TMI Blog1973 (9) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... been incurred in relation to hedging transactions, that the forward sales which were covered by physical stock with the assessee on all settlement dates could alone be hedged by forward purchases and that any forward sale in excess of the quantity of the goods on hand, could not in the nature of things, be considered as a hedging transaction. The Income-tax Officer actually found that the difference paid and received by the assessee in forward contracts is Rs. 2,02,298 and Rs. 1,64,706 and the difference paid and received proportionate to the forward sales not covered by ready stock on a pro rata basis was found to be Rs. 24,165. Similarly, there were transactions in camphor at Calcutta and Bombay which were settled by paying the difference of Rs. 15,375 to various parties. These two sums which aggregate to Rs. 39,540 were disallowed as loss in speculative transactions in the year 1959-60. Likewise, a sum of Rs. 7,942 was disallowed as a loss in speculative transactions in the year 1960-61. The matter was taken in appeals to the Appellate Assistant Commissioner but without success. There were further appeals to the Income-tax Appellate Tribunal. The Tribunal also upheld the disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eculative business. The assessee's contention that all their forward purchases should also be taken into account for finding out the stock available at the time of entering into the forward sale and if so taken all the forward sales would either be covered by the actual stock or the forward purchases was, however, rejected on the ground that all the forward purchases have been settled by paying the difference and not by taking delivery of the goods contemplated by such purchases, that if actual delivery was taken in pursuance of the forward purchases, the ready stock position of the assessees would have gone up to the extent of the delivery taken, in which case, there would have been sufficient cover for the forward sales, that the stock on hand on any settlement date cannot include the quantity covered by a forward purchase in respect of which no delivery has taken place. The assessee's further contention that the forward contracts entered into by them were hedging transactions intended to guard against loss through future price fluctuations in respect of the forward contracts entered into earlier, and that, therefore, they should be deemed not to be speculative transactions had a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seller in every paid a transaction to issue a delivery order in the prescribed form with the seal of the association and initials of the officer concerned and to have it registered by the association before passing it on to his buyer after making the necessary endorsements thereon. Rule 19 specifically states that for all forward business, it is clearly understood between the seller and the buyer that deliveries are intended for and can be insisted upon. Rule 20 states that the buyer as soon as he gets a delivery order should get a declaration certificate from the association if he intends to take actual delivery unless he holds such a certificate granted by the association, and that a member who gets such a declaration certificate in respect of any delivery order is prohibited from endorsing and passing on the same to others, that the ultimate purchaser who has come into possession of the delivery order in accordance with the rules and who has obtained a declaration certificate in respect of such delivery order shall pay for the goods and take delivery thereof from the first seller and that if the first seller fails to give delivery to such ultimate purchaser, then the purchaser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feree, that transaction has to be considered as speculative. This is an erroneous conclusion." The Supreme Court reiterated the view it has expressed earlier in Dunichand Rataria v. Bhuwalka Brothers Ltd., Bayyana Bhimayya v. Government of Andhra Pradesh and State of Andhra Pradesh v. Kolla Sree Ramamurthy that a forward delivery of goods may amount to two deliveries in point of fact and, in the eye of law, if in the course of a transaction of sale the buyer takes delivery of the documents of title to the goods and transfers them to another by endorsement or delivery and such transferee takes delivery of the goods from the original seller. The purport of the decision of the Supreme Court in the said case appears to be that where a seller enters into a sale and issues a delivery order and the delivery order is transferred successively and the ultimate transferee takes delivery of the goods from the original seller, then the first sale as well as the subsequent sales cannot be said to be speculative transactions as contemplated by section 24, for the sale has resulted in the ultimate delivery of the goods. This position appears to be obvious for the reason that the Explanation 2 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. SK. AR. K. AR. Somasundaram Chettiar Co.) this court has expressed that only purchase transactions which were entered into for the purpose of guarding against future loss through price fluctuations in respect of contracts of sale for actual delivery of the goods, would be covered by clause (a) of the proviso and that clause (a) of the proviso cannot be availed of in the case of forward sales. It was also held that the contract or contracts contemplated by clause (a) has or have to be proved to have been entered into with a view to guard against loss through future price fluctuations in respect of contract or contracts of sale entered into earlier. The relevant observations in that case are these: " But we are inclined to think that we will be doing considerable violence to the language used in clause (a) if it is understood to cover all cases of purchases and sales entered into by an assessee with a view to guard against his future loss in general in that line of business. It is true, a correlation, contract to contract, may not be necessary. But the contract or contracts contemplated by clause (a) has or have to be proved to have been entered into with a view to guard ..... X X X X Extracts X X X X X X X X Extracts X X X X
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