The Judgment of the Court was delivered by

Banerjee, J.:— This reference, under section 66(1) of the Indian Income-Tax Act, 1922, has been made in circumstances hereinafter related.

2. Haji Habib Haji Pirmohammed, now deceased, represented by his legal representatives, Abdul Gani Haji Habib and others, used to be assessed as an individual. It was stated before us that the said assessee was a Pakistani national and by two notifications published in the India Gazette, dated December 11, 1965, the estate of the deceased assessee vested in the Custodian of Enemy Property for India. The first of the notifications reads:

“No. 12/137/65-E. Pty.— In exercise of the powers conferred by subrule (1) of rule 133-V of the Defence of India Rules, 1962, the Central Government is pleased to order that all property in India, movable and immovable, belonging to, or held by, or managed on behalf of, Messrs. Haji Habib Pirmohammed, 25, Amratolla Street, Calcutta-1, shall vest in the Custodian of Enemy Property for India.”

3. The other notification is couched in the following language:

“No. 12/39/65-E.Pty.— In exercise of the powers conferred by subrule (1) of rule 133-V of the Defence of India Rules, 1962, the Central Government is pleased to order that all property in India, movable and immovable, belonging to, or held by, or managed on behalf of, Mr. Haji Habib Haji Pirmohammed (other than his share in the partnership known as Messrs. Haji Habib Haji Pirmohammed), 25, Amratolla Street, Calcutta-1, shall vest in the Custodian of Enemy Property for India.”

4. Mr. T.K Basu, learned counsel for the assessee, submitted that the Custodian of Enemy Property was seeking to be brought on the record of this reference case. No application has been made by the Custodian of Enemy Property for being brought on the record and we do not think that he must be brought on the record for the purposes of answering the reference. The provisions contained in Order 22 of the Civil Procedure Code are not applicable to references made to the High Court under section 66 of the Indian Income-Tax Act. Even if the estate of the assessee now stands vested in the Custodian of Enemy Property, it does not follow that none but the said Custodian can carry on this said reference and the non-substitution of the Custodian in this reference has not any fatal result. This is the view which was expressed by this court in In re Mrs. Sudha Tarangini Debya1 and again in Commr. Of Income Tax, West Bengal… v. Gourishankar Lal Singha…. [1967] 63 I.T.R 711. We respectfully follow these decisions and propose to go on with this reference, in the absence of the Custodian of Enemy Property.

5. We now turn to the facts involved in the instant reference. The statement of case relates to the assessment year 1953–54, the corresponding previous year being the Hirji year ending on May 9, 1952. The assessee, Haji Habib Haji Pirmohammed, used to carry on extensive business, inter alia, in gunnies and oil seeds. The head office of the business was in Calcutta. In the course of his business, during the relevant assessment year, the assessee entered into forward contracts in gunnies. The contracts, it is said, were all in form A, prescribed by the Indian Jute Mills Association. Some of the contracts were fulfilled by actual delivery of the commodities and some of them were settled by payment of difference. Similarly, the assessee entered into certain forward contracts in oil seeds, some of which were fulfilled by actual delivery of the commodity and the rest by payment of difference.

6. During the assessment year involved in the present reference, the assessee incurred a total loss of Rs. 16,48,376. This included a loss of Rs. 11,60,619 in “bardana” account, that is to say, in gunny account, and also a loss of Rs. 1,83,384 in oil seeds account. Out of the loss sustained in the gunny account, the Income-Tax Officer disallowed a sum of Rs. 9,26,402, on the ground that the loss arose out of speculative transactions, in which there was no delivery of the commodity concerned. Similarly, in the oil seed, account, the Income-Tax Officer disallowed a sum of Rs. 35,000 out of Rs. 1,83,384, on the ground that the aforesaid sum represented speculative loss in respect of transactions in which there was no delivery of the commodity concerned.

7. Being aggrieved by the order of the Income-Tax Officer, on the point of disallowance of loss, the assessee appealed before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner took notice of the admission by the assessee that the losses in oil and gunny were on account of transactions in which no actual delivery was made or taken in respect of the commodity concerned and the contracts were settled by payment of differences. The Appellate Assistant Commissioner held that, in the circumstances of the case, Explanation 2 to section 24(1) would be applicable and the transactions should be regarded as speculative transactions as defined in the said Explanation. The Appellate Assistant Commissioner, therefore, held that the Income-Tax Officer was justified in disallowing the losses claimed in the oil and gunny transactions and dismissed the appeal.

8. Thereupon, the assessee took a second appeal before the Appellate Tribunal. Before the Tribunal it was contended, on behalf of the assessee, that the assessee had in fact intended to give and take actual delivery of the goods contracted for but could not do so on account of adverse trading conditions and was obliged to settle some of the said contracts by payment of differences. Dealing with this contention of the assessee, the Tribunal observed that there was nothing on the record to show that initially actual delivery was intended in the transactions and consequently the contention of the assessee was not accepted. The Tribunal expressed the opinion that, even if there had been initially an intention to give or take delivery of the commodities in the contracts in question, that would be inconsequential in view of the language of Explanation 2 to section 23(1), which took no notice of any intention of the contracting parties. In support of this view, the Tribunal invoked a decision of this court in the case of Hoosen Kasam Dada (India) Ltd. v. Commissioner of Income-Tax. The other contention advanced before the Tribunal, on behalf of the assessee, was that the first proviso to section 24(1) of the Indian Income-Tax Act, 1922, laid down that any loss sustained in speculative transactions which were in the nature of business, shall not be taken into account in computing the profits and gains chargeable under the head “profits and gains of business, profession or vocation” except to the extent of the amount of profits and gains, if any, in any other business consisting of speculative transactions. Relying on the language of the proviso, it was contended that the transactions in oil and gunny, which were treated by the Income-Tax Officer as speculative in nature, did not constitute transactions in the nature of a business within the meaning of the said proviso and, therefore, the proviso was inapplicable to the facts of the instant case. The Tribunal rejected this contention in the manner hereinafter set out:

“The Tribunal referred to the connotation of the term ‘business’ given by the Supreme Court in the case of Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax and found that the forward transactions in oil and bardana were carried on by the assessee regularly and systematically with the said purpose of making profit.”

9. The Tribunal, therefore, held that these transactions constituted business transactions carried on by the assessee. Certain points regarding the vires of section 24 of the Indian Income-Tax Act were also raised before the Tribunal. But we need not refer to that branch of the argument, because that argument was not pressed before this court. In the view taken, the Tribunal dismissed the appeal of the assessee.

10. Thereupon, the assessee obtained reference of the following questions before this court:

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the losses of Rs. 9,26,402 and Rs. 35,000 were sustained in speculative transactions which are in the nature of a business?

2. Whether the Income-Tax Appellate Tribunal, a body constituted under the Indian Income-Tax Act, 1922, was competent to go into the question as to whether the first proviso to section 24(1) of the Indian Income-Tax Act, 1922, was ultra vires the powers of the legislature?”

11. The second question was not pressed before this court and we need not answer the question.

12. In order to answer the first question it is necessary for us to remind ourselves of the language of section 24 of the Indian Income-Tax Act:

“24(1). Where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in section 6, he shall be entitled to have the amount of the loss set off against his income, profits or gains under any other head in that year:

Provided that in computing the profits and gains chargeable under the head ‘Profits and gains of business, profession or vocation’, any loss sustained in speculative transactions which are in the nature of a business shall not be taken into account except to the extent of the amount of profits and gains, if any, in any other business consisting of speculative transactions:….

Explanation 1.— Where the speculative transactions carried on are of such a nature as to constitute a business, the business shall be deemed to be distinct and separate from any other business.

Explanation 2.— A speculative transaction means a transaction in which a contract for purchase and sale of any commodity including stocks and shares is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips:…”

13. Mr. T.K Bose, learned counsel for the assessee, submitted that the assessee had intended to give or take actual delivery of the commodities involved in some of the gunny and oil transactions but could not do so because of subsequent impossibility. Mr. Bose submitted that if the intention of the assessee at the initial stage was not speculation then the transactions should not be treated as speculative transactions within the mischief of section 24. He further submitted that, even if some of the transactions turned out to be speculative transactions within the meaning of section 24, they were not transactions in the nature of a business but should be considered merely as speculation transactions in the course of a non-speculative business. He lastly submitted that the speculative transactions did not form a separate business of the assessee and should not be visited with the consequence under section 24 of the Indian Income-Tax Act.

14. We are unable to uphold any of the three arguments advanced by Mr. Bose. In the case of Hoosen Kasam Dada (India) Ltd. v. Commissioner of Income-Tax this court explained the provisions of section 24(1) in the following language:

“I now come to another point of view put forward by Mr. Mitra. According to him, we must not lose sight of the fact that in the proviso to section 24 not only the words ‘speculative transactions’ are mentioned, but they are followed by the words which are in the nature of a business. He argues that, if you have a business including a number of transactions of the same nature, then if you are going to single out certain specified transactions as speculative transactions they must form a distinct or separate group. He argues that, in the present case, the facts are otherwise. In other words, in a series of transactions in gunnies, some transactions were non-speculative and others were speculative. Under such circumstances, the proviso does not apply. I must admit that I am unable to understand the logic of this argument. Perhaps, it is putting forward the views of Messrs. Kanga and Palkhivala in another form. I must point out that if that was so, the introduction of Explanation 1 would have been utterly superfluous. Explanation 1 says that where speculative transactions carried on are of such a nature as to constitute a business, the business shall be deemed to be distinct and separate from any other business. In considering the proviso, we are considering the profits and gains of a business. Other headings do not enter into the picture. But the proviso does not contemplate that the speculative transactions should form a separate unit. On the other hand, it has been stated in Explanation 1 that they would be ‘deemed’ to be a distinct and separate unit. I cannot see any difficulty in separating the two kinds of businesses, viz., speculative and non-speculative, and considering them as separate groups. I might here point out that there is an unreported Division Bench judgment of this High Court, Sree Hanuman Investment Co. Ltd. v. Commissioner of Income-Tax (unreported judgment dated February 13, 1962, in Reference No. 59 of 1957). Mitter J. held there that the decided cases were one way and the interpretation of the proviso to section 24(1) should be as stated above. I respectfully agree.

In my opinion, it is not permissible to interpret the provision in any other way. It is quite clear to me that the words ‘speculative transactions’ have been defined in Explanation 2 for this very purpose, viz., to obviate nice questions of law that may arise with regard to the delivery or non-delivery of goods under a contract. The law has been simplified in this respect and the expression ‘speculative transaction’ has been defined for the purposes of the Income-Tax Act.”

15. The same view was expressed by this court in D.M Wadhwana v. Commissioner Of Income-Tax, West Bengal., in which G.K Mitter J. observed:

“The Explanation to section 24(1), however, does not prevent persons from entering into contracts in which the buyers and sellers may not actually hand over the goods physically. The Explanation is only designed at segregating for Income-Tax purposes loss sustained in transactions of a certain kind. It may be that such transactions are not speculative in the light of section 30 of the Contract Act. It is well settled that to make a contract wagering within the meaning of section 30 of the Contract Act, there must be a common intention of both the parties to the contract not to give or take delivery but only to deal in differences. The Explanation to section 24(1) goes a step further and takes the transactions out of the domain of intention altogether in that there must be actual delivery or transfer of the commodity. The word ‘actual’ means ‘real’ as opposed to ‘theoretical or probable’.

Under section 33 of the Sale of Goods Act ‘delivery of the goods sold may be made by doing anything which the parties agree shall 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 them on his behalf’. Under section 2(2) of the Sale of Goods Act delivery means voluntary transfer of possession from one person to another— the definition being the same as that given in section 62(1) of the English Sale of Goods Act. A symbolical delivery of goods divesting the seller's possession and lien may be sufficient compliance with the Sale of Goods Act. In enacting the Explanation 2 of section 24(1) of the Income-Tax Act, the legislature did not intend to affect any transaction of sale wherein the goods were not physically delivered by the seller to the buyer but only laid down that if there was no actual or physical delivery, the loss, if any, would be a loss in a speculative transaction which could be allowed to be set off only against a profit in a transaction of the same nature.”

16. The view expressed by the Patna High Court in Sahu Jain Ltd. v. Commissioner Of Income-Tax is not different from the view expressed by this court.

17. On the above authorities, we have to overrule the argument that since the assessee did not intend, at the inception, to carry on speculation in oil and gunny in respect of the transactions which were ultimately settled by payment of difference, he should not be brought within the mischief of section 24. There is no place of intention in the scheme of section 24 as has been held in the decisions quoted above and with which we are in respectful agreement. The other argument advanced on behalf of the assessee that his speculations did not constitute a business is against the finding of fact by the Tribunal, in the instant case, because the Tribunal expressly found that the forward transactions in oil and gunny were carried on by the assessee regularly and systematically with the purpose of making profits. This finding satisfies the description of the word “business” as given by the Supreme Court in Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax, in which Das J. (as he then was) observed:

“The word ‘business’ connotes some real, substantial and systematic or organised course of activity or conduct with a set purpose.”

18. We, therefore, overrule the second branch of the argument advanced on behalf of the assessee. The last branch of the argument may be shortly answered. It may be that the speculative transactions were being carried on as part of the general business of the assessee in jute and oil, but even then under Explanation 1 to sub-section (1) of section 24 such transactions shall be deemed to be distinct and separate from the general business of the assessee. Regard being had to the language of Explanation 1 to section 24(1), we find little substance in the argument.

19. In the result, all the arguments advanced by the assessee fail and we answer the first question referred to this court in the affirmative and in favour of the revenue. The second question, as we have already observed, was not pressed for an answer and we do not answer the same. The assessee shall pay the costs of this reference to the Commissioner of Income-Tax.

K.L Roy, J.:— I agree.