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 [1980] 124 ITR 1. 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.;