DAVENPORT & CO. PVT. LTD. versus COMMISSIONER OF INCOME-TAX, WEST BENGAL

Citation: [1976] 1 S.C.R. 180 · Decided: 31-07-1975 · Supreme Court of India · Bench: V.R. KRISHNA IYER · Disposal: Dismissed

cites 2 · see the full citation network in Lexace

Judgment (excerpt)

180 
··-
DAVENPORT & CO. PVT. LTD. 
v. 
COMMISSIONER OF INCOME-TAX, WEST BENGAL 
July 31, 1975 
[V. R. KRISHNA IYER, R. S. SARKARIA AND A. C. GUPTA, JJ.] 
lncome~tax Act·, 1922, 
Explanation 
2 
to 
section 24( 1 )-Tra11sactidn 
irivolving mere transfer of delivery noks-Loss sustained by the assessee, if 
as a result of speculati1•e transactions. 
Indian Sale of Goods Act, 1930, sec. 2(2)-Contract Act, Sec. 30. 
A 
B 
The appellant company which carried on busines3 in tea i:arden tools and 
requisites and also acted as agents for selling tea, denved the bulk of it5 
income from selling commission on tea. The assessment year in question is 
C 
1959-60. 
In the relevant previous year which ended on June 30, 1958, the 
assessee for the first time in its history entered into certain tr"ansactions in 
jute. On April 17, 1958 the_ assessee bad contracted to purchase 1100 bales 
of It-Twill and 2500 baleo of corn sacks; the contract for B-Twill was with 
two parties, M/s. Raghunath Sons (P) Ltd. for 500 bales aod M/s. Mahadeo 
Ranlkumar for 600 bales. The corn sacks were all purchased from Tulsider 
Jeweraj under three contracts for 800 bales, 1000 bales and 700 bales respec-
tively. 
On June 18, 1958 the assessee entered into a contract 
with 
M/s. 
D 
Lachhminarain Kanoria & Co. to sell the aforesaid quantities of B-Twill and 
corn sacks. 
The assessee had no godown for keeping the goods and had not 
handled them. The goods were in the godown of the mills and only the 
delivery orders addressed to the mills changed hands. The amount realised on 
sale to M/s. Lachhminarain Kanoria & Co. came to Rs. 10,49,865/-. The 
assessee had however purchased the com sacks and D-Twill for Rs. 11,48,399/-. 
The transactions thus resulted in a loss of Rs. 98,534 /- to the assessee and 
the ahsses.see claimed adjustment of this loss in the computation of its income 
... , 
for t e assessment year 1959-60. The Income-tax Officer held th~t the Iran-
.c. 
sactions involving mere transfer of delivery notes and not actual delivery of 
the· ·goods were of a speculative character as contemplated in explanation 2 
to sec. 24( 1) and the loss could be set off only against speculation profits, and 
as there were no speculation profits in that year, he held that the loss would 
be carried forward and set off against speculation profits in the future. 
The 
a,p~Uate Commissioner on appeal by the assessee held that the transactions 
were not speculative and the loss should be treated as business los& 
In appeal 
by the ·Department, the Tribunal held that this case came within th& scope 
of sec. 24( 1) read with explanation 2 and restored the order of the Income-
tax Officer. 
In reference, the High Court answered the question formulated 
by the Tribunal in the affirmative and against the assessee. 
Section 24(1) of the Indian Income-tax Act, 1922, provides 1that where 
nu assessec sustains a loss under any of the heads of income chargeable to 
income-tax as enumerated in s. 6 of the Actl in any year, he shall be entitled 
to have the loss set off against his income, profits or gains under any other 
head in that year. This general provision is qualified by the first proviso which 
permits the set off of a Joss in speculative business against the assessee's profit 
and gains, if any, in -a similar business only. Explanation 1 says thatt where 
the speculative transacti6ns aJe 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 defines a speculative transaction as a transaction in which a 
contract for purchase and sale of any commodity is periodically or ultimately 
settled otherwise than by the actual delivery or transfer of the commodity. 
This appeal has been preferred by the assessee con1pany after obtaining 
special Jeave from 'this court, 
Dismissing the appeul, 
F 
G 
JI 
-
_, 
I ' ., 
' 
\ 
A 
B 
c 
0 
E 
--< 
.. 
F 
I. 
~I 
G 
~' 
)_ 
H 
DAVENPORT & co. v. C.I.T. (Gupta, J.) 
181 
HJ?LD : T~e words actual ~delivery in explanation 2 means real as opposed 
to notional dehvery. For the income-tax purposes speculative transaction means 
.,,·hat 1J?.e d_efinition o! that expression in explanation 2 says. 
Whether a 
transactlon 1s speculative in the general sense or under the Contract Act is 
~ot relevant for the purpose of this explanation. The ~efinition of "delivery" 
m s. 2 ( 2) of the Sale of Goods Act which has been held to include both 
actual and c.o

Excerpt shown. Read the full judgment & AI analysis in Lexace.