H.N.Seth, J. - (1.) The assessed, M/s. M.P. Sugar Mills Private Ltd., Kanpur, is a private limited company and runs amongst other units, a sugar mill at Majhaulia and an oil mill at Kanpur. It claimed that during the accounting period relevant to the assessment year 1963-64, it incurred a liability for payment of Rs. 10,92,364 for deferred payment of cane price under price-linking formula and as such it was entitled to an allowance of this amount while computing its income. The ITO disallowed the claim made by the assessee. In appeal, the order passed by the ITO in this regard was upheld by the AAC. However, in second appeal, the Income-tax Appellate Tribunal accepted the claim made by the assessee and held that it was entitled to the allowance claimed by it.
(2.) The assessee's trading account showed that in connection with its oil mill business it had incurred the following losses which, according to the assessee, partook the nature of hedging losses, and the assessee claimed that it was entitled to deduct the same from its business profits : Rs. Lahi sarson A vaida-net loss 2,35,88.2 Moongphali 13,605B vaida-loss.Total 2,49,487
(3.) The ITO disallowed the claim of the assessee. In appeal, the AAC agreed with the reasons given by the ITO. He observed : "Whatever may be the position in the commercial world, it seems to me from a reading of Section 43(5)(a) that in the case of a manufacturer only forward purchase contracts in raw material against contracts to make actual supply of manufactured goods are hedging transactions." The appellant's attempt to extend the definition to forward sale contracts in raw materials is not justified by the wordings in the section and upheld the order passed by the ITO. In second appeal, the Income-tax Appellate Tribunal came to the conclusion that the assessee had suffered the loss in question as a result of certain forward transactions of sale of raw materials used by it in manufacturing oil and that such contracts had been entered into with a view to safeguard loss on account of fluctuation in price and were as such contracts of hedging nature which fell outside the ambit of speculative transactions described in Section 43 of the I.T. Act, 1961 (hereinafter referred to as "the Act"). The assessee was accordingly entitled to adjust the same against its business profits. On the request made by the Commissioner of Income-tax, the Income-tax Appellate Tribunal has stated the case request- ing us to express our opinion on the following two questions of law which, according to it, arose out of its appellate order : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was legally correct in holding that the sum of Rs. 10,92,346 on account of additional price of sugarcane represented a liability of the assessee-company for the assessment year 1963-64 and could be allowed as a deduction in computing its total income ? Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is legally justified in holding that the loss of Rs. 2,49,487 is a hedging loss within the meaning of Section 43(5)(a) of the Income-tax Act, 1961, and could accordingly be set off against the business income of the assessee ?";