NIRMAL TRADING COMPANY vs. COMMISSIONER OF INCOME TAX, CENTRAL (CALCUTTA)

CIVIL APPEAL No. 2310/1972Supreme Court[1980] 1 S.C.R. 90010 October 1979Bench: 2 JudgesAuthor: N.L. UNTWALIA, R.S. PATHAK2 pages
AI SummaryDismissed

What were the facts?

The assessee, Nirmal Trading Company, engaged in transactions of sale and purchase of paper, hessian, and B. Twill. These transactions were settled by the exchange of delivery orders and payment by cheques. The assessment year in question is 1955-56. The Income Tax Officer and the Appellate Assistant Commissioner made assessments. The Income Tax Appellate Tribunal initially found that certain transactions were not speculative. However, at the instance of the Revenue, the High Court was asked to consider whether a loss of Rs. 1,03,688/- resulted from speculative transactions. The High Court ruled in favor of the Revenue, holding that the transactions were speculative. The appeal before the Supreme Court was filed by the assessee via a certificate under section 66A(2) of the Indian Income Tax Act, 1922.

What did the Supreme Court hold?

The Supreme Court held that the transactions were speculative transactions within the meaning of Explanation 2 to section 24(1) of the Indian Income Tax Act, 1922. The Court reasoned that there was no evidence to suggest that actual delivery of goods was ever effected, either to the assessee or to subsequent purchasers. The assessee's own case was that the handing over of delivery orders was sufficient to constitute actual delivery. This position was found to be untenable in the absence of actual delivery. The Court followed its earlier decision in Davenport & Co. (P) Ltd. v. Commissioner of Income-Tax, West Bengal II, and noted that the case of Raghunath Prasad Poddar T. Commissioner of Income-Tax Calcutta, relied upon by the assessee, had been overruled. Therefore, the loss of Rs. 1,03,688/- was not allowable to be set off under section 24(1) of the Act. The appeal was dismissed.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the loss of Rs. 1,03,688/- was the result of speculative transactions within the meaning of Explanation 2 to section 24(1) of the Indian Income Tax Act, 1922, and therefore, was not allowable to be set off under section 24(1) of the said Act? Assessee's contentions: The assessee argued that the transactions were not speculative and relied on the case of Raghunath Prasad Poddar v. Commissioner of Income-Tax Calcutta. The assessee's consistent stance was that the handing over of delivery orders constituted actual delivery of goods. Revenue's contentions: The Revenue contended that the transactions were speculative. They relied on the High Court's finding that in the absence of actual delivery, the transactions attracted Explanation 2 to section 24(1) of the Act. The Revenue also implicitly supported the High Court's reliance on Davenport & Co. (P) Ltd. v. Commissioner of Income-tax, West Bengal II.

Which sections of the Income-tax Act were involved?

Section 24(1),Section 66A(2)

AI-generated summary — verify with the full judgment below

1/t.. '. c 900 NIRMAL TRADING COMPANY v. COMMISSIONER OF INCOME TAX, CENTRAL (CALCUTTA)

October 10, 1979 [N. L. UNTWALIA AND R. S. PATifAK, JJJ "Speculative transactioni'-Traruactions of sale and purchase settled by harul· i1ll over delivery order.J. and payment by chequea-Transacti'ons are 'Speculati'lff TraruactJ'on.t'' and attract the provisions of Explanation 2 to section 24(1) of lncome·tax Act, 1922. The assessee entered into several transactions of sale and purchase with different parties, and the transactioas were settled by handing aver delivery orders.

There was no evidence and no plea was taken tbat actual delivery of the goods was ever effected either to the assessee or to the subsequent pur· chasers from him.

Dismissing assessee's appeal by certificate under section 66A(2) of the D Income Tax Act 1922, the Court E HEID : In the absence of any suggestion that actual delivery of goods was ultimately effected and in view of the case of the assessee, throughout being that banding over of the delivery orders was sufficient as constituting actual delivery of the goods, the transactions, in the present case, attracted Explana· lion 2 to section 24(1

The order continues below.

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