K.L.Roy, J. - (1.) In this reference under Section 66 (1) of the Indian Income-tax Act, 1922, hereinafter referred to as the Act, the following question of law has been referred to this Court by the Income-tax Appellate Tribunal: Whether, in the facts and circumstances of the case, the Tribunal was justified in holding that the passing of Pucca Delivery Orders did not amount to actual delivery of goods and the loss incurred in the transactions of purchase and sale was speculative loss within the meaning of Explanation 2 to Section 24 (1) of the Income-tax Act 1922?
(2.) The facts as stated in the Statement of the case are as follows. The assessee, Murlidhar Jhunjhunwalla, is an individual who deals, inter alia, in hessian and B Twill. During the previous year for the assessment year 1955-56, being 2011 Ratha Jatra ending on the 1st of July, 1954, the assessee contracted to sell 2700 bales of B. Twill to one Subhkaran Jhunjhunwalla under contract dated the 24th November 1953, delivery to be given in May, 1954, at the rate of Rs. 100/10/- per 100 bags and on the 5th May, 1954 the assessee contracted to purchase the same quantity of B Twill, namely, 2700 bales from Subhkaran Jhunjhunwalla at the rate of Rs. 112/14/- per 100 bags. The delivery under the last contract was also to be made in May, 1954. On the 31st of May, 1954 Subhkaran Jhunjhunwalla delivered to the assessee Pucca Delivery Orders in respect of 2700 bales of B. Twill in fulfillment of his contract for sale and the assessee paid the contract price in full by cheque. The assessee. in his turn, handed back the said delivery orders to Subhkaran Jhunjhunwalla in fulfillment of his own contract for sale and Subhakaran paid to the assessee the contracted price in full by cheque. The Income-tax Officer, in the course of the assessment proceedings. found that at the time of entering into the contract or at the time of settlement of delivery, that is, the 31st May, 1954. the assessee did not have delivery Orders which covered the goods contracted for. namely. 2700 bales of B. Twill. The assessee claimed the difference of Rs. 99,225/- as business loss and also claimed to set this amount off against his other business income. Before the Income-tax Officer the assessee contended that the Delivery Orders were received from Subhkaran Jhunjhunwalla in settlement of the contract for purchase entered into on the 5th of May, 1954 and that the contract for sale by the assesses was fulfilled by handing back these Delivery Orders to Shri Subhkaran Jhunjhunwalla. Subhkaran Jhunjhunwalla was examined by the Income-tax Officer under Section 37 of the Act and the Income-tax officer found that on the 31st of May, 1954 the same Delivery Orders, which were given to the assessee and returned by him to Subhkaran Jhunjhunwalla, were also used by Subhkaran for effecting delivery to other parties, e.g., Messrs. Bensal Bap and Company etc.
(3.) The assessee claimed before the Income-tax Officer that the aforesaid transactions could not be speculative transactions within the meaning of Explanation 2 of Section 24 (1) inasmuch as the price for the goods as per contract had been paid in full from both sides and Delivery Orders had passed between the parties signifying the delivery of the goods themselves. The Income-tax Officer was of the opinion that while delivery of Pucca Delivery Orders might constitute delivery of the goods, when the same Delivery Orders are handed over to one seller and received back from him on the same date and then handed over to another seller and received back from him again, there could be no intention of passing the title to the goods covered by the Delivery Orders. Though the Income-tax Officer found that the assessee's dealings in gunnies, hessian and B Twills have in most cases been completed without actual delivery of the goods as the delivery Orders were received from and delivered to different persons, the Income-tax Officer accepted the assessee's profit and loss from such dealings as profit or loss of the assessee's business. But in the case of the two transactions with Subhkaran Jhunjhunwalla the Income-tax Officer was of the opinion that as the Delivery Orders had been received from and handed back to the same person on the same date there could be no passing of goods covered by the Delivery Orders. He, therefore, treated the loss of Rs. 99,225/- as the assessee's loss from speculation This sum together with other admitted speculative losses of the assessee totalling Rs. 1,07,864/- was directed to be carried forward to be set off against speculative profits in future years.;