Tribunal Decision Upheld: Share Trading Losses Deemed Speculation

The court affirmed the Tribunal's decision that the Explanation to Section 73 of the Income-tax Act applies to the assessee's share trading losses, treating them as speculation losses. The appeal was dismissed, and the question of law was answered in favor of the Revenue, establishing the necessity to apply the Explanation as intended by the legislature, even if it creates a distinct category for certain companies' share transactions.

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Issues: Whether the Explanation to Section 73 of the Income-tax Act, 1961 deems loss from purchase and sale of shares by a company to be speculation business loss even where the transactions involve actual delivery of shares, so as to deny set-off and carry forward under Sections 70, 71 and 72.

Analysis: The statutory scheme distinguishes ordinary business loss from speculation loss. Section 43(5) defines speculative transaction by reference to settlement otherwise than by actual delivery, but the Explanation to Section 73 creates a specific legal fiction for companies whose business includes purchase and sale of shares of other companies. That fiction applies notwithstanding actual delivery of shares and operates for the purposes of Section 73. The Court held that the Explanation cannot be ignored, because doing so would make it ineffective. The authorities relied upon by the assessee on the scope of an Explanation and legal fictions were distinguished on the ground that, on the facts and language of this provision, the legislative intent was clear and the deeming provision was intended to treat the covered share-dealing loss as speculation loss.

Conclusion: The Explanation to Section 73 applies to the assessee company and the share-trading loss was correctly treated as speculation loss. The question was answered in favour of the Revenue and against the assessee.

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