Judgment

HEGDE, J.:- These are appeals by special leave. They raise a common question of law viz., whether on the facts and in the circumstances of these cases the amounts claimed by the appellants (assessees) as their losses in transactions in gunny bags which were concluded by the transfer or delivery of pucca delivery orders were speculative losses under Explanation 2 to the proviso to Section 24 (1) of the Indian Income tax Act, 1922 (to be hereinafter referred to as the Act).

2. For deciding the question of law formulated above, it will be sufficient if we set out the facts in Civil Appeal No. 1037 of 1970. At the hearing we were referred to the facts of that case only.

3. The assessee in Civil Appeal No. 1937 of 1970 is a company dealing inter alia, in jute and jute goods. In the assessment years 1957-58, 1958-59 and 1960-61 (corresponding accounting periods being calendar years 1956, 1957 and 1959), the assessee claimed Rs. 35,578/-, Rs. 20,665/- and Rupees 3849/- respectively as losses in its business in the sale and purchase of gunny bags. The Income-tax Officer treated those losses as speculative losses. He held that the contracts in respect of the gunny bags said to have been sold were settled only by delivery of Pucca Delivery orders (in short P. W. Os.) and not by actual delivery of the goods covered by those documents. He accordingly refused to set off those losses towards the profits made by the assessee in its nonspeculative business. The assessee appealed against these assessment orders. The Appellate Assistant Commissioner found that the assessee had purchased the P. D. Os. from various parties after paying the full price of the goods mentioned therein and transferred those P. D. Os. to his buyers after receiving the price fixed for the sale of those goods. The A. A C opined that the transactions in question represented purchases and sales of jute goods. The A. A. C. consequently held that the losses claimed by the assessee were losses from the ready business in jute goods. In pursuance of those findings he directed the Income-tax Officer to allow the losses claimed as business loss. The Department appealed against the order of the A. A. C. to the Income-tax Appellate Tribunal. The Tribunal following the decision of the Calcutta High Court in D. N. Wadhawana v. Commr. of Income-tax, West Bengal, (1966) 61 ITR 154 (Cal) allowed the appeals filed by the Department. It held that the sales in question were speculative as contemplated by Section 24 of the Act. Consequently the losses in question cannot be set off towards the profits made in the assessee s non-speculative business. Similar orders were made by the Tribunal in the case of other assessees. At the instance of the various assessees, questions similar to the question formulated above were submitted to the High Court to ascertain its opinion. The High Court following its decision in Income-tax Reference No. 88 of 1967 (Nanalal M. Varma and Co. (P) Ltd. v. Commr. of Income-tax, West Bengal II, (1969) 73 ITR 713) answered those questions in favour of the Department. We have now to see whether the Calcutta High Court s decision in Nanalal Varma s case (supra) and the other decisions relied on in that case lay down the law correctly. If those cases were corrective decided, the appeals before us must fail. On behalf of the appellants, it was contended that Nanalal Varma s case and the decisions relied on therein were not correctly decided. For the reasons to be stated hereinafter we agree with that contention of the assessee.

4. Section 24 of the Act deals with set off of losses in computing the aggregate income of an assessee. Sub-section (1) of S. 24 reads:

"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 und