already stated, we are not in agreement with them. Moreover, in the case of Daulatram Rawatmull v. Commisssioner of Income-tax : 78ITR503(Cal) a later Division Bench of this court has followed the above law laid down in Pioneer Trading Company's case  70 ITR 347 and these two decisions of this High Court were followed by their Lordships of the Mysore High Court in the case of Bhandari Rajmal Kushalraj v. Commissioner of Income-tax : 96ITR401(KAR) .
12. In the premises and by following the above decisions of this court, we return our answer in the affirmative and in favour of the assessee by overruling the contentions of Mr. Pal.
13. The parties shall pay and bear their own costs.
Dipak Kumar Sen, J.
14. I would like to add the following as additional reasons in support of the answer given to the question. Needless to say, I agree with the reasons contained in the judgment already delivered by my learned brother.
15. Even if an extended meaning is given to Section 43(5) of the Act, as suggested by Mr. B. L. Pal, the contract which the assessee had with Kesavdeo Shyamsunder cannot, in any event, be stated to be a speculative transaction. In this contract, out of the six stipulated instalments there was actual delivery of goods in five of such instalments. Only in one instalment there was failure to deliver and in respect of this instalment, money was paid in lieu of delivery.
16. The question which was before the Supreme Court in Davenport's case : 100ITR715(SC) was, where in transactions in jute goods only delivery orders changed hands without actual delivery of the said goods, whether such transactions amounted to speculative transactions within the meaning of Section 24(1) of the Indian Income-tax Act, 1922. The Supreme Court has categorically laid down that actual delivery meant real as opposed to notional delivery. In the jugment of Gupta J., Explanation to Section 24 of the Indian Income-tax Act, 1922, has been considered. It is laid down that under Explanation 2 a transaction which is not otherwise speculative may still be speculative within the meaning of that Explanation if there was no actual delivery of the commodity or scrips.
17. The type of transactions which were referred to in the above judgment appears to be the transactions as indicated in the Section itself, that is, transactions under a contract of sale. What the position would be where there was a breach of contract was neither mooted nor considered by the Supreme Court and the observations of the Supreme Court are clearly in the background of an existing or a subsisting contract. It is also to be noted that the Supreme Court did not hold that all such transactions where there was no actual delivery of commodity or scrips are necessarily and always speculative but that they may be.