Judgement

GUPTA, J.:- This appeal by special leave turns on the true meaning and scope of explanation 2 to Section 24 (1) of the Income-Tax Act 1922.

2. The appellant (hereinafter referred to as the assessee) is a private limited company carrying on business in tea garden tools and requisites and also acting as agents for selling tea; in fact the bulk of its income was from selling commission on tea. The assessment year in question is 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 transactions in jute. On April 17, 1958 the assessee had contracted to purchase 1100 bales of B-T will and 2500 bales of corn sacks; the contract for B-Twill was with two parties, M/s, Raghunath & Sons (P) Ltd. for 500 bales and M/s. Mahadeo Ramkumar for 600 bales. The corn sacks were all purchased from Tulsidar Jewaraj under three contracts for 800 bales. 1000 bales and 700 bales respectively. On June 18, 1958 the assessee entered into a contract with M/s, 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 corn sacks and B-TWill for Rupees 11.48.399/-. The transactions thus resulted in a loss of Rs. 98,534/- to the assessee and the assessee claimed adjustment of this loss in the computation of its income for the assessment year 1959-60. The Income-tax Officer held that the transaction involving mere transfer of delivery notes and not actual delivery of the goods were of at a speculative character as contemplated in explanation 2 to Section 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 Appellate Assistant Commissioner on appeal by the assessee held that the transactions were not speculative and the loss should be treated as business loss relying on two decisions of this Court: Bayyana Bhimayya v. Govt of Andhra Pradesh, (1961) 3 SCR 267 and Duni Chand v. Bhuwalka Brothers Ltd. (1955) 1 SCR 1071. The Department took an appeal to the Tribunal and the Tribunal relied on the decision of the Calcutta High Court in D. M. Wadhwana v. Commr. of Income-tax, West Bengal, (1966) 61 ITR 154 (Cal), to hold that this case came within the scope of Section 24 (1) read with explanation 2 and restored the order of the Income-tax officer. On the application of the assessee the Tribunal referred to the High Court the following question of law:

"Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the transactions described above entered into by the assessee were speculative transactions within the meaning of explanation 2 to Section 24 (1)?"

The High Court answered the question in the affirmative and against the assessee. The correctness of that decision is challenged in this appeal.

3. Section 24 .(1) so far as it is material for the purpose of this appeal is in these terms:

"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 under the head profits and gains of business, profession or vocation , any loss sustained in speculative transactions which are in the nature of a business shall not be taken into account except to the extent of the amount of profits and gains, if any, in any other business consisting of speculative transactions:

(The second proviso is not releva