LexCOMMISSIONER OF INCOME-TAX BOMBAY CITY-III, BOMBAY versus SHANTILAL PRIVATE LIMITED BOMBAY
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COMMISSIONER OF INCOME-TAX
BOMBAY CITY-III, BOMBAY
v.
SHANTILAL PRIVATE LIMITED BOMBAY
July 21, 1983
[R. S. PAIBAK, E. S. VENKATARAMJAH AND A. N. SEN JJ.]
Income-tax Act, 1961-Sub-s. (5) of s. 43-Speculative transaction. A
trans~ctian where there is a brtach of contract 14nd damages are awarded as
comPensation by an arbitration award is not a speculative transaction.
Jf'or& and plrrases-Speculatire transaction-Meaning of.
The respondent assessee claimed that a sun1 of Rs. 1,50,000 paid by them
as compensation for b~ing unable lo fulfil a contract was a business loss. The
Income tax officer rejected the claim on the ground that the transaction was a
speculative transaction as defined by sub-s. (5) of s. 43 of the Income-tax Act,
1961. The Appellate Assistant Comn1issioner held that the loss was a business
loss and not a speculative loss on the view that the payment made represented
a settlement of damages on breach of the contract, which was distinct from a·
settlen1ent pf the contract. The Income Tax Appellate Tribunal confirmed the
order of the Appellate Assistant Cotnmissioner. On the request of the Con1-
missioner of Income-tax the Appellate Tribunal has referred the question
whether the loss suffered by the assessee was not a loss in a speculative trans-
action within the meaning of s. 43(5) of the Income-ta« Act, 1961.
Answering the question in ihe affil'Jl!ative,
HELD : A transaction cannot be described as a "speculative trans-
action" within the meaning of sub-s. (5) of s. 43 where there is a breach of the
contract and on a dispute between the parties damages are awarded as
compensation by an arbitration award. {474 A-BJ
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Sub-s. (5) of s. 43 speaks of the settlement of a contract. A contract
can be said to be settled if instead of effecting the delivery or transfer of the
commodity envisaged by the contract the promisee, in terms of s. 63 of the
Contract Act, accepts instead of it. any satisfaction which he thinks fit. It is
quite anOther matter where instead of such acceptance the parties raise a
dil)pute and no agreement can blf reached for a discharge of the c3ntract.
There i~ a breach of the contract" and bY virtue of s. 73 of the Contract Act the
party suffering by such breach bec.omes entitled to receive from the party who
broke the contract compensation for any loss or damage caused to him thereby.
There is no reason· why the sense conveyed by the law relating to contracts
~houl~ no~ be im:portecj. in~o the d~finitiop. Qf "speculi;t~ive tran&at;:~iqn"
Wh<;\~
C.J.T. v. SHANTILAL (Pathak, J.)
471
is r-Cally settled by the award of such damages and their acceptance ·by the
aggrieved party is the dispute between the parties. [473 A, C-G]
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Comn1issioner of Income-Tax, West Bengal v. Pioneer Trading Con1pany
Private Ltd., 70 ITR 347; B,handari Rajmal Kush/raj v. Con1missioner of Income-
Tax, Mysore, 96 ITR 4~1 approved.
R. Chinnaswami Chettiar v. Conmiissioner of lnco111e-Tax, Madras, 96 ITR
353 overruled.
P. L. KN. }.fce11aks)d A(lii v. Co111111issionfr of lnconze-Tax, Madras,
96 ITR 375; A. Muthuku111arti Pillai v. Commissioner of lncon1e-Tax, Madras,
96 ITR 557 and Devenport & Co. P. Ltd. v. Commissioner of lncome-TaX, West
Bengal 11, (1975) JOO !TR 715 not relevant to the point raised.
CIVIL .APPELLATE JURISDICTION : Tax Reference Case No. 4
of 1978.
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Tax Reference Under Section 257 of the Income Tax· Act, 1961
made by the Income Tax Appellate Tribunal, Bombay (Bench 'C').
D. V. Patel, T. A. Ramachandrmt & Miss A. Subhashini for the
Appellant.
The Judgment of the Court was delivered by
PATHAK, J.
In this tax reference made under S. -257 of the
income Tax Act, 1961, we are called upon to express our opinion on
the following question of law:
"Whether, on the facts and in the circumstances of
the case, .the Tribunal was right in confirming the order
of the Appellate Assistant Commissioner that the loss
suffered by the assessee was not a toss incurred in a
speculative transaction within the meaning of Sec. 43
(5) of the Income-tax Act, 1961 ?"
The assessee, M/s Shantilal Pvt. Ltd., Bombay; is a private
limited comany. In the assessment proceedings for the assessment
year 1971-72 it claimed a sum of of Rs. 1,50,000 paid by it as dama-
ges to M/s Medical Service Centre as· a business loss.
During the
previous year relevant to the said assessment year the assessee had
contracted to sell 200 KilograExcerpt shown. Read the full judgment & AI analysis in Lexace.