TaxTMI 
TaxTMI 
2000 (5) TMI 168
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.... income will be computable as has been interpreted by the decision of Bombay Tribunal and in that view of the matter, all purchases and sale transaction of shares and the resultant position thereof will be also computed under section 28 which means automatically all the profit and loss on purchase and sale of shares of all kinds would get set off, which means the returned income will have to be accepted, i.e. deduction claimed of loss of Rs. 1,99,850 on purchase of shares would form parts of computation under section 28 regarding the business income as occurring in section 73 (explanation). This is what is claimed before the Tribunal now based on the interpretation of explanation to section 73 placed by Hon'ble Tribunal, Bombay Bench reported in 41 ITD P. 469." The learned counsel for the assessee Shri K.S.V.S. Manian submitted that the accounting year of the assessee company comprises of 21 months ending31st March, 1989relevant to assessment year 1989-90 due to adoption of uniform accounting year in the Act. Paper Book containing 84 pages has been filed whereby consolidated profit & loss account for 21 months ended31st March, 1989, Balance-sheet as on31-3-1989, details of purchas....
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....; Rs. 60,300.00 6. Colgate Rs. 18,250.00 7. ApolloTyre Rs. 22,562.50 8. Bajaj Auto Rs. 10,675.00 9.BarodaRayon  ....
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...., it cannot be deemed to a "speculative transaction". He claimed that if the shares were not sold in short period, there was a fear that the fall in price may be more which might result in greater loss. Pointing out the Object Clause of the Memorandum of the Company (P. 78 of the Paper Book), the learned counsel submitted that the entire income of the company is from business of banking or granting of loans or advances and also on account of purchase and sale of shares and dividend income. According to the learned counsel, as per head note, section 73 deals with losses in speculative business and rules of set-off thereof. Explanation to section 73 which reads as under, is relevant on the issue involved:-- "Explanation--Where any part of the business of a company (other than a company whose gross total income consists mainly of income which is chargeable under the heads "Interest on Securities", "Income from house property", "Capital gains", and "Income from other sources", or a Company the principal business of which is the business of banking or granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of ....
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....es out the same and sends their bill popularly known as broker note and that is binding on placing the order and a commitment. He also pointed out in the Paper Book that he had enclosed extract from Law of Income-tax by Sampath Iyengar's 9th edition Vol. 2 dealing with section 43(5) in Chapter 4--internal pages 2912 to 2914 and also 2924 comprising of pages 81 to 84 (photo copies of books of the learned author). He also brought in particular page 84 of the Paper Book internal page 2924, where para 3 deals with, under the head "Hedges" in respect of stocks and shares: clause (b)", the trade practice has been adopted and recognises even transactions of varied nature in the commercial world of share dealing, briefly dealt with by the author. The last four sentences of clause 3 para 1 were brought to the notice which read as under: "It may however be mentioned in clause (b) refers to guarding against "loss in holdings". The word "holdings" would include holdings on blank transfer. It would also include scrips bought but not actually taken delivery of, since it is the custom of the trade to include brought-scrips in the stock." He also pointed out that the learned author while refer-r....
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....ied upon the orders of the authorities below and referring to the order of the Commissioner (Appeals) dated 28-9-1993 submitted that in view of section 43(5) it is a speculative transaction and the assessee company has sold the shares within a very short time of a week and in some of the cases on the very next day, for example shares of Colgate. He further submitted that contract notes were only an agreement to purchase and no payment as such were made on account of purchase. Referring to para 2.3 at page 4 of the order of the Commissioner (Appeals) whereby the learned Commissioner (Appeals) has mentioned that the contract notes did not mention the distinctive number of shares, bought or sold and claimed that it is a speculation loss, the learned DR contended that the shares were not held but they were only an agreement for purchase. He further contended that section 43(5) is a specific section regarding speculation transactions and explanation to section 73 being a deeming provision, cannot override provisions of section 43(5). 4. We have considered the rival submissions and perused the material available on record. Admittedly the issue relates to the loss resulting from purchase....
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.... if such a transaction as per sub-section (5) takes place by a dealer or investor it would not be a speculative transaction. The contract entered into by the assessee with M/s. T.H. Vakil & Co. was to guard against the loss in holding of shares through price fluctuation. According to the assessee, the very purchase covered by contract with stockbrokers obliges the assessee under the contract either to take delivery or settle the same. Once the purchase is made through a broker then it is a binding contract of assessee to honour it and liable to pay the stocks broker the consideration for purchase. In falling market, the assessee claims that the sale was done immediately through same broker. This has resulted in arresting further loss in his holding of shares, which are already purchased under the contract from the same broker. Therefore what is provided in Proviso (b) is squarely complied with and the definition of speculative transaction does not apply due to the mandate under the proviso. 6. We also note from the consolidated 21 months audited profit and loss account and balance-sheet from page 59 onwards of the Paper Book that the gross sales amounted to Rs. 53.24 lakhs compris....
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....thor has detailed under the heading "periodical or ultimate settlement the contract" making it clear that by the usage of the words periodical or ultimately that even a part of the contract settled otherwise by delivery is covered. He has also dealt with the dictionary meaning of the word "settled" and noted that the proper meaning of section 43(5) could be a contract settled and cannot be held to mean that the contract is to be substituted. (iv) "Hedges in respect of stock and shares" dealing with section 43(5) the learned author has dealt with the kind of transaction the dealer or investor of shares enter. When the price goes down the holder thereon attempts to cut short the investment losses. He also notes that by these transactions there is no intention to effect a delivery nor any taking or giving delivery is ever made. The term "holding" occurring in (b) refers to guarding against loss in holding. The word "holding" will include holdings on blank transfer. It would also include scrips bought but not actually taken delivery of, since it is the custom of the trade to include bought-scrips in the stock. The author further noted from Direct Taxes Administration Enquiry Committee....