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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 ..... ly - All these cannot be classified as speculative within the meaning of section 43(5) - A contract which is settled by means of a cross contract is termed as speculative transaction - If the contract is settled for some other reasons by payment of damages or even without payment of damages it may or may not be speculation transaction depending upon the circumstances of the case - If a contract is broken, i.e., for any reasons one party is unable to give delivery order the other party is unable to take delivery, it is a case of breach of contract - The loss suffered by the appellant on account of breach of contract falls outside the purview of speculative transaction. 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 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 assessee to honour the commitments is to be viewed as an integral part of carrying on of assessee's business and is, therefore, not liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." This appeal has been admitted on the following questions of law: "(1) Whether on the fact and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in law in not upholding the order of the Assessing Officer and the Commissioner of Income Tax (Appeals) treating the loss of Rs. 8,53,030/- as speculative loss? (2) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 claimed before the Assessing Officer that transaction is covered by Section 43(5) proviso (c) hence, the same cannot be treated as speculative business and the assessee was entitled for set off of the loss against the business income. The Commissioner of Income Tax (Appeals) confirmed the order of the Assessing Officer. The Commissioner held that transaction which have been settled otherwise than actual delivery of shares in question will have to be treated as speculative transaction as provided under section 43(5) of the Act. In the appeal filed before the Tribunal, the assessee reiterated his claim that transactions which were settled otherwise than by actual delivery of shares are fully covered by proviso (c) to Section 43(5) of the Act. The assessee also pleaded before the Tribunal that he was asked to deposit turnover fee of jobbing to the SEBI. The submission was also raised by the assessee before the Tribunal that delivery has been effected at net basis as per the Stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ange 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 forward trading and the transactions are compulsorily settled either by taking delivery of shares or enabling the delivery of shares at net basis and the transactions are through clearing house just like brokers clearing house and accordingly all transactions are settled on net basis and all these transactions are part and parcel of one business only which cannot be segregated. Shri Garg further elaborated the total transaction on purchase of shares by the assessee were in respect of 9,95,100 equity shares for an aggregate value of Rs. 22,28,36,534/- and the sale consideration of these shares was Rs. 22,19,83,515/- and accordingly the appellant- assessee suffered a loss of Rs. 8,53,030/- and pages 96 to 99 of the paper book which gives date-wise transactions in respect of all the scripts reveal that in some transactions there was profit and in some there was a loss and overall there was a loss of Rs. 8,53,030/- In view of his submission, Shri Garg pleaded that the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 appeal, two main issues have to be decided. Firstly as to whether the business carried out by the assessee which consist of various transactions of sale and purchase of shares was a speculative transaction and secondly as to whether the assessee is entitled for the benefit of proviso (C) to sub-section (5) of Section 43 of the Act. The facts as emerged from statements of facts and the facts noted in the orders of the Assessing Officer,Commissioner (Appeals) and Tribunal, there is no dispute that assessee had claimed loss of Rs. 8,53,030/- on account of non delivery based transactions. The Assessing Officer has noted the above stand of the assessee in its order in following words: "In the reply dated 21/11/2000 Sales purchases have been given. From this reply it is clear that the assessee has earned a profit of Rs. 508977.50 on account of delivery based share transactions and a loss of Rs. 8,53,030/- on account of non-delivery based transactions which were shown as sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 circumstances of the case the Tribunal was right in holding that the transactions described above entered into by the assessee were speculative transactions within the meaning of explanation 2 to section 24( 1)?" In the above case, it was held that the words actual delivery means real as opposed to notional delivery. Following was laid down at page 721: "Explanation 2 defines a speculative transaction as a transaction in which a contract for purchase and sale of any commodity is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity. The words actual delivery in explanation 2 means real as opposed to notional delivery. For income tax purposes speculative transaction means what the definition of that expression in explanation 2 says. Whether a transaction is speculative in the general sense or under the Contract Act is not relevant for the purpose of this explanation. The definition of "delivery" in sec. 2(2) of the Sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purchase of shares on behalf of different parties as well as on his behalf. The Tribunal in paragraph 3 of the judgment has noted in detail the tax audit report, the consolidated trading profit and loss account and details of the transactions appearing on paper book. The Tribunal has returned finding in paragraph 5 that Assessing Officer has not pointed out any discrepancy and the bonafide of the transactions has also not been doubted. There is thus, no dispute that losses were suffered on account of various transactions relating to sale and purchase of shares, the details of which were filed in the paper book. Assessee has categorically claimed that those transactions are fully covered by the word "jobbing" as contemplated in proviso (c) to Section 43(5) of the Act. Word "jobbing" has been defined in Law Lexicon P. Ramanatha Aiyar in following words: "The practice of a middleman or stock jobber [S. 43(5) (c), Income-tax Act]." The word "jobber" has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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." Further, a proviso is not normally construed as nullifying the enactment or as taking away completely a right conferred by the enactment. As a consequence of the aforesaid function of a true proviso certain rules follow. (b) Not construed as excluding or adding something by implication. Except as to cases dealt with by it, a proviso has no repercussion on the interpretation of the enacting portion of the section so as to exclude something by implication which is embraced by clear words in the enactment. Further, as stated by Lord Watson in an oft-quoted passage: "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. So, when on a fair construction the principle provision is clear, a proviso cannot expand or limit it. The Madras District Municipalities Act, 1920 empowered a municipality to levy property tax on all lands and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, whether situated in the same place or in different places, all such departments or undertakings of branches shall be treated as parts of the same establishment for the purpose of computation of bonus under this Act: Provided that where for any accounting year a separate balance sheet and profit and loss account are prepared and maintained in respondent of any such department or undertaking or branch then, such department or undertaking or branch shall be treated as a separate establishment for the purpose of compensation of bonus under this Act for that year, unless such department or undertaking or branch was immediately before the commencement of that account year treated as part of the establishment for the purpose of computation of Bonus" The issue which fell for consideration before the apex Court was as to whether the employees working with primary agricultural cooperative Bank are entitled to bonus at the same rate at which it was paid to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions 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 the main provision to which it has been enacted as a proviso and to no other. (See A.N. Sehgal and Ors. v. Raje Ram Sheoram and Ors. (AIR 1991 SC 1406), Tribhovandas Haribhai Tamboli v. Gujarat Revenue Tribunal and Ors. (AIR 1991 SC 1538) and Kerala State Housing Board and Ors. v. Ramapriya Hotels (P)Ltd. and Ors. (1994 (5) SCC 672). "This word (proviso) hath divers operations. Sometime it worketh a qualification or limitation; sometime a condition; and sometime a covenant" (Coke upon Littleton 18th Edition, 146) "If in a deed an earlier clause is followed by a later clause which destroys altogether the obligation created by the earlier clause, the later clause is to be rejected as repugnant, and the earlier clause prevails....But if the later clause does not destroy but only qualifies the earlier, then the two are to be read together and effect is to be given to the intention of the parties as disclosed by the deed as a whole" (per Lord W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 was required to be referred albeit for reasons other than the reason expressed by the High Court. The appeal is accordingly dismissed." Sri Shambhu Chopra, learned Counsel for the appellant submitted that the Division Bench judgment of this Court in Commissioner of Income Tax Vs. Shri Sharwan Kumar Agarwal (supra) does not contain any ratio and can be said to be confined to the facts of that case and no question was sought to be referred regarding the proviso (c) to Section 43(5). He further submitted that onus of proof was wrongly put on the Department in the said judgment whereas it was for the assessee to prove his case. Although the Tribunal relying on the judgment of this Court in Sharwan Kumar Agarwal's (supra) held that case is covered by the said judgment but we do not wish to rest our judgment on the above judgment. Sri Shambhu Chopra, learned Counsel for the Department has placed reliance on judgment of the apex Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 contract the supplies were to be made in equal instalments for 6 months and the supplies have been made for 5 months only, and the rest of the contract was settled without actual delivery, in that case, it will be still a speculative transaction. The argument thus, that where a part of a contract is performed by actual delivery of the goods and part of the contract is settled otherwise than by actual delivery of the goods, the provisions of section 43(5) will not be attracted is not a correct interpretation of the provisions of section 43(5). The provisions of section 43(5) can be made applicable when there is a delivery of part of the goods and the part of the contract is settled otherwise than by actual delivery of the goods. That part where the settlement of the contract is without actual delivery of goods, it will fall under section 43(5)." There cannot be any dispute to the proposition laid down by the Rajasthan High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 one can visualise a number of situations in which there may be no delivery for various reasons, i.e., because of failure of the party on account of insolvency or frustration, e.g., banning of business or mere breach, i.e., to say non-supply. All these cannot be classified as speculative within the meaning of section 43(5). What the section visualises is a contract which is settled by means of a cross contract. If the contract is settled for some other reasons by payment of damages or even without payment of damages it may or may not be speculation transaction depending upon the circumstances of the case. The Hon'ble court further held that if a contract is broken, i.e., for any reasons one party is unable to give delivery order the other party is unable to take delivery, it is a case of breach of contract. A breach takes place on repudiation of contract or failure to perform it. When the obligation to supply or to take deli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrying 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 judgment had held that in normal terminology, the share trading business on behalf of oneself is known as jobbing. The above judgment supports the assessee's case that a transaction carried on by the assessee for sale and purchase of the shares was fully covered by the term 'jobbing' and assessee is entitled for the extension of the benefit of proviso (c) to Section 43(5) of the Act. 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). 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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