Sabyasachi Mukharji, J.
1. In this reference, two questions have been referred to this court:
'1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the sale proceeds of loom hours constituted a revenue receipt and not a capital receipt liable to be considered under the head 'Capital gains' ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the transactions in jute goods backed by pucca delivery orders without actual delivery of goods were not speculative transactions within the meaning of Sub-section (5) of Section 43 of the Income-tax Act, 1961, and in that view allowing the loss of Rs. 33,738 as trading loss ?'
2. So far as the first question is concerned, it is clearly concluded by the decision of the Supreme Court in the case of Empire Jute Co. Ltd. v. CIT : 124ITR1(SC) . In view of the said decision, we answer question No. 1 by saying that the Tribunal was right in holding that the sale proceeds of loom hours constituted revenue receipt and cannot be considered to be capital receipt under the head 'Capital gains'. Thus, question No. 1 is answered in favour of the assessee.
3. So far as the second question is concerned, it is necessary to refer to some of the facts. This related to the loss of Rs. 33,738. The AAC had rejected the assessee's contention that such loss should be allowed as an expenditure. He relied on certain decisions which are not necessary for us to refer in detail. The assessee went up in appeal before the Tribunal. So far as this aspect is concerned, the Tribunal noted the contentions of the parties and found that the transaction should be viewed in proper perspective with reference to the business necessity of doing so in order to fulfil more profitable overseas contracts. It found that the assessee was neither a dealer in PDOs nor in jute products alone. It found that the assessee manufactured jute goods and sold these in the market and in the process of its carrying on the business, the assessee had failed to fulfil some contracts of forward sales by PDOs and, in order to cover up other profitable contracts, certain speculative contracts were entered into. The Tribunal in its appellate order has referred to the fact that in the process of carrying on the business, the assessee had to issue PDOs constituting forward sales in jute goods and there was no finding that this was only one solitary contract. There was no actual delivery. This aspect was considered by the Supreme Court in three decisions.
4. We must first refer to the decision of the Supreme Court in the case of Davenport & Co. P. Ltd. v. CIT : 100ITR715(SC) . The assessee, in that case, was a private company, which had carried on business in tea garden tools and requisites and also had acted as agents for selling tea, entered into certain transactions for the purchase of certain jute goods and their sale. The assessee had no godown and had not handled them. Only delivery orders addressed to the mills had changed hands. These transactions had resulted in a loss. The ITO held that the transactions which involved mere transfer of delivery notes and not actual delivery of goods were of a speculative character within the meaning of Expln. 2 to Section 24(1) of the Indian I.T. Act, 1922, the loss incurred could be set off only against speculation profits and since there were no such profits in that year, the loss would be carried forward to be set off against future speculation profits. The Appellate Tribunal upheld the view of the ITO, and the High Court, on a reference, held that the transactions were speculative transactions within the meaning of Expln. 2 to Section 24(1) of the Indian I.T. Act, 1922. The Supreme Court held that the transactions were speculative transactions within the meaning of Expln. 2 to Section 24(1) of the Indian I.T. Act, 1922. The Supreme Court noted that the expression 'actual delivery' in Expln. 2 to Section 24(1) of the Indian I.T. Act, 1922, meant real as opposed to notional delivery. Whether a transaction was speculative in the general sense or under the Contract Act was not relevant for the purpose of this Explanation. The definition of 'delivery' in Section 2(2) of the Sale of Goods Act which had been held to include both actual and constructive or symbolical delivery had no bearing on the definition of speculative transaction in the Explanation. A transaction which is otherwise speculative would not be a speculative transaction within the meaning of Expln. 2 if actual delivery of the commodity or scrips had taken place ; on the other hand, a transaction which was not otherwise speculative in nature might yet be speculative according to Expln. 2 if there was no actual delivery of the commodity or the scrips. The Explanation did not invalidate speculative transactions which were otherwise legal but gave a special meaning to that expression for the purpose of income-tax only. In that case, the assessment year in question was 1959-60, and in the relevant previous year which ended on June 30, 1958, the assessee for the first time in its history had entered into certain transactions in jute. This aspect is important because the learned advocate for the assessee urged that the petitioner-assessee was mainly a manufacturer and purchaser of jute goods and the jutegoods had remained in the godown of the assessee. The assessee had entered into contracts and performed the contracts by delivering pucca delivery orders. In case of sale and repurchase, there was no actual delivery of goods.
5. We are concerned here with Sub-section (5) of Section 43 of the I.T. Act, 1961, which defines 'speculative transaction' and it contemplates that '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. Learned advocate sought to urge that though in this case there was no actual delivery there was transfer. In our opinion, that construction would defeat the meaning of the expression 'actual delivery' and from what the Supreme Court observed, the expression 'actual delivery' must mean the same thing, that is to say, either actual delivery of the goods or actual physical transfer of the goods.
6. That view of the Supreme Court was also reiterated by the Supreme Court again in two subsequent decisions to which our attention was drawn, viz., in the case of Nirmal Trading Co. v. CIT : 121ITR54(SC) and in the case of Jute Investment Co. v. CIT : 121ITR56(SC) . Learned advocate for the assessee further sought to urge that as the assessee was also a manufacturer of jute goods and the jute goods were in its godown after it was sold, by entering into contracts for sale of the PDOs, the custody of the goods remained in the assessee as a bailee and that custody or possession of the goods became the possession as owner. After sale of the goods, the assessee was in possession of the goods and the assessee was in custody of the goods. But the goods were transferred by the transfer of PDOs, but there was no actual delivery either of the goods or the actual physical transfer of the goods by handing over the custody of the goods. The fact that this was in one year and this was not the main business would not materially affect the decision in view of the ratio of the principles of the decision of the Supreme Court in the context of the facts of that case, as enunciated by the Supreme Court in Davenport & Co. P. Ltd. v. CIT : 100ITR715(SC) .
7. Learned advocate for the assessee drew our attention to the Bench decision of the Andhra Pradesh High Court in the case of Addl. CIT v. Maggaji Shermal : 114ITR862(AP) , where the assessee had entered into a contract with another dealer on November 4, 1967, for the purchase of 1,000 bags of groundnuts at the rate of Rs. 358 per kandi, delivery of which was to be made in February, 1968. On February 16, 1968, there was a fall in the price of groundnuts and the assessee thought it fit not to purchase the groundnuts. It, therefore, paid Rs. 20,833 to the contracting dealer. The assessee claimed set-off of the loss in this transaction against other income. But, as there was no actual delivery of the goods, the ITO as well as the AAC held that the transaction was a speculative transaction and the loss should be regarded as a speculative loss. On appeal, the Tribunal had accepted the contention of the assessee and held that though the transaction was a speculative transaction, the loss was not speculative. It has to be borne in mind that there the Andhra Pradesh High Court was dealing only with a solitary transaction, viz., the transaction entered into on November 4, 1967, for the purchase of 1,000 bags of groundnuts. Here, in the instant case, there is no finding that there is only a solitary transaction, that is to say, only one contract in respect of which the loss arose.
8. In that view of the matter, we are of the opinion that the ratio of the principles of the decision of the Supreme Court do apply in the facts of the instant case. In the premises, question No. 2 is answered in the negative and in favour of the revenue.
9. Each party will pay and bear its own costs.
Sudhindra Mohan Guha, J.
10. I agree.