Law:

Section:

Section 73 of the Income-tax Act, 1961 (Corresponding to section 24 of Indian Income-tax Act, 1922) - Losses - In speculation business - Assessment years 1958-59 & 1959-60 - Due to Govt. restrictions on movement of paddy and, rice, contract with purchasers of rice at Calcutta by assessee became unenforceable, and assessee made settlements by paying certain amount - ITO disallowed said loss holding that transactions being of a speculative nature, same could be only set off against future profits in speculation - AAC allowed claim treating it as a trading loss - Tribunal restored ITO's order - Whether since contracts had become unenforceable by frustration, payments of settlements made by assessee to save its business reputation came within meaning of Explanation 2 to section 24 of 1922 Act - Held, yes - Whether impugned transactions being speculative under proviso to section 24(1) of 1922 Act, loss so sustained in speculative transactions could not be allowed as business expenditure - Held, yes -Whether,however, said payment could be taken into account in any other business consisting of speculative business - Held, yes FACTS The assessee, during the accounting periods, relevant for the assessment years 1958-59 and 1959-60, entered into various agreements for supply of rice to its constituents at Calcutta. During this period, however, the rice could not be dispatched due to restrictions imposed by the Government of Orissa on the movement of paddy and rice. The assessee, accordingly, made settlement with the purchasers in Calcutta by paying the differences. For year 1958-59, ITO disallowed the claim for payments so made on the ground that the assessee could recover this loss from the Government of Orissa if the outsider-purchasers were not satisfied. For the year 1959-60 he disallowed the loss holding that the transactions were of a speculative nature and could be only set off against future profits in speculation. In Appeal, the AAC allowed the claim of the assessee in toto. He held that the liability to pay the aforesaid amounts fell on the assessee and it was a trading loss. The assessee, as a businessman, was bound to pay the dues arising out of his…

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