Mutual fund units are not shares for section 73, so related losses cannot be treated as speculation loss.

Units of mutual funds and bonds were held not to be shares for section 73 of the Income-tax Act because no statutory deeming fiction equated them with shares. The earlier Supreme Court ruling was distinguished: although it treated the Unit Trust of India as a deemed company and income from units as deemed dividend, it did not deem the units themselves to be shares. As the revenue's reliance on derivative case law did not apply, the loss could not be characterised as speculation loss, and the addition was unsustainable in favour of the assessee.

---

---

Issues: Whether units of mutual funds and bonds can be treated as shares for the purposes of section 73 of the Income-tax Act, 1961 so as to characterise the resulting loss as speculation loss.

Analysis: The controversy turned on whether any statutory deeming provision treated mutual fund units or bonds as shares. The earlier Supreme Court ruling relied upon by the parties held that, although the relevant enactment created a fiction treating the Unit Trust of India as a deemed company and the income from units as deemed dividend, it did not create any deeming fiction that units themselves were shares. The distinction drawn in the revenue's reliance on derivative cases was not applicable, because mutual funds are not confined to underlying shares and no provision was shown to equate their units with shares for section 73 purposes.

Conclusion: Units of mutual funds and bonds are not shares for the purposes of section 73, and the addition treating the loss as speculation loss was not sustainable; the issue was decided in favour of the assessee.

---