TaxTMI 
TaxTMI 
2010 (2) TMI 94
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....x Act), 1961 raises the following substantial questions of law: "1. Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in allowing brought forward speculation loss to be set off against delivery based profits earned by the assessee-company from sale and purchase of shares? 2. Whether, on the facts and in the circumstances of the case and in law, the Explanation to section 73 can be invoked in a case where there is a profit from transactions?" 3. The facts lie in a narrow compass. During the course of the assessment year 2003-04, the assessee showed a profit of Rs.28,37,382 on the sale of shares and securities held as stock-in-trade. The profit was offered by the assessee as a profit of specu....
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....uted in accordance with the provisions of section 28; (ii) section 43(5) provides a definition of what constitutes a speculative transaction and Explanation (2) to section 28 provides a deeming fiction of when a business can be treated as a speculation business; (iii) section 73 deals with losses of speculation business; a speculation loss can arise only from a speculative transaction; (iv) The Explanation to section 73 creates a deeming fiction of when an assessee can be deemed to be carrying on a speculation business; (v) The loss from a delivery based transaction will constitute a loss on account of speculation business as a result of the deeming provisions of the Explanation to section 73; (vi) The deeming fiction created by the Explana....
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....of loss not so set off shall be carried forward to the following assessment year and so on. (3) In respect of allowance on account of depreciation or capital expenditure on scientific research, the provisions of sub-section (2) of section 72 shall apply in relation to speculation business as they apply in relation to any other business. (4) No loss shall be carried forward under this section for more than four assessment years immediately succeeding the assessment year for which the loss was first computed. 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 g....
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....e is a company and where any part of the business of the company consists of the purchase and sale of shares of other companies. In such a case, the assessee is for the purposes of section 73 deemed to be carrying on a speculation business, to the extent to which the business consists of the purchase and sale of shares. The Explanation carves out an exception in the case of a company whose gross total income consists mainly of income under the heads of "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 the granting of loans and advances. The exception carved out by the Explanation, however, is not attracted to the....
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....ate from any other business. Section 43 provides definitions of certain terms relevant to the head of income from profits and gains of business or profession. Sub-section (5) of section 43 defines the expression "speculative transaction" to mean a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. The proviso to sub-section (5) then describes certain categories of transactions which shall not be deemed to be speculative transactions. The proviso will not have a bearing on these proceedings. 9. The contention of the Revenue in the present case, in essence is that the definit....
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.... to the ambit within which it is intended to operate. The deeming fiction created by the Explanation to section 73 defines when an assessee is to be deemed to be carrying on a speculation business for the purposes of the section. The deeming fiction is, therefore, one which arises specifically in the context of the provisions of section 73 and is confined to that purpose alone. The Explanation stipulates that where an assessee is a company whose business consists in any part of the purchase and sale of shares of other companies, it shall be deemed to be carrying on a speculation business to the extent to which the business consists of purchase and sale of such shares. Whether or not it is a profit or loss that has resulted from carrying on ....