Dipak Kumar Sen, J. - (1.) This reference arises out of the income-tax assessment of Nuddea Mills Co. Ltd., the assessee, for the assessment years 1961-62, 1965-66 and 1966-67, the relevant accounting years ending on the 31st March of the calendar years 1961, 1965 and 1966.
(2.) The facts as found and on record are, inter alia, that the assessee is a manufacturer of jute goods. In the assessment years involved, the assessee entered into forward contracts for sale of standard jute goods of its manufacture. Subsequently, the assessee received overseas offers for supply of special quality jute goods where the margin of profit was expected to be high. The capacity of the looms available to the assessee for production was limited and the assessee was not in a position to manufacture the special quality jute goods for the overseas purchasers and also standard jute goods to fulfil the assessee's forward contracts of sale. To earn higher profits, the assessee decided to manufacture the special quality jute goods and reduced the manufacture of standard jute goods correspondingly. The assessee covered its forward contracts of sale by entering into forward contracts of purchases of standard jute goods or purchased back some of its forward contracts of sales.
(3.) In covering its forward contracts of sale as aforesaid, the assessee suffered losses in the relevant assessment years, respectively, of Rs. 3,95,929, Rs. 1,18,065 and Rs. 3,14,540. In its assessments to income-tax, the assessee contended that such losses were incurred on hedging transactions and not on speculation.;