2013 (10) TMI 643 - AT - Income Tax

Jobbing Activity - Whether jobbing activity is non-speculative or not Held that - The law does not provide an exception, in terms of section 43(5)(c), to a member of a forward market or a stock exchange qua non-delivery based transactions for being non-speculative - It is therefore incumbent on such member, to avail the said exception, show that the relevant jobbing or arbitrage transaction was entered into to guard against the loss to which he was otherwise subject, i.e., on account of the transactions entered into in the ordinary course of his business - To put succinctly, the field is not clear, but qualified by the condition of the purpose for which the said hedging transaction/s stands entered into. The jobbing activity forms an integral part of his business - This becomes all the more relevant and pertinent in the present case, as apart from being only toward satisfaction of the mandate of the provision, the loss claimed stands incurred in the jobbing activity itself, i.e., which the law excepts where entered into to guard against an imminent or possible loss that a member stands to incur or suffer in the course of his business - no loss could be incurred on such transactions, which may be so, but only to emphasize that a jobbing transaction could be entered into by a member even independent of and de hors the purpose of safeguarding self against losses that one is susceptible or prone to in the ordinary course of one s business, and in which case it would be speculative - Further, where and to the extent the assessee is unable to establish its jobbing activity as falling within the purview of s. 43(5)(c), the same, whether finally resulting in a profit or loss, being speculative by definition, would qualify as a separate and distinct business activity in terms of Explanation 2 to section 28 of the Act. It would be fit and proper that the matter is restored back to the file of the A.O. to enable the assessee an opportunity to present its case of the jobbing transactions, on which the impugned loss stands sustained by it, as non-speculative in terms of sec. 43(5)(c), and decide the same as per law by issuing definite findings of fact, having regard to the observations made in this order Decided partly in favour of Assessee.

Summary

Issues:
1. Disallowance of loss in jobbing activity treated as speculative income under section 43(5) of the Income Tax Act.
2. Disallowance of expenditure attributable to speculation business.
3. Interpretation of section 43(5)(c) regarding speculative transactions by a member of a stock exchange.
4. Restoration of the matter to the Assessing Officer for further consideration.

Analysis:

Issue 1: Disallowance of loss in jobbing activity
The assessee's appeal contested the disallowance of loss in jobbing activity treated as speculative income under section 43(5) of the Income Tax Act. The assessee argued that the loss on jobbing activity should not be considered speculative as it was undertaken on its own account and not for clients. The Tribunal held that the law provides exclusion to speculative transactions for jobbing or arbitrage undertaken by a member of a stock exchange in the ordinary course of business. The Tribunal found that the loss incurred by the assessee in jobbing activity, if not for clients, could be non-speculative. The matter was restored to the Assessing Officer for further consideration.

Issue 2: Disallowance of expenditure
The issue of disallowance of expenditure attributable to speculation business was raised, where the expenditure was estimated at 50% resulting in a disallowance. The Tribunal noted that the estimation lacked a basis as the turnover figures for jobbing activity were not furnished by the assessee. The Tribunal emphasized the need for a reasonable basis for allocation of expenditure and directed the assessee to provide evidence to support its case.

Issue 3: Interpretation of section 43(5)(c)
The Tribunal interpreted section 43(5)(c) concerning speculative transactions by a member of a stock exchange. It clarified that the purpose of the provision was to guard against losses incidental to the business of a member acting on his own account. The Tribunal highlighted the need for the member to demonstrate that jobbing transactions were entered into to safeguard against potential losses in the ordinary course of business.

Issue 4: Restoration of the matter
The Tribunal decided to restore the matter to the Assessing Officer for the assessee to present its case regarding jobbing transactions as non-speculative under section 43(5)(c). The Tribunal emphasized the importance of objective criteria for allocating expenses related to jobbing activity and directed the assessee to provide a measurable basis for allocation.

In conclusion, the Tribunal partly allowed the appeal for statistical purposes and remitted the matter back to the Assessing Officer for further examination based on the interpretations and considerations outlined in the judgment.