Hedging loss on foreign exchange contracts treated as capital loss, not income from other sources, on identical prior-year facts.

Loss from forward foreign exchange contracts entered into by an FII as a hedging mechanism was treated as capital in nature, not as income from other sources, because the Tribunal followed its coordinate bench view in the assessee's own earlier years on materially identical facts. The analysis also notes that the departmental challenge to relief under the India-Singapore DTAA did not succeed. The operative principle applied was that hedging losses on such contracts, where previously characterised in the capital field on the same factual matrix, retain that character and are not taxable under the head income from other sources.

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Issues: Whether loss arising from forward foreign exchange contracts entered into by an FII for hedging purposes is to be assessed as capital loss or as income from other sources, and whether the departmental challenge to the relief granted under the India-Singapore DTAA could succeed.

Analysis: The assessee was an FII and the forward exchange contracts were entered into as a hedging mechanism against foreign exchange fluctuations. The same issue had already been decided in the assessee's own case for earlier assessment years, where income or loss from such contracts was held to fall in the capital field. Following that coordinate bench view, the Tribunal found no reason to depart from the earlier conclusion. On that basis, the character of the loss remained capital in nature and could not be assessed under the head income from other sources.

Conclusion: The loss from forward foreign exchange contracts was held to be a capital loss and not income from other sources, and the departmental ground was rejected in favour of the assessee.

Ratio Decidendi: Loss arising from foreign exchange contracts entered into by an FII as a hedging mechanism is assessable as capital loss, and not as income from other sources, where the facts are materially identical to those already decided in the assessee's own case.

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