RAJPUTANA TRADING CO. LTD. versus COMMISSIONER OF INCOME-TAX, WEST BENGAL

Citation: [1969] 1 S.C.R. 1013 · Decided: 05-09-1968 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Appeal(s) allowed

Judgment (excerpt)

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A 
RAJPUTANA TRADING CO. LTD. 
v. 
COMMISSIONER OF INCOME-TAX, WEST BENGAL 
September 5, 1968 
• 
B . 
[J. C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.] 
c 
D 
E 
F 
G 
H 
Income-tax Act (11 of 1922), s. 10(2A) ands. 24-Speculation bu,~.i­
ness-Liability to pay difference waived by creditors-Amount of ltabzury 
written back and credited to assessee's account-Amount treated as profit 
under s. 10(2A)-Profit whether to be treated as profit from speculation 
business and set off against speculation loss. 
The assessee-appellant carried on both speculative as well as n?n· 
speculative business. 
The system of account regularly employed bt1ng 
merqantile, any liability for payment of di~ere-!1ce on ac~unt of specula-
tive transactions was allowed as a deduction m computmg the profit or 
loss in speculative business. 
A certain amount being liabilities fo~ spec~~ 
lation differences in the account was written back and taken credit of in 
the profit and loss account. 
The creditors had waived their right to re-
ceive the amount. 
The Income-tax Otficer treated this amount as 
the 
assessee's income from business in terms of s. 10(2A) of the Income-tax 
Act, 1922. 
The amount was not set off against speculative loss 
either 
brought forward from the earlier year or suffered by ~he assessee during 
the accounting per~Jd on the ground that the liability written back and 
treated as business profit did not partake of the character of speculation 
profit. 
Allowing the appeal this Court : , 
HELD : When the loss or the liability for which deduction had pre-
viously been allowed to the assessee arose out of speculative transactions 
the origin of such loss or liability was known and ascertainable. If such 
loss or liability was to be treated as profit in the circumstances gh.•en in 
s. !0(2A) it would be most illogical and irrational to treat the so called 
profits as having a neutral soulrce and not springing out of the same cale-
gory of speculative business which led to the assessee incurring that Ioss 
or liability. In cases of the present kind there was a fairly dirccr and 
proximate relationship between the income as deemed to be arising under 
s. 10(2~) _and the ·speculative business which the assessee was carrying 
on. 
This income could not and would not have arisen but fdr the fact 
that in· the speculative business the assessee had claimed 
deductions on 
account of liabilities for speculative difference. [1016 D; 1017 E] 
Under the provisions of s. 24 of the Aot the profit or loss which is 
compu~d has to be categorised as either speculative profit or loss or non-
speculat1ve profit or loss. If once a particular item of loss is categorised· 
as ·speculative loss then in that case if such loss is to be deemed to be 
income or profit from the business, profession or vocation by virtue of 
s. 10(2A) it follows by necessary implication that such income or profit 
can only be income or profit arisii1g from speculative business. Moreover 
s. 10(2A) envisages that the deemed income which is sought to be tru!:(!d 
should be considered to have arisen from the same business in which the 
loss that had been incurred was written back. 
It would be highly pro~ 
• blematical to say that th-z deemed income arises 
firom 
a non-de5ctiiJt 
busine·ss \vhen the nature of the business which had given rise to the 
liability originally is known. [1017 F-H] 
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.to J 4 
SUPREME COURT REPORTS 
(1969] i SC.R. 
Donald Miranda & Ors. v. Comn1issioner of lnconte-tax Bombay City 
11, 42 J.T.R. 166, explained . 
CIVIL AP PELLA TE JURISDICTION : Civil Appeal No. 1227 of 
:1967. 
Appeal from the judgment and order dated January 4, 1965 
of the Calcutta High Court in Income-tax Reference Nos. 215 of 
1961. 
M. C. Chag/a, M. G. Poddar, H.K. Puri and B. N. Kirpal, for 
the appellant. 
D. Narsaraju, 
T. A. Ramachandran, 
R. N. Sachthey and 
B. D. Sharma, for the respondent. 
The Judgment of the Court was delivered by 
Grover, J. This is an appeal by certificate from a judgement 
of the Calcutta High Court answering the 
following 
question 
referred to it in the negative and against the asscssee :-
"Whether on the facts and in the circumstances of 
the case, the sum of Rs. 78,749 which was deemed to 
be the profits and gains of business 
under section 
10(2A) of the Income tax Act, can be said to be arising 
from speculative business ?" 
The assessee carried on both speculative as 
well 
as 
non-
speculative business. 
The syste

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