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TMI Blog2014 (1) TMI 1091X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acturing 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) 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; or (c)a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member;" Section 73 deals with "Losses in speculation business" Section 73(1) provides as follows: "73. (1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business." The assessee a member of the U.P. Stock Exchange Kanpur filed its return of income for the Assessment Year 1998-99 showing income of Rs. 81,050/-. Assessee claimed Rs. 8,53,030/- as business loss which was disallowed by the Assessing Officer holding it to be speculative loss. The assessee cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as speculation loss. In order to prove his point Shri Garg submitted that the appellant was asked to deposit turnover fee for which he made reference to pages 40 to 43 of the paper book and he also referred to page 42 of the paper book being letter dated 1.4.02 from U.P. Stock Exchange Association Ltd. Giving the details of the turnover fee payable to SEBI and it specifically mentions fee on jobbing. In view of this, Shri Garg pleaded that since the SEBI was charging turnover fee which means there were purchases as well as sales and the same necessarily includes delivery therefore therefore it cannot be inferred that no actual delivery had taken place. Shri Garg further submitted that the entire trading activity of the broker for which licence has been obtained is subject to SEBI Rules and Regulations including the bye laws and accordingly the activities of a Stock Exchange Broker, inter alia includes purchase and sale of shares and securities at the floor of the Stock Exchange between the brokers, to transact business of purchase/sales of shares on behalf of the clients and also to do business of arbitrage. He reiterated that as the UP Stock Exchange Association does not permit f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt reported in 249 ITR 233 Commissioner of Income-Tax Vs. Shri Sharwan Kumar Agrawal, in which judgment, this Court held that the assessee who was a share broker was entitled for the exception covered by proviso (c) to Section 43(5). Following was held by the Tribunal in paragraph 7: "7. The Tribunal found dial the assessee was entitled to the exception covered by the proviso, Clause (c) to Sub-section (5) of Section 43 of the Income Tax Act. The onus of proof was on the Department to establish that such exception was not applicable. It has placed reliance upon the decision of the Supreme Court in CIT v. Ramakrishna Deo [1959]35ITR312(SC).It further found that no material was collected al the appellate stage to show that the condition was fulfilled. Learned counsel for the applicant has not shown that there was any material to show that the assessee was not entitled to the exception, referred to above. It may also be noted that the applicant has not sought any question to be referred in regard to proviso, Clause (c) to Sub-section (5) of Section 43 of the Income Tax Act. In view of the above, the application is rejected." For answering the questions which have arisen in this appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken into account except to the extent of the amount of profits and gains, if any, in any other business consisting of speculative transactions: Explanation 1: Where the speculative transactions carried on are of such a nature as to constitute a business, the business shall be deemed to be distinct and separate from any other business. Explanation 2: A speculative transaction means a transaction in which a contract for purchase and 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" In the aforesaid case, transaction carried out by the assessee involved transfer of delivery notes and not actual delivery of the goods. Assessee suffered a loss and claimed adjustment of loss in the computation of its income. The Assessing Officer held that the transaction was speculative transaction and could be set off only against speculation profits in future. The Appellate Assistant Commissioner held that transactions were not speculative. The Tribunal restored the order of the Income Tax Officer. The question was referred to the High Court "Whether on the facts and in the circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delivery. The definition of delivery in Section 2(2) of the Sale of Goods Act which has been held to include both actual and constructive and symbolical delivery has no bearing on the definition of speculative transaction in the Explanation." The Tribunal in paragraph 5 had observed that the allegation that the transactions were settled without actual delivery is not fully established by the Revenue. There being specific case of the assessee noted before the Assessing Officer that loss of Rs. 8,53,030/- was suffered on account of non delivery base transaction, the above observation of the Tribunal cannot be approved. Now we proceed to consider the second issue i.e. as to whether the assessee was entitled to the benefit of proviso (c) to Section 43(5). The assessee has specifically claimed the benefit of proviso (c) to Section 43(5) of the Act stating that transaction of sale and purchase of shares was a part of jobbing. Appellant claimed that he had been paying turnover fee on such transaction to SEBI, thus, his transactions were fully covered by jobbing as contemplated under proviso (c) to Section 43(5) of the Act. The assessee has claimed that he has been carrying on sale and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the enacting part of the section would have included the subject matter of the proviso." In the words of LORD MACMILLAN: " The proper function of a proviso is to except and to deal with a case which would otherwise fall within the general language of the main enactment and its effect is confined to that case." The proviso may, as LORD MACNAGHTEN laid down, be "a qualification of the preceding enactment which is expressed in terms too general to be quite accurate." The general rule has been stated by HIDAYATULLAH, J., in the following words " As a general rule, a proviso is added to an enactment to qualify or create an exception to what is in the enactment, and ordinarily, a proviso is not interpreted as stating general rule." And in the words of KAPUR,J. "The proper function of a proviso is that it qualifies the generality of the main enactment, by providing an exception and taking out as it were, from the main enactment, a portion which, but for the proviso would fall within the main enactment. Ordinarily it is foreign to the proper function of a proviso to read it as providing something by way of an addendum or dealing with a subject which is foreign to the main enactment." Fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue. Rejecting the contention LORD MACMILAN observed: "The proviso does not say that the method of arriving at annual value by taking a percentage of capital value is to be utilised only in the case of the classes of buildings to which the proviso applies. It leaves the generality of the substantive enactment in the sub-section unqualified except in so far as concerns the particular subjects to which the proviso relates. Where, as in the present case, the language of the main enactment is clear and unambiguous, a proviso can have no repercussion on the interpretation of the main enactment, so as to exclude from it by implication what clearly falls within its express terms." The apex Court had occasion to consider the principles of statutory interpretation in (2004) 1 SCC 574 Haryana State Cooperative Land Development Bank Ltd. Vs. Haryana State Cooperative Land Development Banks Employees Union and Another, in context of Sections 3 and 10 of the Payment of Bonus Act, 1965. Section 3 of the said Act provided as follows: "3. Establishment to include departments undertakings and branches:- Where an establishment consists of different departments or undertakings or has branches, whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Ginning Factory v. Subhash Chandra Yograj Sinha (AIR 1961 SC 1596) and Calcutta Tramways Co. Ltd. v. Corporation of Calcutta (AIR 1965 SC 1728); when one finds a proviso to a section the natural presumption is that, but for the proviso, the enacting part of the section would have included the subject matter of the proviso. The proper function of a proviso is to except and to deal with a case which would otherwise fall within the general language of the main enactment and its effect is confined to that case. It is a qualification of the preceding enactment which is expressed in terms too general to be quite accurate. As a general rule, a proviso is added to an enactment to qualify or create an exception to what is in the enactment and ordinarily, a proviso is not interpreted as stating a general rule. "If the language of the enacting part of the statute does not contain the provisions which are said to occur in it you cannot derive these provisions by implication from a proviso." Said Lord Watson in West Derby Union v. Metropolitan Life Assurance Co. (1897 AC 647)(HL). Normally, a proviso does not travel beyond the provision to which it is a proviso. It carves out an exception to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected the application of reference and made following observations at page 235: " The Tribunal found dial the assessee was entitled to the exception covered by the proviso, Clause (c) to Sub-section (5) of Section 43 of the Income Tax Act. The onus of proof was on the Department to establish that such exception was not applicable. It has placed reliance upon the decision of the Supreme Court in CIT v. Ramakrishna Deo [1959]35ITR312(SC) . It further found that no material was collected al the appellate stage to show that the condition was fulfilled. Learned counsel for the applicant has not shown that there was any material to show that the assessee was not entitled to the exception, referred to above. It may also be noted that the applicant has not sought any question to be referred in regard to proviso, Clause (c) to Sub-section (5) of Section 43 of the Income Tax Act. In view of the above, the application is rejected." Sri S.D. Singh, learned Counsel for the assessee pointed out that against the Division Bench judgment, the Department filed an appeal before the apex Court, which appeal was dismissed by following order: "We agree with the High Court that no question of law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h would enable them to come to a conclusion that the income which was sought to be assessed was agricultural income. It was not for the Income-tax Authorities to prove that it was not agricultural income. It was this wrong approach to the question which vitiated the judgment of the High Court and led it to an erroneous conclusion." Another judgment relied by Sri Chopra is 209 ITR 933 Commissioner of Income-Tax Vs. Aditya Mills Ltd., in which case Section 43(5) of the Act fell for consideration. Following was laid down in the said judgment at page 943: "From the facts as mentioned above, it would be evident that the assessee performed part of the contract and the dispute remained for the remaining part for which the supplies were not made. Section 43(5) refers to a speculative transaction which means, a transaction in which a contract for the purchase or sale of any commodity is periodically settled otherwise than by the actual delivery or transfer of the commodity. The said section is not restricted to a contract where the settlement is only in respect of the entire contract. The word "periodically" makes it clear that it could apply even to a part of a contract. Suppose, in a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain situations, a broker also acts as a jobber and the jobbing transactions are inherent in the business of share broking and the same is also not to be viewed as a speculative loss. The assessed also worked out the details of certain transactions, which resulted into excess of debit in the account of difference even in case where the actual delivery of shares took place. The assessed, in the said manner, contended that the said loss was not a speculative loss. The assessing officer, however, treated an amount of Rs. 3,42,060 as a net loss on account of speculation. Aggrieved, the matter was carried in appeal before the Commissioner (Appeals)." In paragraphs 13 and 14, following was held: "13. The two facets of the issue before us relate to : (a) loss as a result of the breach of contract by the clients; and (b) loss suffered on account of jobbing transaction. The order of the Commissioner (Appeals) on this issue is quite illustrative, a portion of which we reproduce as under : 'I have considered the arguments of the learned counsel. As regards the loss on account of breach of contract, the Hon'ble Delhi High Court in the case of Bhagwan Dass Rameshwar Dayal (supra) held that on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit 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. The assessing officer is directed to treat the loss as normal business loss. Accordingly, I hold that the loss of Rs. 3,01,785 is normal business loss and not the speculation loss.' 14. A perusal of the aforesaid leads to an inference that the legal aspect has been properly discussed and appreciated by the Commissioner (Appeals). Admittedly, the assessed, being in the business of broking, would be facing situations wherein some of the clients do not own up the transactions on anticipating losses. In such situations, the consequential loss incurred by the assessed to honour the commitments is to be viewed as an integral part of carrying on of assessee's business and is, therefore, not liable to be judged as a speculation loss. The decision of the jurisdictional High Court in the case of Bhagwan Das Rameshwar Dayal (supra) supports the stand of the assessed." The Delhi High Court in the said ju ..... X X X X Extracts X X X X X X X X Extracts X X X X
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