A transaction is a speculative transaction under section 43(5) of the Income-tax Act, 1961, if it is a transaction in which a contract for the purchase or sale of any commodity is settled before the breach and the settlement is in the nature of a settlement of the contract and not settlement of a dispute for damages on account of a breach of the contract.

1. - In this reference made at the instance of the Revenue, the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (hereinafter referred to as "the Tribunal") has referred the following question for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in treating the loss of Rs. 13,050 in groundnut oil as a trading loss ? "

2. This reference relates to the assessment year 1975-76. Shri Dina Lal Gupta, respondent herein (hereinafter referred to as "the assessee"), was carrying on the business of adat in the name of M/s. Dinalal Narendra Kumar, at Jaipur. The assessee entered into an agreement on October 26, 1974, with M/s. R.C.S. Vanaspati Industries, Ltd., Jaipur, for the sale of 290 quintals of groundnut oil at Rs. 795 per quintal. The said goods were to be supplied on any date till November 15, 1974. On November 11, 1974, M/s. R.C.S. Vanaspati Industries Ltd. demanded the supply of the goods but by that time, the prices had gone up and the assessee expressed his inability to supply the goods and preferred to pay damages at Rs. 45 per quintal and a sum of Rs. 13,050 was paid by the assessee to M/s. R.C.S. Vanaspati Industries on November 11, 1974. The assessee claimed deduction of the aforesaid amount of Rs. 13,050 as loss suffered by him in the sale of groundnut oil. The Income-tax Officer did not allow the said deduction on the ground that the said transaction was of a speculative nature and there was no delivery of goods. He added back the said amount while computing the income of the assessee from business. On appeal; the Appellate Assistant Commissioner upheld the order of the Income-tax Officer and found that the transaction in question was a speculative transaction and the loss arising therefrom was speculative loss. On further appeal, the Tribunal, however, held that the loss of Rs. 13,050 claimed by the assessee was in the nature of a trading loss and the transaction in question could not be regarded as a speculative transaction under section 43(5) of the Income-tax Act, 1961 (hereinafter referred to as "the 1961 Act"). Feeling aggrieved by the aforesaid order of the Tribunal, the Revenue moved for referring the question of law arising out of the order of the Tribunal for the opinion of this court and thereupon the Tribunal has referred the question mentioned above for the opinion of this court.

3. The question which has been referred by the Tribunal involves the determination of the question as to whether the transaction with regard to the sale of 290 quintals of groundnut oil entered into by the assessee with M/s. R.C.S. Vanaspati Industries Limited was in the nature of a speculative transaction.

4. Section 28 of the 1961 Act prescribes the income which shall be chargeable to income-tax under the head "Profits and gains of business or profession". Explanation 2 to section 28 provides that where speculative transactions carried on by an assessee are of such nature as to constitute a business, the business (hereinafter referred to as "speculation business") shall be deemed to be distinct and separate from any other business. In sub-section (1) of section 73 of the 1961 Act, it is provided that any loss computed in respect of a speculation business carried on by the assessee shall not be set off except against profits and gains, if any, of another speculation business. The expression "speculative transaction "has been defined in sub-section (5) of section 43 of the 1961 Act to mean" a transaction in which a contract for the purchase or the sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips ". There is a proviso to the said definition but the same is not relevant for the purpose of the present case.

5. In the Indian Income-tax Act, 192) (hereinafter referred to as "the 1922 Act"), the definition of speculative tran