COMMISSIONER OF INCOME TAX Vs. FIRST SECURITIES P. LTD.

JUDGEMENT

(1.) The assessee in both the appeals are common and the substantial questions of law in these two appeals are also the same, hence, both the appeals are taken up together for consideration to dispose of in this common judgment. The Revenue has preferred these two appeals against the finding of the Tribunal upholding the claim of the assessee on the ground that under the proviso (c) of section 43(5) of Income-tax Act, 1961 (hereinafter referred to as 'the Act'), the nature of jobbing and arbitrage cannot be considered as a speculative transaction.

(2.) The assessee is a share broker and a member of both National Stock Exchange and Bangalore Stock Exchange Ltd. The assessee had drawn a composite income and expenditure statement in which the income from various sources like brokerage, handling charges, commission, profit on sale of current investments, etc., are reflected. The assessee filed a return of income showing a loss of Rs. 52 lakhs for the assessment year 2001-02. The remand report dated November 8, 2005, shows that the transactions are in the nature of jobbing and arbitrage, done to guard against loss which could have arisen in the ordinary course of the assessee's business as a member. The assessing authority came to the conclusion that the assessee is a private company and not a banking company, therefore, the case falls squarely within the provisions and in terms of Explanation to section 73 of the Act. Therefore, held that the specific provisions by way of Explanation to section 73 of the Act necessarily suggests that the business loss should be considered as speculation business loss and loss arising therefrom needs to be treated as speculative loss. Therefore, he rejected the claim of the assessee for set off against other business profits but allowed to be carried forward by setting of the loss from speculation business. Aggrieved by the said order, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals), who upheld the said order. It is against these two orders, the assessee preferred an appeal before the Tribunal and the Tribunal on a careful consideration of the provisions of law, the contents of the remand report and the materials on record, held that section 73 of the Act will come into operation only when the transaction is found to be a speculative transaction and not otherwise. The transaction must lead to a speculation business or activity and the result must be a loss. On satisfaction of both these conditions, section 73 of the Act will come into operation. However, proviso (c) to section 43(5) clearly shows that the transactions in the nature of jobbing and arbitrage are not to be considered as speculative transaction. Therefore, when the transaction is not to be treated as speculative transaction, the loss suffered by the transaction would be a business loss. It has to be allowed as such and, therefore, the Tribunal set aside the order of both the authorities and allowed the business loss. Aggrieved by the said order, the Revenue is in the appeal.

(3.) Learned counsel for the Revenue assailing the impugned order contended that Explanation to section 73 of the Act is squarely attracted to the facts of the case as the assessee is in the business of purchase and sale of shares of other companies and, therefore, by a deeming fiction, the said business is to be treated as a speculation business and any loss in the said business cannot be set off against other business profit but it has to be set off only against the profit accrued from speculation business and, therefore, the impugned order requires to be set aside.