Case: Davenport &amp; Co. Pvt. Ltd Vs. Commissioner Of Income -Tax, West Bengal

consideration in the appeal before usAnother authority on which the decision in Raghunath Prasads case relies is State of Andhra Pradesh v. Kolla Sree Ramamurthy, which is also a case under the Madras General Sales Tax Act, 1939. The respondent in that case, a dealer in gunny bags, purchased gunnies from the mills on terms of written contracts which were on printed forms. These contracts were entered into by brokers acting for the respondent who sent him " Bought-Notes " setting out the terms upon which the purchases had been effected from the mills. The mills having received a part of the purchase money in terms of the contract issued delivery orders directing the delivery of goods as per the contract. Instead of taking delivery himself, the respondent endorsed the delivery orders and these passed through several hands before the ultimate holder of the delivery orders presented them to the mills and obtained delivery of the gunnies on payment. The question that arose for decision was whether the transactions entered into by the respondent were mere sales of delivery orders or sales of goods so as to bring them to charge under section 3 of the said Act. At the date of the contract for purchase by the respondent, the goods which were the subject-matter of the purchase were not appropriated to the contract so that there was no completed sale since no property passed, but only an agreement for sale. In considering the effect of the position that the property in the goods passed to the ultimate endorsee of the delivery orders, Mr. Justice Ayyangar, speaking for the court, relied on an English decision, Butterworth v. Kingsway Motors Ltd., to hold that though the respondent and his transferees had not acquired any title to the goods, the title acquired by the ultimate endorsee of the delivery orders went to feed their previously defective title and enured to their benefit. His Lordship further observed that this was the principle that formed the basis of the decision in Bayyana Bhimayyas case. Here again, the question that was considered has hardly any connection with section 24 of the Indian Income-tax Act, 1922, and the observations made in this case cannot be a guide to the solution of the problem arising in the case before usSection 6 of the Indian Income-tax Act, 1922, enumerates the heads of income chargeable to income-tax. Section 24(1) of the Act provides that where an assessee sustains a loss under any of these heads in any year, he shall be entitled to have the loss set off against his income, profits or gains under any other head in that year. This general provision is qualified by the first proviso which permits the set-off of a loss in speculative business against the assessees profits and gains, if any, in a similar business only. Explanation 1 says that where the speculative transactions are of such a nature as to constitute a business, the business shall be deemed to be distinct and separate from any other business. Explanation 2 defines a speculative transaction as a transaction in which a contract for purchase and sale of any commodity is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity. The words " actual delivery " in Explanation 2 mean real as opposed to notional delivery. For income-tax purposes speculative transaction means what the definition of that expression in Explanation 2 says. Whether a transaction is speculative in the general sense or under the Contract Act is not relevant for the purpose of this Explanation. The definition of " delivery " in section 2(2) of the Sale of Goods Act which has been held to include both actual and constructive or symbolical delivery has 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 Explanation 2 if actual delivery of the commodity or the scrips has taken place ; on the other hand, a transaction which is not otherwise speculative in nature may yet be speculative according to Explanation 2 if there is no actual delivery of the commodity or the scrips. The Explanation does not invalidate speculative transactions which are otherwise legal but gives a special meaning to that expression for purposes of income-tax only. In D. M. Wadhwana v. Commissioner of Income-tax, on which the Tribunals decision in this case is based, the Calcutta High Court observed" The Explanation to section 24(1), however, does not prevent persons from entering into contracts in which the buyers and sellers may not actually hand over the goods physically. The Explanation is only designed at segregating for income-tax purposes loss sustained in transactions of a certain kind. It may be that such transactions are not speculative in the light of section 30 of the Contract Act ... In enacting the Explanation 2 of section 24(1) of the Income-tax Act, the legislature did not intend to affect any transaction of sale wherein the goods were not physically delivered by the seller to the buyer but only laid down that if there was no actual or physical delivery, the loss, if any, would be a loss in a speculative transaction which could be allowed to be set off only against a profit in a transaction of the same nature ... The object of the Explanation is not to invalidate transactions which are not completed by actual delivery of the goods but only to brand them as speculative transactions so as to put them in a special category for income-tax purposes."7. In our opinion this is a correct statement of the law. This aspect of the matter was not considered in Ragunath Prasad Poddar v. Commissioner of Income-tax . We think the law on the point was correctly stated in D. M. Wadhwana v. Commissioner of Income-tax, and in our opinion the question referred to the High Court in the present case has been correctly answered.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]The observation made in this context does not also seem to us relevant to the question under consideration in the appeal beforeagain, the question that was considered has hardly any connection with section 24 of the Indian Income-tax Act, 1922, and the observations made in this case cannot be a guide to the solution of the problem arising in the case before usSection 6 of the Indian Income-tax Act, 1922, enumerates the heads of income chargeable to income-tax. Section 24(1) of the Act provides that where an assessee sustains a loss under any of these heads in any year, he shall be entitled to have the loss set off against his income, profits or gains under any other head in that year. This general provision is qualified by the first proviso which permits the set-off of a loss in speculative business against the assessees profits and gains, if any, in a similar businessa transaction is speculative in the general sense or under the Contract Act is not relevant for the purpose of this Explanation. The definition of " delivery " in section 2(2) of the Sale of Goods Act which has been held to include both actual and constructive or symbolical delivery has 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 Explanation 2 if actual delivery of the commodity or the scrips has taken place ; on the other hand, a transaction which is not otherwise speculative in nature may yet be speculative according to Explanation 2 if there is no actual delivery of the commodity or the scrips. The Explanation does not invalidate speculative transactions which are otherwise legal but gives a special meaning to that expression for purposes of income-taxD. M. Wadhwana v. Commissioner of Income-tax, on which the Tribunals decision in this case is based, the Calcutta High Court observed" The Explanation to section 24(1), however, does not prevent persons from entering into contracts in which the buyers and sellers may not actually hand over the goods physically. The Explanation is only designed at segregating for income-tax purposes loss sustained in transactions of a certain kind. It may be that such transactions are not speculative in the light of section 30 of the Contract Act ... In enacting the Explanation 2 of section 24(1) of the Income-tax Act, the legislature did not intend to affect any transaction of sale wherein the goods were not physically delivered by the seller to the buyer but only laid down that if there was no actual or physical delivery, the loss, if any, would be a loss in a speculative transaction which could be allowed to be set off only against a profit in a transaction of the same nature ... The object of the Explanation is not to invalidate transactions which are not completed by actual delivery of the goods but only to brand them as speculative transactions so as to put them in a special category for income-taxour opinion this is a correct statement of the law. This aspect of the matter was not considered in Ragunath Prasad Poddar v. Commissioner of Income-tax . We think the law on the point was correctly stated in D. M. Wadhwana v. Commissioner of Income-tax, and in our opinion the question referred to the High Court in the present case has been correctly answered.