Speculative transaction: Speculative loss: Section 43(5)(c): Share trading business on own behalf is “jobbing”; Jobbing is not speculative in view of proviso(c) to section 43(5): Loss from jobbing business is not speculative loss:

The assessee is a Member of the U.P. Stock Exchange Association Ltd., and is registered as Stock Broker and carries on the purchase and sale of shares and securities. On scrutiny of the trading profit and loss account filed along with the return of income of Rs. 81,050/-, the Assessing Officer found that a sum of Rs. 8,53,030/- is debited for which the claim of the assessee was that it incurred loss in respect of transactions done by him on the floor of stock exchange with other brokers. The Assessing Officer rated the same as speculation loss as the loss of Rs. 8,53,030/- was on account of transactions for which there was no physical delivery. The assessee submitted before the Assessing Officer that the delivery had been effected on net basis as per the Stock exchange guidelines and no forward trading was allowed therefore there was no question of any speculation loss. The assessee’s plea was also that otherwise the assessee’s transaction was covered u/s. 43(5)(c) of the Income-tax Act , therefore, the transaction carried out by the assessee were specifically exempted to be treated as speculative transactions. However, the Assessing Officer disallowed the loss of Rs. 8,53,030/- treating the same to be speculative loss. The Tribunal allowed the assessee’s appeal and held that the allegation that transactions were settled without actual delivery was not fully established by the Revenue. It was held that if the system provides settlement at net basis in respect of jobbing and the appellant-assessee had been found paying turnover fee on such transactions ever since 1991-92 the assessee’s entire business was of non-speculative nature. The Tribunal also relied on the judgment of the Allahabad High Court in CIT vs. Shri Sharwan Kumar Agrawal; 249 ITR 233 (All) wherein it was held that the assessee who was a share broker was entitled for the exception covered by proviso (c) to section 43(5).

On appeal by the Revenue, the Allahabad High Court upheld the decision of the Tribunal and held as under:

“i) We have already observed that purchase or sale of shares periodical or ultimately settled otherwise than by the actual delivery is a speculative transaction as provided u/s. 43(5). The assessee’s categorical case is that losses were suffered on account of non-delivery transactions. Whether the assessee is still entitled to protection under proviso (c) to subsection (5) of section 43, which transactions are non delivery transactions and what is the scope of the proviso in context of speculative transaction have to be examined.

ii) The Tribunal having returned finding that the details of each and every transaction were disclosed by the assessee which were part of the paper book. No discrepancy in any of the transactions can be pointed out by the Assessing Officer nor the bonafide of the transactions were doubted, the transaction thus carried out were part of the ‘jobbing’ within the meaning of proviso (c) to section 43(5).

iii) We are thus of the view that the order of the Tribunal allowing the appeal of the assessee is to be upheld although confined to the ground that the losses suffered by the assessee cannot be termed to be speculative loss by virtue of proviso (c) to section 43(5).”