KIRTILAL JAISINGLAL AND CO Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference at the instance of the assessee under S. 66(1) of the Indian IT Act, 1922. There are two questions referred to us and they read as follows :

(2.) THE assessee before us is a registered firm doing business in bullion, both ready and forward. We are concerned with three assessment years, viz., 1959 60, 1960 61 and 1961 62. It may be mentioned that the corresponding previous year of the assessee is the Samvat Year. In these three years the assessee claimed losses resulting from forward dealings in bullion in the amounts of Rs. 43,285, Rs. 55,781 and Rs. 87,280, respectively. Before the ITO, the assessee claimed that the forward dealings in bullion were hedging transactions. It was explained to the ITO that the assessee had regular business in gold and silver and as such it held large stocks of the same. In order to protect itself from losses on account of market fluctuations the firm was required to enter into hedging transactions. According to the assessee, forward sales were effected against the stocks on hand. It was conceded that at times the forward sales would exceed the stocks on hand, but despite this it was submitted that they were mainly in the nature of hedging transactions against ready stocks of gold. The ITO asked the assessee to file details showing the day to day stock position against which forward sales were made. The ITO found from such statements filed by the assessee that the forward sales exceeded the stocks available. Accordingly, the ITO felt himself unable to accept that those forward sales were hedging transactions. In this view, since the transactions were not specifically against the stocks held by the assessee, they had to be regarded as speculative in nature. Accordingly, he held that this was a speculative loss to be carried forward. Similar orders were passed for all the three assessment years. The matter was carried in appeal to the AAC where the assessee urged the same contention as has been urged on its behalf before the ITO. Before the AAC, the assessee relied upon a circular of the Central Board of Revenue No. 23 (XXXIX 4) D of 1960. Despite the circular, the AAC held that those were not genuine hedging transactions since the forward transactions were effected irrespective of the stock on hand. It was also contended before the AAC that the losses suffered by the assessee on account of excess sales, i.e., forward sales in excess of the stock in hand, only should be treated as speculative losses and the losses arising from forward transactions up to the stock on hand should be treated as genuine hedging transactions and not speculative transactions.

(3.) THE relevant portion of the circular may be fully set out :