Speculative transaction treatment of forward sales confirmed where unchallenged findings showed no hedging purpose.

Forward sale contracts settled otherwise than by actual delivery fall within the statutory definition of speculative transaction under the income-tax provisions unless they squarely qualify for the hedging exception. The Tribunal's finding that the contracts were not entered into to guard against price fluctuations, but because the assessee had shifted production and could not perform the earlier sales, was a finding of fact. As that finding was unchallenged and not shown to be perverse, the High Court could not reappraise it in reference proceedings, and the loss was correctly treated as speculative.

---

---

Issues: Whether the losses suffered on settlement of forward contracts for sale of standard jute goods were losses from speculative transactions or were covered by the hedging exception under the relevant income-tax provisions.

Analysis: The assessee's forward sale contracts were ultimately settled otherwise than by actual delivery, bringing the transactions within the statutory definition of speculative transaction under Explanation 2 to section 24(1) of the Indian Income-tax Act, 1922 and section 43(5) of the Income-tax Act, 1961. The exemption for hedging was not available because the Tribunal found, on the primary facts, that the contracts were not entered into to guard against price fluctuations in raw materials or merchandise, but were entered into because the assessee had switched production to special quality jute goods and knew it would be unable to perform the earlier forward sales contracts. The finding that the transactions were not hedging transactions was a conclusion of fact, not shown to be perverse or unsupported by evidence, and the High Court could not reappraise the facts in a reference when no appropriate challenge was made to that finding.

Conclusion: The Tribunal was justified in holding that the losses were from speculative transactions, and the reference was answered in favour of the Revenue.

Ratio Decidendi: In a tax reference, a Tribunal's unchallenged finding on primary facts that a forward contract is not a hedging transaction binds the High Court, and a settlement of forward sales otherwise than by delivery is speculative unless it falls squarely within the statutory hedge exception.

---