TMI Blog1986 (7) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... ers, the assessee exported the jute products. Against the offers made to its foreign customers, the assessee used to enter into purchase agreements with local suppliers in order to guard itself against future price fluctuations in the jute market. In most of the cases, the assessee used to enter into a purchase transaction locally against each export offer abroad. The firm offers issued by the assessee to its foreign customers abroad were accepted in or about 80% of cases and the balance of about 20% did not materialise in any concluded contract. In the assessment year 1964-65, the accounting period ending on December 31, 1963, the assessee suffered a loss of Rs. 86,238 arising out of its local purchase transactions as the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p in appeal before the Income-tax Appellate Tribunal. It was contended before the Tribunal on behalf of the Revenue that inasmuch as the assessee entered into local purchase transactions immediately after sending offers of sale to its foreign customers, the foreign transactions which were intended to be hedged by the local purchase transactions did not amount to contracts for actual delivery of goods, and, therefore, the assessee could not claim benefit under the proviso to section 43(5) of the Income-tax Act, 1961. It was contended further that the assessee had to establish that the contracts entered into with its foreign customers were for actual delivery of the goods. It was contended on behalf of the assessee that the foreign transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of Rs. 86,238 was rightly allowed as non-speculative loss ? " The above question is the subject-matter of Income-tax Reference No. 165 of 1976. On a further application of the Revenue under section 256(2) of the Income-tax Act, 1961, the Tribunal was also directed to refer the following questions, as questions of law arising out of its order, for the opinion of this court : " 1. Whether, on the facts and in the circumstances of the case, the offer of sales made by the assessee to the foreign customers, which were not accepted by the said customers, could be construed as contracts for the purposes of the proviso to section 43(5) of the Income-tax Act, 1961 ? 2. If the answer to question No. 1 is in the negative, then, whether, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts for actual delivery of goods or merchandise sold by it. The learned advocate submitted that in the instant case, where the firm offers of the assessee were not accepted by the foreign purchasers, no contract for actual delivery of goods came into existence, and, therefore, the assessee could not claim that the local transactions for purchases were transactions for guarding against loss through future price fluctuations in respect of any contract for actual delivery of goods. Therefore, the said local purchase transactions were speculative transactions and the loss suffered by the assessee in respect thereof was speculative loss. The learned advocate for the assessee contended to the contrary. He submitted that in order to appreciate t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erally the assessment year. " On a consideration of the facts and circumstances of the instant case, it appears to us that the local purchase contracts which were entered into by the assessee were intended to guard the assessee against loss through future price fluctuations in respect of its contracts for actual delivery of goods or merchandise sold by it. It has been found that about 80% of the said contracts resulted in export and, consequently, in actual delivery, and in or about 15% or 20% of the cases, by reason of the non-acceptance of the offers of the assessee, foreign contracts could not be concluded. It is to be noted that the language of the proviso to section 43(5) of the Income-tax Act is that a contract in respect of raw mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iso and it cannot be held that the local purchase contract would be speculative contract. For the above reasons, we accept the contentions of the assessee. We answer the only question referred in Income-tax Reference No. 165 of 1976 in the affirmative and in favour of the assessee. Question No.1 in Income-tax Reference No. 158 of 1981 is answered by stating that apart from the offers of the assessee which were not accepted by foreign customers, there were other contracts which had been so accepted and, therefore, the assessee was entitled to the benefit of the proviso to section 43(5) of the Income-tax Act, 1961. By reason of the answer to the above question, no answer is called for to question No. 2, in Income-tax Reference No. 158 of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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