Ray, J.:— The question in this reference is as follows:
2. Whether on the facts and in the circumstances of the case the transaction which resulted in the loss of Rs. 33,736 was a speculative transaction within the meaning of explanation 2 to Section 24(1) of the Indian Income-tax Act, 1922, and therefore the said loss should not be allowed to be set off under Section 24(1) of the said Act. The relevant assessment year is 1959-1960 and the corresponding previous year is Dewali year 2015 ending on 9th November, 1958. The respondent assessee is a partnership firm having business in paper bags, gunny bags and other commodities. During the relevant previous year it had entered into transactions in gunny bags entailing purchase and sale of delivery orders. This was done according to the prevailing practice in the Calcutta Jute trade where formal transactions in gunny hessian etc. are carried on by the transfer of the relative delivery orders only on full payment of the purchase or sale prices. There is no actual delivery of the commodities and this happens because of the fact that the manufacturers of the Jute Goods do not normally come into contact with the shippers, namely, the exporters. It is only through chain of contracting parties for the jute goods from the manufacturers that the Shipper obtains goods from the manufacturer. The intermediaries actually effect delivery by transferring the delivery orders and the assessee is one of such intermediaries. It is an admitted fact that no delivery of goods was either given or taken by the assessee who Buffered loss of Rs. 33,736 out of such transaction entered into during the relevant accounting year.
3. In Explanation 2 to Section 24(1) of the Indian Income-tax Act a speculative transaction means the transaction in which a contract for purchase and sale of any commodity including stock and shares is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or goods.
4. The Income-tax Officer did not allow the loss claimed by the assessee on the ground that the transactions in question involved only delivery orders without actual delivery of goods and the Income-tax Officer treated the transaction to be a speculative transaction within the meaning of Explanation 2 to Section 24(1) of the Indian Income-tax Act.
5. The Appellate Assistant Commissioner relied on the decision of the Supreme Court in the case of Dunichand Rataria v. Bhuwalka Bros. Ltd. 1955 (1) SCR 1071 : (AIR 1955 SC 182) and held that the transactions entered into by the assessee were not speculative transactions within the meaning of Explanation 2 to Section 24(1) of the Indian Income-tax Act merely because there was no actual delivery.
6. The Appellate Tribunal expressed the view that under the Sale of Goods Act the transfer of title to goods in transit can be legally effected by the transfer of relevant documents of title and that in the present case the title to the goods was legally transferred by transferring the delivery order which enabled the holder to take delivery or possession of the goods. The Appellate Tribunal upheld the decision of the Appellate Assistant Commissioner that the transactions in the present case were governed by the principles laid down by the Supreme Court in Dunichand's case. 1955-1 SCR 1071 : (AIR 1955 SC 182)
7. Counsel on behalf of the Revenue contended that in Explanation 2 to Section 24(1) of the Indian Income-tax Act the words ‘any commodity’ were not confined to jute goods and contended that the decision in Dunichand's case, 1955-1 SCR 1071” (AIR 1955 SC 182) dealt with the legislation of jute and not of commodities in general. This distinction is without any difference because the meaning of actual delivery is likely to apply to all goods unless such meaning is not otherwise possible. It is said that the legislative enactment which was the subject-matter in Dunichand's case was intended to curb unhealthy activities in jute goods future market and although purchase and sale of pucca delivery order on forward basis would ex facie be a contract relating to jute goods future yet by virtue of the definition certain future activities were exempted on conditions inter alia that they were entered into by persons who habitually dealt with in jute goods which involved actual delivery of possession. It is said that in Dunichand's case actual delivery was held to be factual or symbolic delivery of goods. Such meaning of actual delivery is consistent with the meaning of delivery of goods in Sale of Goods Act.
8. Counsel for the Revenue further contended that in Explanation 2 to Section 24(1) of the Indian Income-tax Act the words “actual delivery or transfer of the commodity” meant transfer of title and change of ownership and unless the goods were ascertained there could be no transfer of title. It is said that a delivery order was not a document of title and a transfer of delivery order would not mean transfer of goods unless the goods were ascertained and set apart. In other words the contention was that in order to constitute a transfer of ownership first there was to be a legal transfer of title and secondly, the goods must be ascertained and these could not be effected by delivery order. It should be noticed that these contentions introduce new meanings to delivery or transfer of goods.
9. Counsel for the assessee on the other hand contended that the basis of a speculative transaction within the meaning of Explanation 2 to Section 24(1) of the Indian Income-tax Act was that it was to be a transaction in which a contract for purchase and sale of goods was periodically or ultimately settled otherwise than by actual delivery or transfer of the commodity. Counsel for the assessee emphasised the word ‘settled’ and put in the forefront the essence of speculative transaction to be periodical or ultimate settlement of transactions of purchase and sale of commodities otherwise than by actual delivery or transfer. Counsel for the assessee contended that inasmuch as there was no finding that there was any settlement contract in the present case the transaction in the present case was not a speculative transaction. On the contrary the finding is that the practice in the Calcutta Jute trade is that formal transactions are carried on by transfer of delivery orders on full payment of purchase and sale price and such a finding was contended by Counsel for the assessee to indicate that the delivery order was sold against full price which negative any element of speculation and that there was no finding of settlement of transactions of purchase and sale.
10. Counsel for the assessee did not rely on the decision of the Supreme Court in Dunichand Rataria's case.
11. In Dunichand's case the Supreme Court considered the provisions of West Bengal Jute Goods Future Ordinance, 1949. Section 2 of the Ordinance provided that unless there was anything repugnant in the subject or context a contract relating to Jute goods future meant a contract relating to the sale or purchase of jute goods made on a forward basis (a) providing for the payment of receipt of margin in such manner and in such case as might be specified in the contract or (b) by or with any person who (i) habitually deals in the sale or purchase of jute goods involving the actual delivery of possession thereof or (ii) possesses or has control over a godown or other means or equipments necessary for the storage and supply of jute goods. The only controversy in the case before the Supreme Court was whether the respondent was a person who habitually dealt in the sale or purchase of jute goods involving actual delivery of possession thereof. It was contended before the Supreme Court that the delivery orders did not represent the goods and the transfer of delivery orders did not involve as between the intermediate parties actual delivery of possession of the goods. The Supreme Court held that the word “involving” occurring in the enactment meant resulting in and if the chain of contracts as entered into the market resulted in actual delivery of possession of goods a transaction would be beyond the mischief of the ordinance. According to the Supreme Court decision these intermediate contracts were not within the mischief of the Ordinance because there was ultimately actual transfer of the goods. In the present case the finding is that the assessee is an intermediary and intermediaries actually effect delivery by transferring delivery orders and further that in the chain contracts to which the intermediaries are parties the shipper or the exporter obtains goods from the manufacturer. These facts establish that delivery orders in the facts of the present case have passed through the string contracts on payment of full price and that is how intermediaries effect delivery or transfer of goods and finally the shipper obtains goods from the manufacturer.
12. Counsel for the Revenue contended that the word ‘settled’ occurring in Explanation 2 to Section 24(1) of the Indian Income-tax Act meant ‘performed’ and as there was mere puchase and sale of delivery order and there was no actual delivery or transfer of commodities the transaction was a speculative transaction. I am unable to accept the contention. The settlement of a contract within the meaning of the Explanation 2 to Section 24(1) of the Indian Income-tax Act is that the two parties to a contract would settle their respective purchases and sales otherwise than by actual delivery or transfer of the commodity. That is the statutory meaning of ‘settlement’. In the present case there is no material to hold that there was in fact any settlement. On the contrary the finding is that the prevailing practice in the Calcutta Jute trade is that the formal transactions are carried on by transfer of relative delivery orders on full payment of the purchase and sale prices and that the assessee sold and purchased the delivery order on payment of full price.
13. Counsel for the Revenue contended that a pucca delivery order was not a document of title and there could not be a transfer of title unless the goods were ascertained. Reliance was placed on the decision of the Supreme Court in Dunichand's case, 1955-1 SCR 1071 : (AIR 1955 SC 182) in support of that contention. The language of the provisions of West Bengal Jute Goods Future Ordinance, 1949 was that the contract relating to Jute Goods future would be beyond the mischief of the Ordinance if the contract was entered into by or with the persons who habitually dealt in the sale or purchase of the Jute goods involving the actual delivery of possession. Emphasis was placed on the words “involving actual delivery” to indicate that the word involving in so far as intermediate contracts were concerned saved transactions because in the ultimate result there was actual delivery and contrast was made by Counsel for the Revenue with the provisions of Explanation 2 to Section 24(1) of the Indian Income-tax Act to contend that the construction put by the Supreme Court upon the words ‘involving the actual delivery’ could not apply to the words ‘actual delivery or transfer of commodity’ in Explanation 2 to Section 24(1) of the Indian Income-tax Act because of the absence of the word “involving” and that the intendment of the statute was that unless there was actual delivery or actual transfer of commodity it would be a speculative transaction within the meaning of Explanation 2 to Section 24(1) of the Indian Income-tax Act. A delivery order may be sufficient to amount to delivery of goods and it is a question of fact as to when parties intended title should pass.
14. Counsel for the Revenue also relied on the decision of the Supreme Court in Jute and Gunny Brokers Ltd. v. Union of India, 1961-3 SCR 820 : (AIR 1961 SC 1214) in support of the contention that in a contract represented by the pucca delivery order or a contract for the sale of unascertained goods no property in the goods was transferred to the buyer until the goods were ascertained by appropriation. The Supreme Court found in that case on the evidence that the goods covered by the pucca delivery order were not ascertained at the time such orders were issued and also that ascertainment took place in the shape of appropriation when the goods were actually delivered in compliance therewith. It was observed in the case of Anglo India Jute Mills Co. v. Omademull. (1911) ILR 38 Cal 127 that it would depend upon evidence whether the goods have been ascertained and Jenkins, C.J said that the question whether property had passed as between the original seller and the buyer was not required to be examined and that the sellers were bound by their representation that they held goods to answer the delivery order. Again under Section 2(2) of the Sale of Goods Act delivery means voluntary transfer of possession and under Section 33 of the Sale of Goods Act delivery of goods sold may be made by doing anything which the parties agree be treated as delivery or which has the effect of putting the goods in the possession of the buyer or of any person authorised to hold then on his behalf. These definitions indicate that symbolical delivery of the goods divesting the seller's possession and lien may be sufficient compliance with the Sale of Goods Act and the legislature in enacting the Explanation 2 to Section 24(1) of the Indian Income-tax Act did not intend to effect any change in the meaning of delivery of goods found in the Sale of Goods Act.
15. Counsel for the assessee rightly contended that if emphasis was placed only on the words ‘actual delivery of possession’ the Explanation 2 to Section 24(1) of the Indian Income-tax Act would be robbed of its content which was that a speculative transaction was one in which a contract for purchase and sale of commodity was periodically or ultimately settled otherwise than by actual delivery of transfer. In other words, the basic ingredients of speculative transactions are first, that the contracts are to be periodically or ultimately settled and secondly, the settlement would be otherwise than by actual delivery or transfer of commodity. In the present case there is no finding that there was any settlement of the contracts of purchase and sale and therefore one of the vital limbs of Explanation 2 to Section 24(1) of the Indian Income-tax Act is not found as a fact in order to bring the transaction within the mischief of a speculative transaction.
16. The question is therefore answered in the negative. The assessee will have costs of this reference.
D. Basu, J.:— I agree.
VGW/D.V.C
17. Answered accordingly.