Law:

Section:

JUDGMENT Ram aswami, J.- The assessee carries on business in the purchase and sale of yarn in Tirupur. During the previous year ending October 7, 1962, relevant for the assessment year 1963-64, the assessee entered into a number of contracts. In regard to three contracts of sale dated13 th, 16th and 19 th July, 19 62, and one contract of purchase dated 12th September, 1962, the assessee did not give or take actual delivery of yarn but the contracts were cancelled. The assessee paid a sum of Rs. 7,750 in respect of all these contracts and claimed these amounts as business losses incurred by him. The Income-tax Officer considered that this is a loss on speculation business and, therefore, could not be set off against the income from business but could be carried forward to be set off against speculation profits. On appeal, the Appellate Assistant Commissioner was of the view that the above contracts were entered into in the usual course of yarn trade, that the cancellation of contracts and payment of differences was a normal incident in yarn trade, that the contracts entered into by the assessee did not represent a speculative sale or purchase but represent a normal contract entered into by the assessee in the usual course of business and that the assessee had paid the difference in view of falling prices. In the appeal filed by the department, the Tribunal held that in regard to the first two sales above referred to, the assessee paid a sum of Rs. 4,600 as difference in price, that there was no actual delivery of goods and that the intention of the parties at the time of the original contract was immaterial and, therefore, these are speculative transactions. In regard to other two contracts, it held that it had not been shown that they were by way of damages and that it was for the purpose of the business. Following the decision in Juvvi Subbaramaiah and Co. v. Commissioner o f Income-tax [1964] 51 ITR 742 (AP), the Tribunal also held that the four transactions are in the nature of speculation business. In that view, the department's appeal was allowed and the order of the Income-tax Officer was restored. At the instance of the assessee the following two…

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