Commissioner Of Income Tax vs Gora Mal Hari Ram Ltd
2010 Latest Caselaw 848 Del

               THE HIGH COURT OF DELHI AT NEW DELHI

%                                           Judgment delivered on: 15.02.2010

+      ITA 115/2010

COMMISSIONER OF INCOME TAX                                     ... Appellant

                                        - versus -


GORA MAL HARI RAM LTD                                          ... Respondent

Advocates who appeared in this case:-

For the Appellant            : Ms Rashmi Chopra
For the Respondent           : Mr Satyen Sethi with Mr Johnson Bara

CORAM:
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE SIDDHARTH MRIDUL

1. Whether Reporters of local papers may be allowed to see the judgment?

2. To be referred to the Reporter or not?

3. Whether the judgment should be reported in Digest?

BADAR DURREZ AHMED, J (ORAL)

1. This appeal by the revenue is directed against the Income Tax

Appellate Tribunal‟s order dated 19.02.2009 passed in ITA 628/D/2005

pertaining to the assessment year 2001-2002.

2. The Assessing Officer as well as the Commissioner of Income Tax

(Appeals) held that the sum of Rs 13,33,688/-, which was treated by the

assesee as a loss incurred on bargain settlement, amounted to a „speculative

transaction‟ falling within the meaning of Section 43(5) of the Income Tax

Act, 1961 (hereinafter referred to as „the said Act‟). Consequently, the

Assessing Officer as well as the Commissioner of Income Tax (Appeals)

disallowed the claim of set off to the extent of Rs 13,33,688/-. The assessee

had paid a sum of Rs 7,46,300/- to Raj Agro Mills Limited on account of

bargain settlement for split fatty acid distillate and another sum of Rs

5,87,388/- to Kuok Oils and Grains Private Limited, Singapore on account

of price difference on the basis of a wash out contract for palm fatty acid

distillate. Both the Assessing Officer as well as the Commissioner of

Income Tax (Appeals) found the said transactions to fall within the

definition of „speculative transaction‟ as defined in Section 43(5) of the said

Act and not amounting to payments on breach of contract.

3. The Tribunal, however, had returned a finding that the loss claimed by

the assessee had been wrongly disallowed by the Assessing Officer by

applying the provisions of Section 43(5) inasmuch as, according to the

Tribunal, the loss had been incurred by the assessee in the regular course of

business with regard to breach of contract. The Tribunal directed that the

loss, as claimed by the assessee, be set off against the regular business

income.

4. We have heard the counsel for the parties and have also examined the

papers on record including the impugned order. We find that no interference

whatsoever is called for with the conclusion arrived at by the Tribunal that

the transactions in question were not speculative transactions and resulted

only from breaches of contract. The finding of the Tribunal that the said

transactions did not fall within the definition of speculative transaction as

defined in Section 43(5) of the said Act do not call for any interference.

5. Be that as it may, even if we assume for the sake of argument that the

said transactions amounted to speculative transactions as defined in Section

43(5), the same would be of no help to the revenue inasmuch as Section

43(5) is merely a definitional clause defining as to what a speculative

transaction is for the purposes of Section 28 to Section 41 of the said Act. It

is only when the speculative transaction, as defined in Section 43(5),

matures into a speculative business as appearing in Explanation 2 to Section

28 that any effects would flow from the said definition. In case the

speculative transaction, as defined in Section 43(5) of the said Act, matures

into a speculative business, then the loss in such a transaction can only be set

off against the gains or profits of a speculative business in terms of Section

73 of the said Act. We find that this aspect of the matter has been dealt with

by the Bombay High Court in the case of CIT v. Kamani Tubes Limited:

207 ITR 298. In the said decision, the Bombay High Court, inter alia, held

as under:-

"On a careful reading of the provisions of sections 72 and 73, Explanation 2 to section 28 of the Act, it is abundantly clear that all these provisions are applicable only to treatment of profits and losses from a "speculation business". There is a perceptible difference between "speculative transaction" and "speculation business". An isolated transaction of settlement of a contract otherwise than by actual delivery of the goods might amount to "speculative transaction" within the meaning of section 43(5) of the Act but in the absence of something more to show that the nature of the transactions was such as to constitute a business, it cannot be termed as "speculation business" which has been treated as distinct and separate from other business."

We entirely agree with the reasoning and the conclusion of the Bombay

High Court in the said decision. Consequently, even if it is assumed for the

sake of argument that the transactions in question were speculative

transactions, it would be of no help to the revenue inasmuch as neither the

Assessing Officer nor the Commissioner of Income Tax (Appeals) has

returned any finding that the transactions in question constituted a

speculative business. As a result, no substantial question of law arises for

our consideration.

The appeal is dismissed.

BADAR DURREZ AHMED, J

SIDDHARTH MRIDUL, J FEBRUARY 15, 2010 SR