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1986 DIGILAW 36 (CAL)

COMMISSIONER OF INCOME-TAX v. NIRMAL KUMAR AND CO

1986-01-28

SATISH CHANDRA, SUHAS C.SEN

body1986
S. C. JAIN, J. ( 1 ) THE Tribunal has referred the following question of law :"whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the loss of Rs. 8,96,300 suffered by the assessee in speculation transactions in PDOs was to be set off against its brokerage income earned from those transactions ? " ( 2 ) THE grievance of the Department is that the Tribunal has allowed the speculation loss of Rs. 8,96,300 to be deducted from the profits earned from brokerage income. The Department contends that the PDO loss arose out of speculative transactions whereas the brokerage income was from business activities. Therefore, the loss from speculation could not be adjusted against the income from business. ( 3 ) THE Appellate Assistant Commissioner pointed out that it was well settled that dealings in transactions of pucca delivery orders which were not ultimately settled by delivery of goods must be regarded as speculative transactions. The Appellate Assistant Commissioner pointed out that the assessee used to show separately purchase and sale of PDOs resulting in profit or loss. The brokerage in regard to these transactions was shown separately. This was done to give a correct picture of the result of the transactions. It was never the practice of the assessee to describe the profit and loss of PDO transactions as a separate business in speculation. The case of the Income-tax Officer is that the brokerage income should be treated as business income and the PDO loss should be regarded as speculative loss. The Appellate Assistant Commissioner held that these transactions were interlinked and could not be regarded as separate and were of the same category. The Appellate Assistant Commissioner pointed out that in the earlier years, the Income-tax Officer himself had treated the income from transactions in PDOs as business transactions. The matter came to the Tribunal. The Tribunal observed that:"the assessee transacted business in PDOs with third parties on its own account and suffered a loss of Rs. 8,96,300. From these transactions, the assessee also earned brokerage of Rs. 12,50,868. In the past, the income from brokerage and from PDO transactions had been treated as income under the same head, i. e. , 'business'. The Tribunal observed that:"the assessee transacted business in PDOs with third parties on its own account and suffered a loss of Rs. 8,96,300. From these transactions, the assessee also earned brokerage of Rs. 12,50,868. In the past, the income from brokerage and from PDO transactions had been treated as income under the same head, i. e. , 'business'. As pointed out by the Appellate Assistant Commissioner in the assessment year 1970-71, the Income-tax Officer himself treated a major portion of the brokerage received out of the PDO transactions as inseparable from the business dealings in PDOs in such transactions. ( 4 ) THE Tribunal upheld the assessee's contention that earning of brokerage or loss or profit from PDO transactions were to be treated as inseparable. ( 5 ) THE decision of the Tribunal appears to us to be correct. The assessee was dealing in PDOs. The brokerage that it earned from dealing in PDOs was shown as profit. The PDO loss that was incurred was found by the Tribunal to be inseparable. In fact, the Income-tax Officer himself had treated all these transactions as inseparable in the earlier assessment years. The Income-tax Officer could have dealt with these transactions as speculative or the Income-tax Officer could have treated them as business transactions. In either event, the loss had to be set off against the profit. The Income-tax Officer in the earlier assessment years had treated all these transactions as business transactions. No reason has been given to depart from the view taken by the Income-tax Officer in the earlier years. ( 6 ) IT is to be noted that it is not the case of the Income-tax Officer that the brokerage income was earned out of the transactions which were actually settled by delivery of jute goods and loss arose out of transactions in which goods were not ultimately delivered. Had that been the case, different consequences might have followed. ( 7 ) IN our opinion, the Tribunal has come to a correct decision and the question raised is answered in the affirmative and in favour of the assessee. There will be no order as to costs.