CAPOOR J. - This is a petition under sub-section (2) of section 66 of the Indian Income-tax Act, 1922, by the Commissioner of Income-tax Delhi and Rajasthan, New Delhi, Appellate Tribunal (Delhi Bench) to state the case and refer it on the following question of law supposed to arise from an income-tax assessment of the assessee, Messrs. Central India General Agents Private Limited, Gwalior which is the respondent to this petition :
'Whether, on the facts and in the circumstances of the case, the loss of Rs. 10,125 can be regarded as having arisen from a transaction of the nature contemplated by clause (b) of the proviso to Explanation 2 of sub-section (1) of section 24 of the Income-tax Act ?'
The assessee is a private limited company and so far as these proceedings are concerned its business appears to be that of dealing in stocks and shares its shareholding at the material time being to the extent of Rs. 6,76,314. The substantial part of this holding consisted of 11,100 shares of Hukam Chand Jute Mills, the book value of which was about Rs. 3,33,000. During the relevant assessment year it entered into two series of transactions of purchases and sale with regard to 10,000 shares of the Indian iron and Steel Co. Limited. On the first occasion the shares of the latter company were purchased for a sum of Rs. 3,34,375 on the 1st July 1954, and they were sold four days later for a sum of Rs. 3,22,600 so that the assessee suffered a loss of Rs. 11,775. The assessee gave delivery of these shares to the purchaser and the Income-tax Officer considering that the sale of these shares by the assessee was not speculative allowed the loss as a set-off under section 24 of the Income-tax Act. Then on the 29th September 1954 in the second series of purchase and sale of these share the assessee 1954 in the second series of purchase and sale of these share the assessee suffered a loss of Rs. 10,125. The assessee urged before the Income-tax Officer that this was a 'hedging' transaction which would be covered by proviso (b) to Explanation 2 under section 24 but the Income-tax Officer repelled this contention and accordingly the loss on the second occasion was not allowed. This order was maintained by the Appellate Assistant Commissioner. The Appellate Tribunal in its order date the 12th May, 1960, was of the view that consistently with his finding as to the previous transaction of purchase and sale the Income-tax Officer should have allowed the assessee set-off of the loss in the second series of transaction also. The Tribunal considered that the shares of Messrs. Hukam Chand Jute Mills were subject to sudden fluctuations inasmuch as the price of the shares of this concern on the 15th September, 1954 was Rs. 36-12-0 but within about a week the price rose up to Rs. 40. The assessee in order to guard itself against these fluctuations had entered into the transactions with regard to the purchase and sale of shares in the Indian Iron and Steel Company and the transactions were throughout of a hedging nature.
When approached by the petitioner under sub-section (1) of section 66 of the Act the Tribunal in its order dated the 10th November, 1960, observed that whether or not a loss arising in a transaction (without delivery) arises in the course of heading and whether or not a particular transaction is a heading transaction are pure questions of fact and that the Tribunal had given ample material in its order dated the 12th May, 1960 for coming to that finding of fact. As no question of law arose in the case the Tribunal rejected the application under sub-section (1) of section 66 of the Income-tax Act.
Under proviso (b) to Explanation 2 of section 24 of the Income-tax Act 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 shall not be deemed to be a speculative transaction. This proviso contains a compendious definition of what is a hedging appeared on behalf of the Commissioner of Income-tax has not attempted to argue that any question of interpretation of this statute is involved. I do not see how the Tribunals view as to whether a particular transaction comes under this proviso or not can be other than a question of fact. Their Lordships of the Supreme Court in Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax have laid down the criteria for determining whether a particular finding is a finding of law or a mixed question of law and fact or a pure finding of fact only. Inter alia it has been observed that where the final determination of the issue equally with the finding or ascertainment of the basic facts does not involve the application of any principle of law an inference from the facts cannot be regarded as one of law. Their Lordships were dealing with a case of a benami transaction and held that an inference from the facts of a case that a transaction is a benami transaction does not involve the application of any principles of law to the facts established in the evidence and was a pure question of fact which could not be made the subject of reference under section 66 of the Income-tax Act. Applying these tests the view of the Tribunal as to the matter before them being a pure question of fact is unexceptionable.
Accordingly the petition is dismissed with costs. Counsel fee Rs. 100.
GROVER J. - I agree.