Income Tax Appellate Tribunal - Ahmedabad
Talakshi Lalji And Co. vs Income-Tax Officer on 25 January, 1991
Equivalent citations: [1991]39ITD44(AHD)
ORDER
M.A.A. Khan, Judicial Member
1. The sole dispute in this appeal relates to the disallowance of a loss amounting to Rs. 9,175, claimed as 'business loss' by the assessee but found as loss in "speculative transactions" by the income-tax authorities.
2. The assessee, a registered firm dealing in grain, pulses, oil seeds, etc., and also running an oil mill at Veraval and having its branch offices at Bombay and Port Kandla, had claimed that the loss in question had occasioned to it in the transactions of purchases and sales of sugar effected through brokers on ex-factory delivery basis. The ITO and the IAC, however, noted that the transactions of purchases and sales were effected on one and the same day and after passing the relevant entries regarding the purchases and sales the resultant loss had been recorded in the books. They, therefore, held the view that the contracts were settled otherwise than by actual delivery or transfer of the commodity and hence the transactions were speculative in nature. The ITO accordingly refused to allow the loss in question to be set off against other income of the assessee. In appeal the CIT(A) agreed with the ITO's findings and conclusions and upheld his order.
3. Mr. K.H. Kaji, the learned Advocate appearing for the assessee had urged that the income-tax authorities over-looked the fact that the "saudas" for the purchases of sugar from sugar factories had been made through brokers much before the dates of actual purchases and the actual delivery of the purchased goods had been taken by the sellers ex-factory. It was submitted that ex-factory delivery of the goods taken by the sellers amounted to "constructive" actual delivery of transfer of the commodity in assessee's favour within the meaning of the phrase used in the language of Section 43(5) of Income-tax Act, 1961 (the Act).
4. Mr. M.S. Kaushik, Sr. D.R., on the other hand, submitted that in the instant case there was no evidence to prove that actual delivery or transfer of the commodity had ever been effected either directly or constructively in favour of the assessee. Relying on the language of Section 43(5) of the Act and the decisions in the cases of Abdul Gani Haji Habib v. CIT [1969] 7 ITR 6(Cal.)and A. Mulhukumara Pillai v. CIT [1974] 96 ITR 557 (Mad.) it was further submitted that neither a mere intention on the part of the purchaser in the beginning of the transaction to take delivery of the goods nor 'symbolic' delivery or transfer of goods would meet the requirement of 'actual delivery or transfer of commodity' so as to take a transaction of purchase or sale out of the definition of the term "speculative transaction" as given in Section 43(5) of the Act. We find force in Mr. Kaushik's arguments.
5. Section 43(5) defines the term "speculative transaction" as meaning a transaction in which a contract for the purchase of 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 scrip. The use of the adjective 'actual' qualifying the nouns "delivery" or "transfer" in the language, of Section 43(5) clearly indicates the intention of the Legislature that physical movement of the commodity from the possession of the seller to that of the purchaser should take place in order to constitute actual delivery or transfer of the commodity. Property in the goods may pass from the seller to the purchaser with the delivery of the documents of title to the goods by the former to the latter without necessitating actual delivery or transfer of the goods. The possession of the goods may remain with the seller while the property in the goods may pass to the purchaser with the transfer of documents of title to the goods by the seller to the purchaser and/or payment of the price of goods by the purchaser to the seller, as the case may be. But what is required by Section 43(5) is the actual delivery or transfer of the commodity by the seller to the purchaser. Such delivery or transfer of commodity may be effected either to the purchaser himself or to his authorised person or agent on his behalf. In the former case it would be a direct delivery or transfer of the commodity to the purchaser while in the latter it would be a constructive delivery or transfer of the commodity in his favour. Thus a "constructive" delivery or transfer of goods may be said to have been contemplated by the phrase "actual delivery or transfer of the commodity" used in the language of Section 43(5). But the term 'delivery', in any case, must mean the act of transferring the possession of a thing, as required by Section 2(2) of the Sales of Goods Act, 1930.
6. "Constructive" delivery or transfer is, however, not the same as "symbolic" delivery or transfer, which may be there in the case of the property in the goods passing to the purchaser but possession thereof still remaining with the seller. In symbolic possession, delivery or transfer of the goods does not, in fact, take place. Symbolic possession simply means delivery of documents of title to goods without actually putting the purchaser into possession of the property. Constructive possession, on the other hand, generally means possession, as distinguished from actual possession, through a tenant or agent.
7. To sum up, we are of the opinion that the phrase "actual delivery or transfer of the commodity" used in the language of Section 43(5) no doubt embraces the concept of 'constructive' delivery or transfer of the commodity within its fold but, as stated above, by the above phrase the physical movement of the commodity from the possession of the seller to that of the purchaser has clearly been intended by the Legislature. Therefore, to take a transaction of purchase or sale of a commodity out of the net of 'speculative transaction', as defined in Section 43(5), actual delivery or transfer of the commodity - direct or constructive - shall have to be proved in the context of periodical or ultimate settlement of the contract for purchase or sale.
8. It seems to us that it is well-settled that the existence of the intention of the parties even at the time of original contract not to give or take delivery of the goods to make it a speculative or wagering transaction, as contemplated by Section 30 of the Indian Contract Act, 1872 has been dispensed with and hence rendered immaterial for the purposes of income-tax. Section 30 of the Contract Act and Section 43(5) of the Income-tax Act operate in different fields and are intended to serve different purposes. Therefore, the consideration of the existence of such an intention at the time of the original contract is not relevant to decide the issue before us.
9. Now coming to the facts in the instant case, we find that the assessee says that it had contracted for purchase of 300 bags of sugar from two sugar factories viz. Talala Taluka Sahkari Khand Udhyog Mandli Ltd., Talala and Billeshwar Khand Udhyog Sahkari Mandli Ltd., Khodinar. Such contracts for sale were made with the said sugar factories through the broker, Dalai Hasmukhlal Hemrajbhai, Veraval. It is stated that orders for purchase of sugar bags, 50 on each of the six occasions, were placed with the Dalai on dates earlier to the purchases of the bags from the said two factories. These facts have been mentioned in the statements of purchase and sale of sugar, placed on our record. For convenience, the two statements as have been produced before us are reproduced below :
Statement of Purchase of Sugar - S.Y. 2037
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Date of Date of Name of Seller/Town Bags Rate Amount Sauda Bill/No. Rs.
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11-8-81 27-8-81 Talala Tal. Sah. Khand Udyog 50 648-51 32425-50
--------- Mandli Ltd./Talala
876
24 8-81 31-8-81 Talala Tal. Sah. Khand Udyog 50 495-00 24750-00
--------- Mandli Ltd./Talala
11-22
21-8-81 31-8 81 Billeshwar Khand Udyog 50 600-00 30000-00
--------- Sah. Mandli Ltd./Khodinar
4560
5-9-81 31-8-81 Billeshwar Khand Udyog 50 510-00 25500-00
---------
4700 Sah. Mandli Ltd./Khoidnar
24-9-81 8-10-81 Talala Tal. Sah. Khand Udyog 50 525-00 26250-00
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1489 Mandli Ltd./Talaia
6-10-81 12-10-81 Talala Tal. Sah. Khand Udyog 50 519-00 25962-50
---------
1536 Mandli Ltd./Talala
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300 164888-00
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Statement of Sale of Sugar - S.Y. 2037
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Date of Name of Purchaser/ Bags Rate Amount Bill/No. Town Rs.
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17-8-81 Ashok Kumar & Co./Junagadh 50 505-00 25250-00
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99 (Pay to Talala S.F. Draft No. 0224683 SBS)
31-8-81 Karsanbhai Vallabhdas Damani/ 50 510-00 25500-00
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100 Jamnagar.
(Billeshwar Draft No. 3309 SBS)
31-8-81 Amaratlal Shamji/Junagadh 50 524-00 26200-00
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101 (Union Bank Draft No. 016772)
12-9-81 Hamendra Brothers/Bhuj 33 521-00 17193-00
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102 (By Draft to Billeshwar)
12-9-81 Keshavdas Shantilal/Bhuj 17 521-00 8857-00
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103 (By Draft Billeshwar)
8-10-81 Shashikant Gulabchand & Co./ 50 530-25 26512-50
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107 Morvi (D. No. 256568 SBI)
12-10-81 Dungarmal Dhanraj/Surendranagar 50 524-00 26200-00
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109 (Draft No. l643 Talal)
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300 155712-50
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10. The case of the assessee further is that all the 300 bags were sold to seven parties, admittedly on the very same date, on which those were purchased from the sugar factories, as is evident from the above statements. The above facts have been tried to be supported with Dalal's purchi dated 20-8-81 showing booking of assessee's order for purchase of 50 bags from Billeshwar Khand Udyog Sah. Mandli Ltd., same Dalal's purchis dated 24-8-81 and 29-8-81 booking M/s Amaratlal Sharnjibhai's orders for purchase of 50 bags of sugar on each date from the assessee, copy of bill dated 31-8-81 issued by the assessee to the said M/s Amratlal Shamjibhai for sale of 50 bags, and two bills, issued to the assessee by the said sugar factories, asking the payments of the bills. The purchis issued by the Dalai contain a direction to the person placing order for purchase of the required quantity of sugar from the sugar factory through them to send the draft for deposit to the mill as per the rules immediately. This is all there is on record to support the case of the assessee.
11. It may be seen that it is own case that it did not take delivery of any of the quantities of sugar bags contracted to be purchased through the Dalai from the two sugar factories. It is also the undisputed position that as many sugar bags as had been contracted to be purchased on a particular date were sold on the same date. There is no evidence on record to show that any other person had ever taken the delivery of the sugar bags from either of the two sugar factories at any occasion, for and/or on behalf of the assessee, as its authorised person or agent or a purchaser from the assessee. Neither the accounts of the sugar factories and/or the alleged purchaser in the books of the assessee nor any other piece of evidence indicating the delivery or transfer of the commodity to the alleged purchaser of the sugar was brought on our record. But the contracts with the sugar factories and/or alleged purchasers are stated to have been periodically settled. On our appreciation of the facts, as brought on our record, we have no hesitation to hold that the contracts for sale and purchase of sugar bags in this case were settled by the assesses otherwise than by actual delivery or transfer of the commodity-direct or constructive-purchased and sold. We are thus in full agreement with the income-tax authorities that the loss in question, not being a business loss and having been occasioned to the assessee in speculative transactions, was not allowable and has rightly been not allowed, to be set off against other income of the assessee. The appeal is devoid of any force and has to be dismissed.
12. Appeal dismissed.