Jobbing is not speculative in view of proviso(c) to section 43(5)

In normal terminology, the share trading business on behalf of oneself is known as jobbing. Section 43(5) defines the word speculative transaction, but there are three exceptions to it. The proviso (c) to section 43(5) reads as under : ‘

‘A contract entered into by a member of forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to hedge against loss which may arise in the ordinary course of his business as a member.’

This proviso makes it very clear that any profit or loss on account of jobbing will not be in the nature of speculation profit or speculation loss. Thus, even if it is accepted that the loss suffered by the appellant was on account of self-trading in view of proviso (c) to section 43(5) such loss cannot be treated as speculation loss.

Allahabad High Court

Commissioner Income Tax

Vs.

Sri Ram Kishan Gupta

INCOME TAX APPEAL No. – 143 of 2003

Order Date :- 20.1.2014

Hon’ble Ashok Bhushan,J.

Hon’ble Mahesh Chandra Tripathi,J.

ORDER

(Per Hon’ble Ashok Bhushan, J.)

This appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’) has been filed against the judgment and order of the Income Tax Appellate Tribunal dated 25.4.2003 by which the appeal of the assessee against the order of the Commissioner Income Tax Appeal has been allowed. It is sufficient to note the facts as noted in the order of the Tribunal to decide  the questions raised in this appeal. In paragraph 2 of the order of the Tribunal, facts of the case have been noted in following words:

“In brief the relevant facts are that the appellant­assessee 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 appellant- assessee submitted before the Assessing Officer that the delivery had been effect at 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 appellant- assessee’s transaction was covered u/s 43(5)(c) of the Income Tax Act , therefore, the transaction carried out by the appellant- assessee were specifically exempted to be treated as speculative transactions but the Assessing Officer did not agree with the contentions of the appellant- assessee and disallowed the loss of Rs. 8,53,030/- being speculative in nature arising out of speculative transactions and the same could not be set off against other income and had to be carried forward and to be set off against speculative profit as per the provisions of Section 73(1). Therefore, after disallowing the loss of Rs. 8,53,030/-, the Assessing Officer computed the income of the appellant- assessee at Rs. 9,22,829/-. On appeal, the ld. CIT(A) agreed with the conclusions drawn by the Assessing Officer and dismissed the appeal of the appellant- assessee, therefore, the appellant- assessee is in present appeal before the Tribunal.”