Law:

Section:

Section 73 of the Income-tax Act, 1961 [Corresponding to section 24(1) of Indian Income-tax Act, 1922] - Losses - In speculation business - Assessment year 1956-57 - Assessee entered into contract with foreign party for delivery of certain goods - Assessee could not secure export licence for shipping of goods and, therefore, failed to supply goods contracted for - Arbitrator was appointed in terms of contract and assessee had to pay damages to foreign party as per award of arbitrator - Whether payment of damages could be said to be speculation loss within scope of Explanation 2 of section 24(1) of 1922 Act - Held, no - Whether, therefore, amount paid by assessee could be allowed as deduction under section 10 of 1922 Act - Held, yes FACTS The assessee was carrying on the business of exporting groundnut oil. It had regular transaction with foreign party. It entered into a contract with that party for delivery of Indian crude groundnut oil, shipment at 125 per ton. But the assessee could not secure the export licence for shipping the goods, accordingly, it failed to supply the goods contracted for in pursuance of the contract. An arbitrator was appointed. The arbitrator gave an award in which the assessee was directed to pay the difference between the market rate and the contract rate. The assessee remitted that sum to the foreign party with the sanction of the Reserve Bank of India. The assessee claimed deduction of the said sum in the assessment for the relevant year. The ITO did not accept the claim. He held that since the contract had been settled by payment of differences, the loss was a loss in speculation falling within the scope of Explanation 2 of section 24(1) of the 1922 Act. The AAC and the Tribunal confirmed the order of the ITO. On reference : HELD This was a case not of settlement of the contract itself either periodically or ultimately, but of payment of damages for breach or non-fulfilment or non-performance of the contract. That being the case, this was not a 'speculative transaction' within the meaning ofExplanation 2 to section 24(1) of the 1922 Act. Therefore, amount paid by the assessee was an allowable expenditure under section 10 of the…

Deprecated: trim(): Passing null to parameter #1 ($string) of type string is deprecated in /home/digixyei/sldsystempk.com/view/master-layout/view_case.php on line 492