DELHI FLOUR MILLS COMPANY LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The following two questions have been referred to this Court by the Income-tax Appellate Tribunal, Delhi Bench, (hereinafter referred to as the Tribunal) under section 66(1) of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act:- 1. Whether on the facts and in the circumstances of the case, the loss of Rs. 66,417.00 was allowable under section 10(1) of the Indian Income-tax Act, 1922 or could be set off against the company's profits of the business under proviso (a) to Explanation 2 of section 24(1) of the said Act? 2. Whether on the facts and in the circumstances of the case, Rs. 52,633.00 claimed as business expenditure for assessment year 1957-58 and Rs. ll,578.00 claimed as such for assessment year 1958-59 under section 10(2) (xv) of the Indian Income-Tax Act, 1922, have rightly been disallowe ?

(2.) The facts relevant to the first question may now be stated. M/s. Delhi Flour Mills Co. Ltd., New Delhi, (hereinafter referred to as the assessee) carried on the following businesses:- 1. Grinding of wheat for manufacturing atta and wheat products. 2. Manufacturing of ice and maintaining a cold storage. 3. Washing, calendering and dyeing business which is a part of the hosiery department.

(3.) During the accounting year relevant to the assessment year 1957-58, the assessee entered into forward transactions in Matra (a substitute of gram). These transactions comprised purchases amounting to Rs. 6.82,141.00 and sales amounting to Rs. 6,16,124.00. There was thus a loss amounting to Rs. 66,417.00 resulting from these forward transactions. These transactions were concluded not by actual delivery of the goods but by payment of differences. These transactions were, therefore, in the nature of "speculative transactions" within the meaning of Explanation 2 to section 24(1) of the Act. The assessee claimed a set off of the loss of Rs. 66,417.00 which it had sustained in these forward transactions on two grounds, namely :- (i) that these transactions were in the nature of hedging transactions which were saved by the proviso (a) to Explanation 2 of section 24(1) of the Act; and (ii) that even if these transactions were in the nature of speculative transactions, the losses sustained by the assessee in such transactions were liable to set off against its profits in other business.