Hedging exception under speculative transaction rules applies only to contracts tied to actual sale deliveries, not general purchase hedges.

A merchant's contracts fell outside the hedging exception in clause (a) of the third proviso to section 24(1) because the statutory carve-out applies only where the speculative contract in merchandise is linked to contracts for actual delivery of goods sold by the assessee. Explanation 2 defined speculative transactions broadly, but the proviso was confined to real hedges against future price fluctuations in respect of sale contracts, not to purchase contracts or general business-risk cover. The decisive requirement was a genuine correlation between the hedging contract and the underlying sale contracts for actual delivery.

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Issues: Whether contracts entered into by a merchant, though speculative within the statutory definition, were protected by clause (a) of the third proviso to section 24(1) as hedging transactions entered into to guard against loss through future price fluctuations in respect of contracts for actual delivery of goods sold by him.

Analysis: Explanation 2 to section 24(1) defined speculative transactions, but clause (a) of the third proviso carved out a limited exception for contracts in respect of raw materials or merchandise entered into in the course of manufacturing or merchanting business to guard against loss through future price fluctuations in respect of contracts for actual delivery of goods sold by the assessee. The decisive requirement was a real correlation between the speculative contract and the underlying contracts for actual delivery of goods sold by the assessee. The expression "contracts for actual delivery of goods" could not be widened to include purchase contracts. A merchant could not bring within the exception all purchases and sales entered into generally to hedge business risk unless they were linked to contracts of sale for actual delivery contemplated by the proviso.

Conclusion: The transactions did not fall within clause (a) of the third proviso to section 24(1) and were not saved from being treated as speculative transactions; the answer was against the assessee and in favour of the Revenue.

Ratio Decidendi: The statutory exception for hedging applies only where the speculative contract in respect of merchandise is entered into to protect against loss arising from contracts for actual delivery of goods sold by the assessee, and it does not extend to purchase contracts or to general business-risk hedges unconnected with such sale contracts.

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