TMI Blog1987 (8) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... rn 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. 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. The Income-tax Officer held that as the contracts for forward sales had been settled otherwise than by actual delivery of goods, the transactions conformed to the definition of a speculative transaction under Explanation 2 to section 24(1) of the Indian Income-tax Act, 1922 ("the 1922 Act "), and clause (5) of section 43 of the Income-tax Act, 1961 (" the Act "). He held further that the transactions were not hedging transactions within the meaning of the said section as they were not entered into to guard against losses through future pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The Tribunal held further that the claim of the assessee that the transactions relating to its forward contracts of sale resulting in loss were hedging transactions was far-fetched. The assessee was a manufacturer of jute goods and it was held that only a contract in respect of purchase of raw materials, if made to guard against loss through future price fluctuations in respect of the said forward contracts of sale, would be a hedging transaction. The forward contracts of sale and the subsequent purchase contracts were by themselves not hedging contracts. The Tribunal noted that the three sets of transactions, viz., the forward contracts of sale, transactions for sale of special quality jute goods to the overseas buyers and the forward purchase contracts of standard jute goods cannot be considered as one composite transaction. The forward purchase contracts of standard jute goods were not part of the transactions for manufacture and supply of special quality jute goods. The Tribunal affirmed the decisions of the Appellate Assistant Commissioner. On an application of the assessee under section 256(1) of the Act, the Tribunal has referred the following question as a question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee or the Revenue may seek to challenge the correctness of the conclusion reached by the Tribunal on the ground that it is a conclusion on a question of mixed law and fact. Such a conclusion is no doubt based upon the primary evidentiary facts, but its ultimate form is determined by the application of relevant legal principles. The need to apply the relevant legal principles tends to confer upon the final conclusion its character of a legal conclusion and that is why it is regarded as a conclusion on a question of mixed law and fact. In dealing with findings on questions of mixed law and fact, the High Court would no doubt have to accept the findings of the Tribunal on the primary questions of fact; but it is open to the High Court to examine whether the Tribunal had applied the relevant legal principles correctly or not; and in that sense, the scope of enquiry and the extent of the jurisdiction of the High Court in dealing with such points is the same as in dealing with pure points of law." (b) Oriental Investment Co. P. Ltd. v. CIT [1969] 72 ITR 408 : This decision of the Supreme Court was cited for the following observations (pp. 415 and 416): " There is, however, a th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was contended that the High Court was not entitled to reverse the findings of fact of the Tribunal as the same had not been challenged by a specific question. It was held by the Supreme Court that the question which was referred was framed in the light of the final conclusion and it was not necessary to apply for and initiate a reference on a question arising from the reasons given by the Tribunal in support of its conclusion. (d) CIT v. S. P. Jain [1973] 87 ITR 370 (SC): In this case the Revenue in its applications for reference under sections 66(1) and 66(2) of the 1922 Act sought to challenge a particular finding of the Tribunal as perverse. This question was not allowed either by the Tribunal or by the High Court. On further appeal to the Supreme Court, it was observed that perhaps the High Court thought that the questions which were directed to be referred covered the question of perversity. The Supreme Court observed as follows (p. 381): " In our view, the High Court and this court have always the jurisdiction to intervene if it appears that either the Tribunal has misunderstood the statutory language, because the proper construction of the statutory language is a mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the settlement of the said forward transactions were necessary and incidental to the carrying on of the assessee's business which included supplies overseas. None of the findings were challenged by the Revenue by raising appropriate questions. It was noted that the finding of the Tribunal that the transactions were hedging transactions not having been challenged by a separate question, the decision of the Tribunal was upheld. Learned advocate for the Revenue contended on the other hand that it had been found by the Tribunal that the assessee was a manufacturing concern and not a dealer and, therefore, the only hedging transactions which were available to the assessee were in respect of forward purchase of raw materials to offset future fluctuations of price of such raw materials which might be required by the assessee to fulfil its future transactions. In the instant case, there was no transaction by the assessee in respect of raw materials and, therefore, the assessee was not entitled to claim that the transactions involved were hedging transactions. Learned advocate for the Revenue submitted further that whether a transaction was a hedging transaction or not was a questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... off of loss in computing aggregate income.-(1) ...... Explanation 2.-A speculative transaction means a transaction in which a contract for purchase and sale of any commodity including stocks and shares is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips: Provided that for the purposes of this section, (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations ; or (c) a contract entered into by a member of a forward market or stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member shall not be deemed to be a speculative transaction." Section 43(5) of the 1961 Act provides a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which has not been challenged by the assessee as perverse or contrary to the evidence on record. No doubt on almost identical facts, the Tribunal in Gourepore Co. Ltd.'s case [1982] 135 ITR 606 (Cal) came to a different conclusion and held that the settlement of forward contracts of sale was necessary and incidental to the business of the assessee and resulted in hedging profit and not a speculative loss. But the same conclusion has not been drawn by the Tribunal in the instant case and the same as a conclusion or finding of fact has become final. We note that the Tribunal in the instant case has taken into account only the fact that the assessee was a manufacturer of jute goods and that the assessee could enter into hedging transactions to guard against future price fluctuations of raw materials. This finding has also not been challenged as perverse. It has also not been alleged that the Tribunal has failed to take note of the evidence on record that the assessee was also a seller of jute goods. Law stands settled that the Tribunal is the final fact-finding authority and the High Court cannot take a different view of facts or find new facts different from those found by the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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