SINHA,J. - (1.) THIS is a reference under s. 66(1) of the Indian IT Act. The assessee in this case is a limited Co.-- M/s Hoosen Kasam Dada (India) Ltd., Calcutta--and the assessment year is 1953-54 corresponding to the accounting year ended on 30th June, 1952. The assessee company is incorporated under the Indian Companies Act, 1913, and has been carrying on business since 1947. Its registered office is in Calcutta, but it had business connections all over India. Its principal business was that of export of gunnies. In the IT assessment of the particular year mentioned above, various questions arose, but in this reference we are concerned with only one question and it arises as follows : In the relevant year, the assessee suffered a loss of Rs. 6,39,897 in transactions with regard to the sale and purchase of gunnies. The ITO disallowed this amount on the ground that this amount was lost on speculation in gunnies and speculation was not the assessee's line of business, so that the loss could not be set off against any profits.
(2.) AS I have stated above, the assessee carried on an extensive business in gunnies. In a statement filed on behalf of the assessee company which is set out at pages 25 and 26 of the paper-book, it has been stated that in the early part of the year 1952, in the usual course of business, the assessee company had entered into forward contracts in gunnies for the purpose of export through brokers of the Indian Jute Mills Association. Such contracts were in Form "A" of the said association. In view of certain difficulties caused by a certain notification of the Controller of Exports in regard to export of jute goods to Pakistan, and the gradual decline in the international market price of jute goods, the assessee company entered into a number of settlement contracts. The result of such settlement contracts was that at the beginning the company made profit in some cases but later on consistently suffered loss and the total of such losses amounted to Rs. 6,39,897. The ITO allowed such losses as were referable to contracts where delivery was given, but has refused to allow losses where they were the subject-matter of settlement contracts and no delivery was given. Against this order of assessment, the assessee preferred an appeal to the AAC and upon this point the decision of the ITO was upheld. It has also been upheld by the Tribunal. The question that has been referred to us is as follows : "Upon the facts and in the circumstances of this case, whether the transactions were in the nature of speculative ones within the meaning of the first proviso to s. 24(1) of the Indian IT Act and whether the amount of the loss of Rs. 6,39,897 would be set off against the profits and gains of the business ?"
(3.) BEFORE I deal with the question, I might point out that all the relevant facts have been stated above, and the question will have to be considered in the background of such facts. It is not disputed that the assessee was, in the relevant year, doing a large amount of business in the sale and purchase of gunnies, in the course of which a number of contracts were entered into. In respect of some contracts, delivery was given, but with regard to other contracts, they were settled by entering into settlement contracts and no delivery was given. Briefly speaking, the point of view of the authorities below has been that the matter is governed by the proviso to s. 24(1) of the Indian IT Act read with Expln. 2. It is pointed out that a speculative transaction has been defined by Expln. 2 to mean a transaction in which no periodical or ultimate delivery is given. Applying this definition, it has been held that under the settlement contracts, which relate to this amount of Rs. 6,39,897 no delivery was given, and hence, they were speculative transactions. Consequently, under the proviso, they could only be set off against other speculative transactions and not against non- speculative transactions. The assessee, on the other hand, wants to set them off against other transactions in which delivery was given. This has not been allowed, and constitutes the dispute in this case.;