TaxTMI 
TaxTMI 
2017 (11) TMI 1354
X X X X Extracts X X X X
X X X X Extracts X X X X
.... had claimed loss of jobbing to the tune of Rs. 1,38,64,306/-/. After having gone through the details filed by the assessee in this regard, the AO noted further that the assesee had suffered the said loss on account of F & O transaction and held the transaction as speculative as per section 43(5) of the Act and denied the claimed loss as business loss the AO, however, from the said loss has allowed set off of profit shown at Rs. 30,98,306/- and a net loss of Rs. 1,07,66,000/- was disallowed being the speculative loss. 4. Counsel for the appellant has contended that the tribunal has committed serious error in interpreting the provisions of Section 43(5) of Income Tax Act which reads as under:- "Section 43(5) of the Income- Tax Act, 1995 " speculative transaction" means a transaction in which a contract for the purchase or 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: Provided that for the purposes of this clause- (a) contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or mer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ives in a recognized stock exchange shall not be deemed to be a speculative transaction." From the above it is amply clear that prior to this amendment the transaction in derivatives was excluded from the purview of the said provision. But today technological changes have brought enough transparncy in such transaction therefore from 01/04/2006, these transactions are included in the proviso of section 43(5) as clause (d) and hence not considered speculative from 01/04/2006. viii) Further the assessee's business comprises of two activities a. Income from share trading b. Brokerage income The assessee has suffered loss in F&O transactions which forms part of activity of share trading. Ld. A/R could not prove that the losses were in the ordinary course of business. Further it could not be proved that on account of anticipated losses for which client hedging had to be done. Also, the assessee has tried to set off the losses in F&O transaction with its income from brokerage receipts which is otherwise also not allowable, the later not being a speculative transaction. Further, it is held by Hon'ble Supreme Court in the case of CIT V. Joseph Jo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reting Section 43(5) which has been confirmed by the tribunal. 4.3 He has taken us to the order of CIT(A) which reads as under:- "I have considered the facts of the case and arguments taken by Sh. Bafna quite carefully. It is a fact that the appellant company has a membership of National Stock Exchange for cash segment and for future and option segment. Its main activity is borking. As per Regulations of National Stock Exchange the appellant company cannot enter into transactions of purchases and/or sales on its own. According to National Stock Exchange of India Regulation of which the appellant is a member, the appellant company cannot make investment/purchase of shares in its own name and if it intend to do so, it has to complete the formalities as necessitate by RBI and other authorities. The volume of appellant company's business on behalf of the client runs into thousands of the crores and average outstanding as per paper book submitted is Rs. 21.15 crore. Under these circumstances in order to insure itself against the loss which might occur during the course of business if the appellant company had entered into transactions in respect of selected commodities then ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t case, the transaction is relating to nonconvertible security debentures, which will not fall within the definition of "commodity" or "stocks" or "shares". In support of his contention, he relied on the judgment of the Supreme Court cited supra in R.D. Goyal (supra) wherein it has been held that debentures cannot come within the definition of shares as well as the stock. The expression debentures and shares conveyed separate meaning and paragraphs 23 to 25 reads as follows: 23. Furthermore, the expressions debentures and shares convey distinct and separate meaning although they belong to the same genesis. In All About Debentures by Mr T.M. Sen and Mr C. Chandrasekhar, the distinction between shares and debentures has been stated thus: Debentures distinguished from: (a) Shares. Although shares and debentures belong to the same genesis yet they have distinct and different characteristics. The Companies Act, 1956 deals with the issue of debentures in the same manner as it deals with the issue of shares, but the similarity ends with the mode and manner of issue, their allotment, their transferability and in the applicability of forfeiture provisions. The cor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt of unfair trade practice arises in the matter of promoting sale, or use of any goods. Shares before their allotment, in our opinion, are not goods. In Sri Gopal Jalan & Co. v. Calcutta Stock Exchange Assn. Ltd. it has been held that in company law allotment means the appropriation out of the previously unappropriated capital of a company, of a certain number of shares to a person. Till allotment is made, shares do not exist as such. It is only on allotment in this sense that the shares come into existence. Therefore, till the shares are actually issued, the question of the company having issued debentures as transferable property would not arise and thus there cannot be any doubt whatsoever that the shares before their allotment would not come into existence and they cannot be regarded as goods. Debentures would also not come within the purview of the definition of stock. From reading of the above, it is clear that the debentures cannot come within the expression of "goods" nor "shares" or "stocks". The only distinction in the present case and the Supreme Court case is that the expression "goods" is the subject matter of the Supreme Court. But in the present case, the e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....articular articles, it is plain that the words creation, issue and allotment are used with the three different meanings familiar to business people as well as to lawyers. There are three steps with regard to new capital; first, it is created; till it is created the capital does not exist at all. When it is created it may remain unissued for years, as indeed it was here; the market did not allow of a favourable opportunity of placing it. When it is issued it may be issued on such terms as appear for the moment expedient. Next comes allotment. To take the words of Sterling, J., in Spitzel v. Chinese Corpn. he says: What is an allotment of shares? Broadly speaking, it is an appropriation by the directors or the managing body of the companyof shares to a particular person. After examining the various decisions, Sarkar, J., observed: It is beyond doubt from the authorities to which we have earlier referred, and there are many more which could be cited to show the same position, that in company law allotment means the appropriation out of the previously unappropriated capital of a company of a certain number of shares to a person. Till such allotment the shares....