Judgement B. K. MEHTA, J. :- The assessee carries on business of Manufacturing oil. The assessment year under reference is 1965-66 the previous year being S. Y. 2020 which ended on November 4, 1964. In S. Y. 2020, the assessee entered into certain forward transactions of sale of oil tins. These transactions were ultimately settled otherwise than by actual delivery of the goods and the settlement resulted in a loss of Rs. 27,157/-. The assessee debited the said amount to the profit and loss account in its trading books and claimed it as a business loss. The Income-tax Officer, following the decision of this Court in Chimanlal Chhotalal v. Commr. of Income-tax, (1968) 69 ITR 129 (Guj), held that only forward contracts for purchase of raw material entered into by an assessee in course of his manufacturing business to guard against loss through price fluctuations in respect of his forward contracts of sale for actual delivery of the goods manufactured by him are saved and excepted by Proviso (a) from the class of speculative transactions as denned in S. 43 (5) of the Income-tax Act, 1961, and therefore, the loss incurred as a result of such contracts of sale was not entitled to be set off against the other business income. The assessee being aggrieved with this order of the Income-tax Officer, carried the matter in appeal before the Appellate Assistant Commissioner, Jamnagar, who also, following the aforesaid decision of this Court, confirmed the order of the Income-tax Officer. The assessee, therefore, carried the matter in further appeal before the Income-tax Tribunal at Ahmedabad. It was contended on behalf of the assessee before the Tribunal that the contracts of sale entered into by the assessee were, for all intents and purposes, what are known commercially as, "hedging contracts" entered into with a view to guarding against the loss through future price fluctuations of the groundnut oil in respect of which it had entered into certain forward transactions, and since the assessee had sufficient stock on hand to meet its obligations of supplying oil tins under the said contracts, the loss of Rs. 27,157/-suffered by it was, for all intents and purposes, a hedging loss which the assessee was entitled to set off against its other business income as clarified and permitted by the Central Board of Revenue under its Circular bearing reference F. No. 124-60 TPM of September 12, 1960 and, therefore, the Revenue authorities were in error in disallowing the set-off as claimed by the assessee. The Tribunal found that at the time when the assessee entered into the aforesaid contracts, it had sufficient stock of raw material and oil to meet with its obligations under the contracts and, therefore, its case was covered by the aforesaid Circular of the Central Board of Revenue. In spite of this finding, the Tribunal felt itself unable to permit the set-off of the loss in question against the business income of the assessee since the said Circular was inoperative and ineffective so far as the State of Gujarat was concerned in view of the decision of this Court in Chimanlal Chhotalal's case (supra). The Tribunal following the said decision, held that the aforesaid contracts entered into by the assessee were speculative transactions within the meaning of S. 43 (5) of the Income-tax Act, 1961 and, therefore, rejected the claim of the assesses and confirmed the order of the Appellate Assistant Commissioner. At theinstance of the assessee, therefore, the following two questions have been referred to this Court for its opinion under S. 256 (1) of the Income-tax Act, 1961. "(1) Whether, the Tribunal was right in holding that the Circular F. No. 124-60TPM dated September 12, 1960 issued by the Central Board of Revenue was inoperative and ineffective so far as the State of Gujarat is concerned and that the assessee is not entitled to claim any relief under the said Circular? (2) Whether, on the facts and in the circumstances of the case, the assessee was entitled to set off loss of Rs. 27,157 against its other business income?" 2. When this reference was called out for final hearing before a Division Bench of this Court (consisting of Divan C. J. and P. D. Desai, J.) the Division Bench felt that the decision of this Court in Chimanlal Chhotalal's case (supra) required reconsideration and, therefore, referred the same to a larger bench. This is how this reference has come before this Full Bench : 3. This is how this reference has come before this Full Bench : 3. The argument advanced on behalf of the assessee can be summed up as under : On true construction and effect of proviso (a) to S. 43 (5) of the Income-tax Act, 1961, every contract -irrespective of whether it was for sale or purchase - of raw materials or merchandise entered into by a person in course of his manufacturing or merchanting business, would not be deemed to be a speculative transaction, if its purpose is to guard against the loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him. There is no justification in the proviso (a) to S. 43 (5) of the Income-tax Act, 1961 to restrict the width and import of words "a contract in respect of raw materials or merchandise" as to mean "a contract of purchase only" as read by the Division Bench of this Court in Chimanlal Chhotalal's case (1968) 69 ITR 129 (Guj) (supra). In so far as the Division Bench gave a restrictive meaning to the said words to mean "a contract of purchase of raw materials or merchandise only" by reference to the latter part of the proviso, it read more than what is warranted therein. The Interpretation placed by the Division Bench in Chimanlal Chhotalal's case (supra) goes against the very legislative intent evinced in proviso (a) to S. 43 (5) that where bona fide forward sales are entered into with a view to guarding against the risk of fluctuations of prices of raw-materials or merchandise in stock, the losses arising as a result of such forward sales cannot be treated as speculative losses. In any case, the interpretation placed by the Division Bench goes against the concession made by the Circular of the Central Board of Revenue of September 12, 1960 by which it permitted to exclude hedging sales from the class of speculative transactions, if the total of such transactions does not exceed the total stocks of raw-materials or merchandise in hand. In any case, the interpretation placed by the Division Bench goes against the concession made by the Circular of the Central Board of Revenue of September 12, 1960 by which it permitted to exclude hedging sales from the class of speculative transactions, if the total of such transactions does not exceed the total stocks of raw-materials or merchandise in hand. In the submission of the Advocate General appearing for the assessee, the Tribunal was clearly in error in excluding the operation of this Circular so far as Gujarat is concerned in view of the decision of this Court in Chimanlal Chhotalal's case (supra) because the said decision did not enjoin the Revenue to deprive the assessee of the benefit which is available and extended to the other assessees in the other parts of this country. 4. These contentions were sought to be repelled by the Revenue by urging that contracts for actual delivery of goods manufactured by an assessee would obviously be contracts of sales, and in respect of such forward contracts of sale a manufacturer is permitted to enter into hedging contracts which must necessarily be forward contracts of purchase only. Similarly, in a contract for actual delivery of merchandise sold by a merchant, it is implicit that in the very nature of forward contract of sale, a hedging contract in respect thereof can only be a contract of purchase and not a contract of sale. In the submission of the Revenue, the Division Bench of this Court correctly defined the scope and ambit of proviso (a) which takes out from Explanation 2 to S. 24 (1) of the Income-tax Act, 1922 (corresponding to S. 43 (5) of the 1961 Act) only forward contracts for purchase of raw materials or merchandise entered into by an assessee in the course of his manufacturing or merchanting business to guard against lost through price fluctuations in respect of his forward contracts of sale for actual delivery of goods manufactured by him or merchandise sold by him. The Tribunal was, therefore, perfectly justified in refusing to extend the benefit of this Circular of the Central Board of Revenue since it went contrary to the decision of this Court. The Tribunal was, therefore, perfectly justified in refusing to extend the benefit of this Circular of the Central Board of Revenue since it went contrary to the decision of this Court. Merely because the benefit under the Circular is extended to assessees in other parts of the country, it would not entitle the assessees in this State to claim ex debito justitiae the benefit of the said concession which clearly flies against the decision of this Court. It is in this context of the rival contentions of the parties that we have to answer the questions referred to us. 5. It would be profitable to appreciate in proper perspective how hedge transactions are commercially understood before we determine about the true scope and width of proviso (a) to S. 43 (5). As the very name suggests, hedge contracts are those contracts which hedge against prejudicial price fluctuations. Speculative transactions are not the same as agreements by way of wager. In speculative transactions the modus operandi of persons indulging in them is that when one enters into a contract of purchase, he also simultaneously enters into one or more contracts of sale against the same quantity deliverable at the same time either to the original vendor or to someone else, so as either to secure profit or to minimise loss, before the VAIDA day; and similarly when he enters into a contract of sale, he simultaneously enters into one or more contracts to purchase the same quantity before the VAIDA day. The result of such dealings, when the sale and purchase are to and from the same person, has the effect of cancelling the contracts leaving only differences to be paid (vide Tod v. Lakhmidas (1892) ILR 16 Bom 441; Perosha v. Manekji (1898) ILR 22 Bom 899 and Sassoon v. Takersey, (1904) ILR 28 Bom 616). The principle enunciated in these cases is to the effect that there is a possibility of confounding speculative transactions with agreements by way of wager but the distinction between the two as to their legal result is vital. In speculative transactions a seller might never have intended to give delivery and the purchaser did not expect him to deliver, but that does not convert a contract, otherwise Innocent, into a wager. In speculative transactions a seller might never have intended to give delivery and the purchaser did not expect him to deliver, but that does not convert a contract, otherwise Innocent, into a wager. Hedging transactions are, however, to be distinguished from the speculative transactions, inasmuch as they are genuine transactions entered into for purposes of insuring against adverse price fluctuations. In hedging transactions neither delivery nor transfer is contemplated and yet they cannot be treated as speculative transactions in the commercial parlance. The technique of hedge trading is very pithily explained by the well-known Economist W. R. Natu in his book "Regulation of Forward Markets" at page 9 as under : "The hedge contract is so-called because it enables the persons dealing with the actual commodity to hedge themselves, i. e., to insure themselves against adverse price fluctuations. A dealer or a merchant enters into a hedge contract when he sells or purchases a commodity in the forward market for delivery at a future date. His transaction in the forward market may correspond to a previous purchase or sale in the ready market or he may propose to cover it later by a corresponding transaction in the ready market, or he may offset it by a reverse transaction on the forward market itself. To take an illustration, a merchant may go to the ready market and purchase cotton. He may purchase it for selling it again later to a mill for manufacturing it into cloth, in which case, he might hold it in his stock for a time, say, one month. If he buys the cotton at Rs. 800/- per candy, and during the month, the price falls to Rs. 750/- per candy, he would be making a loss of Rs. 50 per candy. He thus undertakes a risk when he buys cotton in the ready market and stocks it for a period of time, and naturally tries to find a way by which the risk can be reduced. He, therefore, goes to the forward market and sells cotton forward contract for delivery after one month, at, say, Rs. 770/- per candy. The purchase transaction in the ready market is thus counterbalanced by a sale transaction in the forward market. At the end of one month, if the ready price has fallen by Rs. He, therefore, goes to the forward market and sells cotton forward contract for delivery after one month, at, say, Rs. 770/- per candy. The purchase transaction in the ready market is thus counterbalanced by a sale transaction in the forward market. At the end of one month, if the ready price has fallen by Rs. 50/- he would be put to a loss in the ready market, when he offsets his original purchase by a sale in that market. At the same time, however, he would also be offsetting his original sale on the forward market by a corresponding purchase in that market. Since the course of prices in the forward market generally follows the same trend as in the ready market, he would be purchasing in the forward market also at a lower price, perhaps at Rs. 720/-per candy, making a profit of Rs. 50 per candy. He would thus make a profit on the forward market which would reduce or at times even more than wipe out the loss that he suffers on the ready market. In this way, he is able to reduce his risk and cut his losses by recourse to the forward market and might even in favourable circumstances end up with a profit on balance. To take another illustration, an exporter of castor oil may contract to sell 100 tons of castor oil to an importer in the U. S. A. delivery to be effected after two months, at the rate of Rs. 1,650 per ton. Immediately after the conclusion of the contract, the exporter would buy in the forward market about 4,000 candies of castorseed which is roughly equivalent to 100 tons of castor oil. Subsequently, he would start purchasing ready castor oil in the market to fulfil his export commitment, and as and when he buys ready castor oil he would liquidate his purchase position in the forward market. If between the time he concluded the export deal and the actual purchase of ready oil, the price of castor oil had advanced, he would incur a loss in his dealings in the ready commodity for export, but as the forward price of castorseed also would have gone up during the time, he would realise a corresponding profit in his dealings on the forward market. Thus, by resorting to counterbalancing transactions in the market for the ready commodity on the one hand and in the hedge market on the other hand, the hedger seeks to safeguard his position. The movement of prices in the two markets may not always follow an identical course and the hedger might at times gain and at times lose but such a gain or loss would be marginal and far less than what it would be if the person had not hedged at all While, however, the hedging operation protects the hedger against loss arising from adverse fluctuations in prices, it also prevents him from making wind-fall profit owing to favourable fluctuations in prices as well. The forgoing of such a passible wind-fall profit is the price which he pays for the insurance against loss." This well-known technique of hedge trading clearly implies forward contracts both ways, namely, for sale and purchase with a view to guarding against adverse price fluctuations. These forward contracts by way of hedge transactions usually afford a cover to a trader inasmuch as his loss in the ready market is offset by a profit in forward market and vice versa. It, therefore, follows that in order to effectively hedge against adverse price fluctuations of the manufactured goods or merchandise, a manufacturer or merchant has necessarily to enter into forward transactions of sale and purchase both, and without these contracts of sale and purchase constituting hedge transactions, there would be no effective insurance against the risk of loss in the price fluctuations of the commodity manufactured or the merchandise sold. If this is the correct meaning of the hedging transactions in the commercial world, is there any warrant in proviso (a) to Section 43 (5) of the Income-tax Act, 1961, so as to justify an inference that the legislature intended to exclude from speculative transactions, the contracts of sale of raw-materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against the loss through adverse price fluctuations ? However, according to S. 43 (5) of the Income-tax Act, 1961, and even for that matter under S. 24 of the Income-tax Act, 1922. However, according to S. 43 (5) of the Income-tax Act, 1961, and even for that matter under S. 24 of the Income-tax Act, 1922. speculative transaction means a transaction in which a contract for the purchase or 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. Explanation 2 of S. 28 of the 1961 Act enjoins that when an assessee enters into speculative transactions so as to constitute a business, such business is deemed to be a distinct and separate business from any other business of his. By S. 73 (1) of the 1961 Act it is enacted that any loss in respect of a speculation business would not be set off except against profits and gains, if any, of another speculation business. In other words, the Legislature has, after carving out a subordinate source of business income styled as speculation business, enjoined that this loss cannot be set off against profits and gains from any non-speculative transaction, though it may be part of the larger head of income of business or profession. In the Income-tax Law this new class of speculation business, as defined in S. 43 (5) of the 1961 Act or S. 24 of the 1922 Act, has one more distinguishing feature than the one which is attributed to such transactions in the Law of Contract. The distinguishing feature is that the question of intention of seller or purchaser is not very material in the Income-tax Law, as it is in the Law of Contract and if a contract is periodical or ultimately settled otherwise than by actual delivery, it would amount to speculative transaction. However Cls. (a), (b) and (c) of the Proviso to S. 43 (5) by a legal fiction takes out of the purview of speculative transactions forward contracts effected with a view to guarding against the loss due to adverse price fluctuations. We are concerned here in this reference, as stated above, with the width and import of Cl. However Cls. (a), (b) and (c) of the Proviso to S. 43 (5) by a legal fiction takes out of the purview of speculative transactions forward contracts effected with a view to guarding against the loss due to adverse price fluctuations. We are concerned here in this reference, as stated above, with the width and import of Cl. (a) of the said proviso which reads as under : "(5) 'speculative transaction' means a transaction in which a contract for the purchase or 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 clause - (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) ... ...... (c)......... .........shall not be deemed to be a speculative transaction." 6. The neat question which, therefore, arises in this reference is, whether there is any warrant to read in the opening words of proviso (a) viz. "a contract in respect of raw materials or merchandise entered into" (hereinafter referred to as the "first set of contracts" for the sake of convenience) a restrictive implication as to mean only contracts for purchase because as read by the Division Bench in Chimanlal Chhotalal's case (1969) 69 ITR 129 (Guj), such contracts would be entered into by a manufacturer or merchant to guard against the risk of adverse price fluctuations of manufactured goods or merchandise sold in respect of which a trader might have entered into contracts of actual delivery thereof (hereinafter referred to as the "second set of contracts" for the sake of convenience). 7. In our opinion, there is no warrant or justification for restricting the width of the first set of contracts so as to mean the contracts of purchase only. 7. In our opinion, there is no warrant or justification for restricting the width of the first set of contracts so as to mean the contracts of purchase only. The restrictive meaning as spelt out by the Division Bench in Chimanlal Chhotelal's case (supra) in the context of the second set of contracts in the said proviso, is unwarranted, in our opinion, inasmuch as apart from militating against the accepted meaning of hedging transactions in the commercial world, it runs counter to the well-known principle of interpretation of statutes since it reads more than what is prescribed in the later portion of the said proviso. It is no doubt true that risk of loss which is to be guarded against is one arising through adverse price fluctuations of the second set of contracts for actual delivery of manufactured goods or merchandise sold by a trader. It is also true that the first set of contracts is in respect of raw-materials or merchandise entered into by such a trader in the course of his business. But we have not been able to appreciate how from these two sets of contracts, merely because they have been placed in juxtaposition, the restricted meaning for the first set of contracts can be spelt out. The first set of contracts is any contract which has been entered into by a manufacturer or merchant in the course of his business with a view to guarding against the loss due to adverse price fluctuations of goods under the second set of contracts. The reasoning of the Division Bench in Chimanlal Chhotelal's case (supra) that because second set of contracts would be contracts for sale, the first set of contracts would necessarily mean contracts for purchase, can hardly be justified for the obvious reasons that the purposes of the two sets of contracts are entirely different. The purpose of the second set of contracts is to deliver manufactured goods or merchandise sold. The purpose of the first set of contracts is to guard against loss arising due to adverse price fluctuations in the course of the period of delivery of the goods agreed to be sold. If the Parliament had intended that the first set of contracts should include and cover only contracts of purchase, it would have appropriately said so. The purpose of the first set of contracts is to guard against loss arising due to adverse price fluctuations in the course of the period of delivery of the goods agreed to be sold. If the Parliament had intended that the first set of contracts should include and cover only contracts of purchase, it would have appropriately said so. It could have said, for instance "a contract of purchase in respect of raw materials or merchandise" instead of saying "a contract in respect of raw materials or merchandise", as it has done. We have tried to understand from the learned Advocate for the Revenue as to how a trader can guard himself against adverse price fluctuations in respect of contracts of actual delivery of goods sold by him, if he does not enter into the Contracts of sale and purchase in the forward market, because, in the ultimate analysis, he would try to offset the likely loss arising as a result of adverse price fluctuations of goods to be actually delivered in the second set of contracts by a profit by entering into corresponding transactions in forward market. The learned Advocate for the Revenue relied on the reasoning of the Division Bench which we have referred to above. In the ultimate analysis, by hedging transactions a trader by a corresponding contract of sale and purchase in the forward market tries to offset the likely loss which may arise in the ready market due to adverse price fluctuations. The reasoning of the Division Bench in Chimanlal Chhotalal's case (supra) may require something more to be read in the first set of contracts referred to in the opening part of proviso (a) to Section 43 (5). We do not think that such a reading is permissible since it would require rewriting of the proviso. Another infirmity in that reasoning, which we should respectfully point out, is that the Division Bench has taken it for granted that since the second set of the contracts is for actual delivery of goods and, therefore, for sale of manufactured goods or merchandise sold, the first set of contracts, which is in respect of raw-materials or merchandise, must be for purchase only. Though both the sets of contracts are put in juxtaposition the inference which has been drawn by the Division Bench in Chimanlal Chhotalal's case from the context of the second set of contracts so as to impute a restrictive meaning to the first set of contracts is hardly justified, because the first set of contracts is entered into with a specific purpose of guarding against the loss which may arise due to adverse price fluctuations. The first set of contracts should, therefore, be such as to offset the loss arising in the second set of contracts, and that offsetting is not possible unless we include and cover in the first set both the contracts of sale and purchase, because without the contracts of sale and purchase in forward transactions one would not be able to say whether there would be profit or loss in the said transactions. We are, therefore, of the opinion that the contention urged on behalf of the assessee before us that the first set of contracts should include and cover both the contracts of sale and purchase is well founded and to the extent to which the decision of this Court in Chimanlal Chhotalal's case goes counter to that conclusion, it requires to be reconsidered. We are, therefore, of the opinion that the interpretation placed by the Division Bench in Chimanlal Chhotalal's case (supra) does not appear to be correct in view of what we have said above and to that extent, the law laid down by the decision of the Division Bench in the aforesaid ease of Chimanlal Chhotalal v. Commr. of Income-tax (supra) should not be considered to be a good law. 8. The interpretation which we have preferred and set out on proviso (a) to S. 43 (5) also finds support from what has been observed in the report of Direct Taxes Administration Enquiry Committee in paragraphs 3.55, 3.56 and 3.58 of Chap, III which read as under : "3.55. Definition of speculative transaction. - An important criticism made by a large number of witnesses who appeared before us, had been that the assurance given by Shri C. D. Deshmukh, with regard to the treatment of bona fide hedging transactions as ordinary business, was not being duly implemented. Definition of speculative transaction. - An important criticism made by a large number of witnesses who appeared before us, had been that the assurance given by Shri C. D. Deshmukh, with regard to the treatment of bona fide hedging transactions as ordinary business, was not being duly implemented. It was stated that the spirit of the amendment had been lost sight of by the Department in the course of administration of the proviso and that sometimes even genuine hedging losses were being treated as speculative losses. In this connection the distinction in the phraseology of Cls. (a) and (b) of Explanation 2 to 3. 24 (1) of the Income-tax Act was brought to our notice. It was pointed out that while one clause made a reference to stocks held, the other did not and that some officers were taking a restrictive view and disallowing the deduction of hedging losses in commodities other than stocks and shares, if they were not against stocks held but against purchases. 3.56. We have examined the issue at some length. We find that even the Central Board of Revenue had put too rigid and restrictive an interpretation on this provision, which is not in accord with the spirit of the assurance given by the Finance Minister. It does not, therefore, surprise us that the assessing officers have also taken an unduly narrow view in the matter and the genuine businessmen have been put to considerable hardship. We certainly appreciate, as we have done earlier, the principle underlying the proviso, but we equally disapprove of its wrong application for denying genuine hedging losses. We feel that the solution to the various problems which have been brought to our notice in relation to this subject can be found by expending Explanation 2 to S. 24 (1) so as to classify and exclude such transactions which should not come under the mischief of this section. The assessing officer should first examine whether a hedging transaction is genuine or not. If it is a genuine one, and it to by way of future sale of commodity against stock of the same commodity, the loss arising out of this transaction should be excluded from the purview of speculation....... 3.58. The hardship caused by a too literal interpretation of Expl. If it is a genuine one, and it to by way of future sale of commodity against stock of the same commodity, the loss arising out of this transaction should be excluded from the purview of speculation....... 3.58. The hardship caused by a too literal interpretation of Expl. 2 to S. 24 (1) of the Income-tax Act was illustrated to us by a case where a dealer having ready cloth business entered into a contract for the purchase of 1000 bales of cloth from a mill on a forward delivery basis. Ultimately it was found that the mill could supply only 980 bales, the remaining twenty bales being rejected on account of some defect and the settlement was made between the dealer and the mill regarding these twenty bales by payment of difference in price. It was stated that even such a transaction was taken by the assessing officers to fall within the mischief of the Expl. 2 to S. 24 (1) of the Income-tax Act on the ground that there was no actual delivery of the twenty bales. We are certain that this extreme view could never have been the intention of the legislature, while inserting the Explanation. Since instances of this type have been brought to our notice, we recommend that the intention of the Government in the matter should be clarified by suitable administrative instructions." (Emphasis is supplied by us) The Central Board of Revenue had, therefore, issued necessary instructions by Circular No. 23 (XXXIX) D of 1960 of Sept. 12, 1960 bearing reference F. No. 4 (124)-60/TPL in the matter of hedging and speculative transactions. The following clarification is relevant for purposes of the questions with which we are concerned here : "A number of representations and suggestions have been received by the Board from associations and chambers of commerce regarding the manner in which the provisions of S. 24 of the Income-tax Act, particularly those of Expl. 2 to sub-sec. (1) thereof, are being interpreted and applied by the Income-tax Officers. The Direct Taxes Administration Enquiry Committee have also made a few suggestions on this subject in Chap. III of their Report. The Board have carefully considered the points involved and their decisions thereon are given below :- Point (i) : Under Cl. (a) of the proviso to Expl. (1) thereof, are being interpreted and applied by the Income-tax Officers. The Direct Taxes Administration Enquiry Committee have also made a few suggestions on this subject in Chap. III of their Report. The Board have carefully considered the points involved and their decisions thereon are given below :- Point (i) : Under Cl. (a) of the proviso to Expl. 2 to S. 24 (1) of the Income-tax Act, the Income-tax Officers exclude from the category of speculative transactions only a ''hedging purchase" transaction entered into with reference to specific contracts for sale of goods but do not no exclude a "hedging sale" transaction made against stocks in hand or against contracts for purchase of ready goods. The latter type of transactions are also genuine hedging transactions so that any losses sustained therein will be allowed to be set off against other income. Board's decision : The intention has always been that where bona fide forward sales are entered into with a view to guarding against the risk of raw materials or merchandise in stock falling in value, the losses arising as a result of such forward sales should not be treated as speculation losses. Accordingly, Income-tax Officers should not treat such transactions as speculative transactions within the meaning of Expl. 2 to S. 24 (1). It is to be noted in this connection that hedging sale can be taken to be genuine only to the extent the total of such transactions does not exceed the total stocks of raw materials or merchandise in hand. If the forward sales exceed the ready stock, the loss arising from the excess transactions should be treated as loss arising from speculative transactions and not from genuine hedging transactions." It is rather unfortunate that in spite of the directions contained in this Circular of the Central Board of Revenue clarifying the position in respect of hedging transactions, the Revenue Authorities have not been able to persuade themselves to extend the benefit of this clarification to the assessees of this State as they found themselves bound by the decision of this Court in Chimanlal Chhotalal's case (1968) 69 ITR 129 (Guj) (supra). We have also sought clarification at the outset of this matter from the learned advocate for the Revenue as to whether the Revenue was prepared to extend this benefit to the assessees of this State, but we did not get any encouraging response. We have also sought clarification at the outset of this matter from the learned advocate for the Revenue as to whether the Revenue was prepared to extend this benefit to the assessees of this State, but we did not get any encouraging response. We have been at a loss to appreciate how can a decision of a Court in favour of a party prevent that party from making concession against its own stand which might have been upheld and ratified by a Court However, as the learned Advocate for the Revenue felt himself unable to make a definite commitment on this point without the position being reconsidered by us, we have been compelled to go into the merits of the contentions. Anyway, we are of the opinion that the interpretation which we have placed on proviso (a) to S. 43 (5) is an accepted position of the Revenue in this matter of exclusion of hedging transactions from speculation business under proviso (a) to S. 43 (5) as regards the assessees in other parts of the country. 9. Our attention was invited by the learned Advocate for the Revenue to two decisions of Madras High Court, i.e. (1) Commr. of Income-tax, Madras v. Somasundram Chettiar and Co. (1975) 101 ITR 832 (Mad) and (2) Gomraj Fatehchand v. Commr. of Income-tax, Madras, (1976) 102 ITR 131 (Mad). In Somasundaram's case a Division Bench of the Madras High Court considering the scope and ambit of sub-clause (a) to the third proviso to S. 24 (1) of the Indian Income-tax Act, 1922 following its earlier decision held that for a transaction to come under clause (a) it should be one entered into by an assessee to guard against loss through future price fluctuations in respect of his sale contracts, and therefore, Cl. (a) cannot at all take in a sale contract which is intended to guard against loss through price fluctuations in respect of the contract for the purchase of goods, and it would not be possible to hold that Cl. (a) 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 as covered by proviso (a) without violence to the language. (a) 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 as covered by proviso (a) without violence to the language. The reasoning which has been adopted by the Madras High Court, with greet respect to the learned Judges of the Division Bench of the said High Court bearing on the matter is same as one adopted by the Division Bench of this Court in Chimanlal Chhotalal's case (1968) 69 ITR 129 (Guj) (supra), which, as pointed out above, suffers from the infirmities which we have discussed and, therefore, does not appeal to us. 10. Similarly in Gomraj Fatehchand's case (supra) the Madras High Court held that the assessee before it was not entitled to the benefit of proviso (a) since he had failed to show that the forward contracts of purchases entered into by him were effected with a view to guarding against the loss through adverse price fluctuations. We do not think that the decision of Madras High Court in Gomraj Fatehchand's case (supra) is of any assistance to the cause of the Revenue before us. 11. The decision of Allahabad High Court in M/s. Raghunath Dass Pralhad Dass v. Commr. of Income-tax, Kanpur, 1974 Tax LR 570, cannot take the case of the Revenue any further since the Allahabad High Court held that unless the assessee shows that there was some existing contract in respect of which he was likely to suffer a loss because of future price fluctuations and that it was to safeguard such loss that he entered into the forward contracts of sale, he could not claim the benefit of S. 43 (5) (a) and say that the transaction should not be considered to be a speculative transaction even if it was ultimately settled without actual delivery of goods. The Allahabad High Court further held that proviso (a) does not include a case where an assessee has a ready stock or merchandise dealt with by it and although there was no existing contract for the sale of the merchandise, it intended to enter into contracts for their sale in future. The Allahabad High Court further held that proviso (a) does not include a case where an assessee has a ready stock or merchandise dealt with by it and although there was no existing contract for the sale of the merchandise, it intended to enter into contracts for their sale in future. With respect to the learned Judges of the Allahabad High Court for the reasons which we have stated above, we do not agree with the proposition laid down by the Allahabad High Court therein. The hedging transactions need not be subsequent in point of time since a trader may, in order to guard himself against the risk of loss due to adverse price fluctuations of the goods held in stock by him, enter into hedging transactions. The proviso does not warrant such a rigid time schedule as spelt out by the Allahabad High Court. The only condition, in our opinion, which should be satisfied before an assessee can claim that a contract entered into in respect of raw-materials or merchandise should not be considered as a speculative transaction is that he must have entered into such a contract to guard against the loss through adverse price fluctuations of manufactured goods or merchandise sold in respect of which he might have entered into contracts of sate for actual delivery. This view of ours is fortified if we look to the entire scheme of the exceptions contained in Cl. (a), (b) and (c) of the proviso. Clause (b) of the proviso is a pointer in the direction. It provides as under : "(b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations." We do not think that the Parliament could have intended to treat dealers in stocks and shares in a different manner than dealers in other commodities. If a dealer in stocks and shares can enter into a contract to guard against loss in his holdings of stocks and shares which may arise due to adverse price fluctuations, we do not appreciate how the Parliament would have intended otherwise in case of dealers in other commodities. Apart from this discriminatory treatment, we do not find any strict time schedule merely from the juxtaposition of the two sets of contracts in proviso (a). Apart from this discriminatory treatment, we do not find any strict time schedule merely from the juxtaposition of the two sets of contracts in proviso (a). In the commercial world such time schedule for claiming a transaction is not recognised. A merchant may go to a ready market and purchase commodity for selling it again later to a manufacturer in which case he might be required to hold on to his stock for the time being till he enters into another contract for sale of goods to be delivered to that manufacturer. Before he enters into such a contract of sale, if a merchant enters into hedging transaction so as to guard against the risk of loss due to adverse price fluctuations of the stocks of goods, we do not think that it can be successfully urged in commercial parlance that the latter transaction is not hedging transaction. The Direct Taxes Administration inquiry Committee as well as the Central Board of Revenue have also recognised that hedging transactions are permissible and they are genuine hedging transactions which are out of speculative transactions even if the contracts of sales are made against the stocks in hand. We do not think, therefore, that there is any justification in the scheme of the exceptions contained in the proviso to S. 43 (5) to warrant the view of the time schedule taken by Allahabad High Court in the above decision. However, we do not mean to say that there should be no reasonable connection between hedging contracts and the contract of sale of goods to be actually delivered by a manufacturer or a merchant. There should be reasonable nexus as to the time so as to enable a manufacturer or merchant to claim that his hedging transactions are not speculative transactions and, therefore, the loss suffered thereunder be allowed to be set off against the profit or gains of any other business. What would be reasonable connection is always a question of fact depending on the circumstances of each case. Nevertheless the second set of contracts, though may be subsequent in point of time to the first set, cannot be generally beyond the assessment year. We also do not mean to say that all the alleged hedge sales would be genuine transactions irrespective of stocks. Nevertheless the second set of contracts, though may be subsequent in point of time to the first set, cannot be generally beyond the assessment year. We also do not mean to say that all the alleged hedge sales would be genuine transactions irrespective of stocks. It is implicit that the hedge sales in order to be out of speculative transactions must not exceed the total stock in trade which would necessarily include existing stock as well as firm contracts of purchase of stock-in-trade. 12. In Subbaramaiah and Co. v. Commr. of Income-tax, Andhra Pradesh, (1964) 51 ITR 742, the Andhra Pradesh High Court held on the facts of the case before it that the assessee was not entitled to claim losses which he suffered as a result of forward transactions entered into as non-speculative because it was not established by evidence that there was any contract entered into by him with a view to guarding against the risk of loss due to adverse price fluctuations. It is true that while negativing this claim of the assessee, the Andhra Pradesh High Court has observed that in order to invoke the proviso, the assessee should satisfy two conditions, viz. (1) existence of contract for actual delivery of manufactured goods or merchandise sold, and (2) existence of contract in respect of raw materials or merchandise in the course of business with a view to guarding against the risk of loss due to adverse price fluctuations. We do not find anything in this observation to sustain the contention urged on behalf of the Revenue that hedging transactions must succeed the contracts of sales for actual delivery of goods. 13. Same view has been taken by the Andhra Pradesh High Court in Omkarmal Agarwal v. Commr. of Income-tax, A. P. (1968) 67 ITR 329. 14. The decision of Calcutta High Court in D. M. Wadhwana v. Commr. of Income-tax, West Bengal, (1966) 61 ITR 154 is not of much assistance in our opinion to the cause of the Revenue as the case turns on the facts and circumstances before it 15. On behalf of the Revenue, it was seriously contended that forward transactions in order to be genuine hedging transactions must have been entered into by a manufacturer or merchant in course of his business and must relate to the raw materials or merchandise as the case may be. On behalf of the Revenue, it was seriously contended that forward transactions in order to be genuine hedging transactions must have been entered into by a manufacturer or merchant in course of his business and must relate to the raw materials or merchandise as the case may be. In other words, it was contended by the Revenue that a manufacturer cannot hedge against the loss due to adverse price fluctuations of the goods to be manufactured by him by entering into forward transactions of any other merchandise and similarly a merchant cannot hedge against the loss by entering into a transaction in respect of raw materials. The learned Advocate General, appearing on behalf of the assessee joined issue with the Revenue on this contention and urged that Courts should not read more than what is stated by the Legislature in the Section and there is no justification for the interpretation canvassed on behalf of the Revenue that Courts should dissect the section into two parts so as to relate hedging transactions of the raw materials against the loss due to adverse price fluctuations of the manufactured goods and of merchandise against the loss due to price fluctuations of the goods agreed to be sold by a merchant. It is further urged on behalf of the assessee that since the legislature has not so appropriately expressed in terms there is no warrant for dissecting the Section as urged by the Revenue. Our attention was invited in this connection to the decision of the Central Board of Revenue as expressed in the aforesaid Circular of Sept. 12, 1060 which does not, in our opinion, bear out wholly the submission of either side. The said decision is as under : "(ii) Hedging transactions in connected, though not the same, commodities should not be treated as speculative transactions. Board's decision The Board accept this point. Attention is invited to Board's letter No. 13(102)IT/53 dated 8-9-1954 in which it was stated that as regards hedging in raw materials, the Income-tax Officers should not be too particular about the quantities and timing so long as the transactions constitute genuine hedging. Similarly, Income-tax Officers should not treat genuine hedging transactions in connected commodities as speculative transactions though the transactions may not be in identically the same commodity. Similarly, Income-tax Officers should not treat genuine hedging transactions in connected commodities as speculative transactions though the transactions may not be in identically the same commodity. Thus, hedging transactions in one type of cotton against another type of cotton, one variety of oil seed against another, one type of gram against another should not be treated as speculative transactions provided the other conditions of Expl. 2 16 S. 24 are satisfied. The condition mentioned in the last two sentences of the decision on point (1) above will apply here also." In this connection our attention has been drawn to the decision of Delhi High Court in Delhi Flour Mills Co. Ltd. v. Commr. of Income-tax (1974) 95 ITR 151 : (1975 Tax LR 469), where the assessee entered into forward transactions in respect of MATRA (a substitute of gram) and claimed the loss sustained by him in such transactions against his profits in the business of manufacturing Atta (wheat flour and other wheat products). A Division Bench of the Delhi High Court held that in order that a forward transaction in commodities may fall within proviso (a) to Expl. 2 to S. 24 (1), it is necessary that the raw materials or merchandise in respect of which the forward transactions have been made by the assessee must have a direct connection with the goods manufactured or the merchandise sold by him, and the raw materials in respect of which the assessee has entered into forward transactions must be the same raw material which is used by him in his manufacturing business. Since this aspect of the controversy has not been referred to us for our opinion, we do not think it proper to volunteer our opinion in respect thereof. However, this must not stand in the way of the Revenue to extend the benefit of the aforesaid view of the Central Board of Revenue to the concerned assessees as done in other parts of the country. 16. Our conclusions are, therefore, as under :- (1) Hedging contracts, in order to be out of speculative transactions, must be in respect of only raw materials so far as the manufacturer is concerned though these contracts may be both with regard to sales and purchases. 16. Our conclusions are, therefore, as under :- (1) Hedging contracts, in order to be out of speculative transactions, must be in respect of only raw materials so far as the manufacturer is concerned though these contracts may be both with regard to sales and purchases. (2) Hedging contracts need not succeed the contracts for sale and actual delivery of goods manufactured, but the latter may be subsequently entered into, provided they are within the reasonable time not exceeding generally the assessment year. (3) In order to be genuine and valid hedging contracts of sales, the total of such transactions should not exceed the total stocks of the raw materials or the merchandise on hand which would include existing stocks as well as the stocks acquired under the firm contracts of purchases. 17. In that view of the matter, theretore, we answer the second question in the negative and hold that the assessee is not entitled to set off Rs. 27,157/- being the amount of loss against its other business income suffered on account of settlement of forward transactions of sale of oil tins since the hedging transactions must be in respect of raw materials so far as the manufacturers are concerned. In view of our answer to question No. 2, we need not answer question No. 1 and leave it to the Tribunal to apply the Circular and give benefits thereunder so far as may be consistent with the order made in this reference. There should be no order as to costs in this reference.