1998 (4) TMI 163 - AT - Income Tax

Tribunal rules share loss non-speculative due to delivery recall, allowing revenue appeal to set off against business income.

Assistant Commisioner Of Income-Tax. Versus Claytone Commercial Co. Ltd.

Assistant Commisioner Of Income-Tax. Versus Claytone Commercial Co. Ltd. - ITD 067, 118, Issues:1. Whether the loss arising from the purchase and sale of shares of other companies is a speculative transaction under section 73 of the Income Tax Act, 1961.2. Whether the delivery of shares was effectively made to the assessee company.3. Whether the loss of Rs. 2,10,650 should be set off against the income from the rest of the business carried out by the assessee.Analysis:1. The revenue contended that the transactions of purchasing and selling shares without actual payment or transfer should be treated as speculative, leading to a loss of Rs. 2,10,650. The Department argued that the assessee failed to provide proof of delivery, invoking the explanation to section 73 of the IT Act. However, the Authorized Representative argued against invoking this explanation for the first time before the Tribunal. The AR emphasized that the business of the assessee was primarily the sale and purchase of shares, urging that even if the transactions were speculative, the loss should be set off against the overall business income. The AR also highlighted the statement of the broker indicating the delivery of shares to the assessee, refuting the Assessing Officer's treatment of the loss as speculative.2. The Tribunal noted that the Assessing Officer did not invoke the explanation to section 73 during the assessment proceedings, which was crucial for determining speculative transactions. It was observed that the revenue failed to establish that the assessee was not an investment company dealing in shares, rendering the case law cited irrelevant. The Tribunal emphasized that the revenue's argument lacked merit as the delivery of shares was crucial for defining speculative transactions. The statement of the broker confirmed the delivery of shares to the assessee, supported by documentary evidence. However, the Tribunal found discrepancies in the handling of transactions, leading to the conclusion that the delivery was effectively recalled, rendering the transactions speculative under section 43(5) of the IT Act.3. The Tribunal analyzed the sequence of events and the nature of delivery in the transactions, concluding that the recalling of delivery by the broker invalidated the actual transfer of shares to the assessee. The Tribunal referred to the definition of speculative transactions under section 43(5) of the IT Act, emphasizing the necessity of actual delivery for transactions to be non-speculative. Given the circumstances where the delivery was recalled, the Tribunal held that the transactions fell under speculative activities. Consequently, the Tribunal reversed the decision of the CIT(A) and upheld the Assessing Officer's order, allowing the appeal filed by the revenue to set off the loss against the income from the rest of the business.This comprehensive analysis of the judgment highlights the key legal issues, arguments presented by both parties, and the Tribunal's reasoning leading to the final decision on the matter.