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HIGH COURT OF CALCUTTA
BANERJEE, K. L. RAY
ABDUL GANI HAJI HABIB - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondent
Income-Tax Reference 62 Of 1965
Decided On : APRIL 30, 1968
INCOME TAX - Speculative Transactions - Loss incurred in speculative transactions - Whether such loss can be set off against profits from other business - Interpretation of Section 24(1) of the Indian Income-tax Act, 1922.
Fact of the Case:
The assessee, Haji Habib Haji Pirmohammed, was engaged in extensive business, including gunnies and oil seeds. During the relevant assessment year, the assessee entered into forward contracts in gunnies and oil seeds, some of which were fulfilled by actual delivery and some by payment of difference. The Income-tax Officer disallowed a portion of the losses claimed by the assessee on the ground that they arose from speculative transactions.
Finding of the Court:
The court held that the losses incurred by the assessee in the speculative transactions were not allowable as a set-off against profits from other business. The court interpreted Section 24(1) of the Indian Income-tax Act, 1922, and held that the Explanation 2 to the section defines a speculative transaction as one in which there is no actual delivery or transfer of the commodity or scrips. The court further held that the intention of the parties at the inception of the transaction is irrelevant in determining whether it is a speculative transaction.
Issues: 1. Whether the losses incurred by the assessee in the speculative transactions were allowable as a set-off against profits from other business. 2. Whether the assessee's speculative transactions constituted a business.
Ratio Decidendi: 1. The court interpreted Section 24(1) of the Indian Income-tax Act, 1922, and held that the Explanation 2 to the section defines a speculative transaction as one in which there is no actual delivery or transfer of the commodity or scrips. 2. The court held that the intention of the parties at the inception of the transaction is irrelevant in determining whether it is a speculative transaction. 3. The court held that the assessee's speculative transactions constituted a business, as they were carried on regularly and systematically with the purpose of making profits.
Final Decision: The court answered the first question referred to it in the affirmative and in favor of the revenue. The second question was not pressed for an answer and the court did not answer it. The assessee was ordered to pay the costs of the reference to the Commissioner of Income-tax.
( 1 ) THIS reference, under Section 66 (1) of the Indian Income-tax Act, 1922, has been made in circumstances hereinafter related.
( 2 ) HAJI Habib Haji Pirmohammed, now deceased, represented by his legal representatives, Abdul Gani Haji Habib and others, used to be assessed as an individual. It was stated before us that the said assessee was a Pakistani national and by two notifications published in the India Gazette, dated December 11, 1965, the estate of the deceased assessee vested in the Custodian of Enemy Property for India. The first of the notifications reads :"no: 12/137/65-E. Pty.--In exercise of the powers conferred by Sub-rule (1) of Rule 133-V of the Defence of India Rules, 1962, the Central Government is pleased to order that all property in India, movable and immovable, belonging to, or held byj or managed on behalf of, Messrs. Haji Habib Pirmohammed, 25, Amratolla Street, Calcutta-1, shall vest in the Custodian of Enemy Property for India. "
( 3 ) THE other notification is couched in the following language :"no. 12/39/65-E. Pty.--In exercise of the powers conferred by Sub-rule (1) of Rule 133-V of the Defence of India Rules, 1962, the Central Government is pleased to order that all property in India, movable and immovable, belonging to, or held by, or managed on behalf of, Mr. Haji Habib Haji Pirmohammed (other than his share in the partnership known as Messrs. Haji Habib Haji Pirmohammed), 25, Amratolla Street, Calcutta-1, shall vest in the Custodian of Enemy Property for India. "
( 4 ) MR. T. K. Basu, learned counsel for the assessee, submitted that the Custodian of Enemy Property was seeking to be brought on the record of this reference case. No application has been made by the Custodian of Enemy Property for being brought on the record and we do not think that he must be brought on the record for the purposes of answering the reference.
( 5 ) THE provisions contained in Order 22 of the Civil Procedure Code are not applicable to references made to the High Court under Section 66 of the Indian Income-tax Act. Even if the estate of the assessee now stands vested in the Custodian of Enemy Property, it does not follow that none but the said Custodian can carry on this said reference and the non-substitution of the Custodian in this referencelhas not any fatal result. This is the view which was expressed by this court in In re Mrs. Sudha Tarangini Debya, [1944] 12 I. T. R. 241 and again in Commissioner of Income-tax v. Gourishankar Lal Singha, [1967] 63 I. T. R. 711. We respectfully follow these decisions and propose to go on with this reference, in the absence of the Custodian of Enemy property.
( 6 ) WE now turn to the facts involved in the instant reference. The statement of case relates to the assessment year 1953-54, the corresponding previous year being the Hirji year ending on May 9, 1952. The assessee, Haji Habib Haji Pirmohammed. used to carry on extensive business, inter alia, in gunnies and oil seeds. The head office of the business was in Calcutta. In the course of his business, during the relevant assessment year, the assessee entered into forward contracts in gunnies. The contracts, it is said, were all in form A, prescribed by the Indian Jute Mills Association, Some of the contracts were fulfilled by actual delivery of the commodities and some of them were settled by payment of difference. Similarly, the assessee entered into certain forward contracts in oil seeds, some of which were fulfilled by actual delivery of the commodity and the rest by payment of difference.
( 7 ) DURING the assessment year involved in the present reference, the assessee incurred a total loss of Rs. 16,48,376, This included a loss of Rs. 11,60,619 in "bardana" account, that is to say, in gunny account, and also a loss of Rs. 1,83,384 in oil seeds account. Out of the loss sustained in the gunny account, the Income-tax Officer disallowed a sum of Rs. 9,26,402, on the ground that the loss arose out of specul
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