Genuine hedging forward contracts are excluded from speculative treatment, allowing business losses to be set off against other income.

Forward contracts entered into in the course of a jute manufacturing and merchanting business to guard against price fluctuations were treated as genuine hedging transactions, not speculative transactions. The Tribunal's finding that the contracts were necessary and incidental to the business, and that their settlement produced a hedging profit rather than a speculative loss, was a supported finding of fact. As that finding was not shown to be perverse or unsupported by evidence, the statutory proviso excluding genuine hedging contracts from speculative treatment applied, and the resulting loss was eligible for set-off against other income.

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Issues: Whether the losses arising from the forward contracts were speculative losses or hedging losses eligible for set-off against other income.

Analysis: The assessee was engaged in both manufacture and sale of jute goods, and the Tribunal found that the forward contracts were entered into in the course of that business to guard against loss while enabling execution of more profitable overseas orders. The finding was that the settlement of the contracts was necessary and incidental to the assessee's business and that the net result was a hedging profit rather than a speculative loss. The Court treated this as a finding of fact which was not shown to be perverse or unsupported by evidence, and held that the statutory proviso excluding genuine hedging contracts from speculative transactions applied.

Conclusion: The losses were not speculative losses and were eligible to be set off; the answer was in the affirmative and in favour of the assessee.

Final Conclusion: A genuine hedging transaction undertaken in the course of manufacturing and merchanting business to guard against price fluctuation does not fall within speculative transaction treatment for set-off purposes.

Ratio Decidendi: Where the Tribunal records a supported finding that forward contracts were entered into as a genuine hedge incidental to the assessee's business to guard against price fluctuations, such contracts are excluded from speculative transactions and the resultant loss is not barred from set-off under the Act.

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