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Issues: Whether the purchase and sale of Unit Trust of India units could be treated as a deemed speculation business under the Explanation to section 73 of the Income-tax Act, 1961, so as to justify revision under section 263 and disallow set-off of the loss against business income.
Analysis: The Explanation to section 73 creates a deeming fiction only for companies whose business consists in the purchase and sale of shares of other companies, and the fiction cannot be extended beyond its legitimate field. Units of the Unit Trust of India are not shares of a company; the deeming provision in section 32(3) of the Unit Trust of India Act, 1963 is confined to the tax treatment of income received by a unitholder and of the Trust itself, and does not deem units to be shares. The record also showed that the assessee held the units as investments and was not carrying on a business of dealing in shares or units. The Commissioner's reliance on section 80M and the Companies Act did not support treating units as shares for section 73 purposes.
Conclusion: The Explanation to section 73 was inapplicable, the assessment order was not erroneous on this issue, and the revisional order under section 263 could not be sustained. The assessee succeeded.
Ratio Decidendi: A deeming provision must be confined to the purpose for which it is created, and losses on purchase and sale of UTI units cannot be brought within the Explanation to section 73 unless the statute itself treats those units as shares of other companies.
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