Irony is defined as the difference between what happens and what is expected. Situational irony is defined as...
...irony involving a situation in which actions have an effect that is opposite from what was intended, so that the outcome is contrary to what was expected.
In "A Horse and Two Goats" by R.K. Narayan, the comic irony takes place between a very poor Indian man, Muni, and a very rich American tourist because they lack the ability to communicate. While this might cause anger or frustration in another similar situation, Narayan chooses to make the story amusing.
Muni, an old man who was once wealthy, spends his days with his two goats—he cannot sell them for money nor eat them for they are worthless. They are, however, his constant companions.
One day Muni is lounging at his regular spot next to the large statue of a horse, which has stood in this place for many generations. To Muni's people, it once had important significance based on Hindu mythology. Muni's grandfather had shared the story of the horse with him when he was a boy just as his grandfather had, and his grandfather before him. But finally it has become something the locals fail to acknowledge: it simply rests alone—except for the frequent company of Muni and the goats as they often sit nearby, passing the time of Muni's empty days.
A car pulls up and an American steps out, trying to communicate with Muni. Muni, speaking only Tamil (his native tongue), does not understand what the foreigner wants. In fact, the only English he knows is "Yes, no." The omniscient shows the reader that the American wants to buy the statue, believing that Muni is the owner. Without knowing it, Muni appears to consent to the sale. However, comically, Muni believes that the American wants to buy his goats.
He understood that the red man was actually making an offer for the goats… When he was reflecting thus, the red man shook his hand and left on his palm one hundred rupees...
Muni is more than happy to sell the goats. Conversely, the American is more than happy to buy the statue.
The details of the exchange are lost in translation. Muni takes his money. The American take the horse:
When a truck came downhill, he stopped it and got the help of a couple of men to detach the horse from its pedestal and place it in his station-wagon…
Meanwhile, Muni has returned home with his money. Humorously, while he is pleased to bring the money to his wife, she does not believe that he came by it honestly.
His wife glared at him and declared, "If you have thieved, the police will come tonight and break your bones. Don’t involve me. I will go away to my parents…"
She has good reason to doubt Muni's story because the goats he thought he sold have followed him home.
Specifically, the comic irony is that Muni thought he was selling his goats. Without knowing it, he has sold the statue of the horse. However, both men get what they wanted. Muni unexpectedly gets to keep his goats, and his scolding wife leaves him to live with her parents.