TaxTMI 
TaxTMI 
2016 (3) TMI 592
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....ssing officer wherein the income was determined at 3,67,68,820/-. 2.1. The assessment was thereafter reopened as the Assessing officer felt that, the transaction in shares is hit by explanation to Section 73 of the Income Tax Act, 1961. Therefore, a notice under Section 148 was issued to the assessee on 07.05.1993. In response to this notice, the assessee had filed a return disclosing the total income, as admitted in the original return. The contention of the assessee, interalia was that a sum of Rs. 25,47,443/-, would have to be considered as short term captial loss. This loss was claimed to be on account of sale of shares of the sister concern, which was held by the assessee. But that contention was not accepted and the finding of the Revenue was that, it was a 'speculation loss' and therefore that must be carried forward and to that extent, income had to be enhanced. Challenging the re-assessment, assessee filed the appeal before the Commissioner of Appeals. 2.2. The Commissioner of Appeals held that the transactions in shares cannot be equated with speculations and the finding was that there was nothing on record to show that the appellant was buying l....
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....ecessary (a) to appreciate the meaning of 'speculation' and (b) to look into the relevant provisions relating to speculative transaction, speculative business, and the deeming provisions as dealt with in the Income Tax Act, 1961, (along with explanations). 4.1. Section 2 (13) defining business, Explanation 2 to Section 28 dealing with speculation loss / business, Section 43 dealing with speculative transaction, etc., are relevant provisions to be considered. 4.2. Section 2(13): Business (13)"business" includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture; The concept of business, as defined in Section 2(13), includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. These words are of wide import, the underlying idea being of continuous exercise of an activity. The definition, however, is not exhaustive as held in the case of [CIT vs. A.Dharma Reddy, (1969) 73 ITR 751, 755 (SC). The Hon 'ble Mr. Justice Venkataraman Aiyar, speaking for the court in Mazagaon Dock Ltd. vs. CIT [(1958) 35 ITR 368, 376 (SC)], explai....
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.... in connection with the vesting in the Government, or in any corporation owned or controlled by the Government, under any law for the time being in force, of the management of any property or business;] (iii) income derived by a trade, professional or similar association from specific services performed for its members; (iiia) profits on sale of a licence granted under the Imports (Control) Order, 1955 , made under the Imports and Exports (Control) Act, 1947 (18 of 1947 );] (iiib) cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India;] (iiic) any duty of customs or excise re- paid or re- payable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971;] (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession; 4.4. Explanation 2 to section 28 defines the expression speculation business :- The basic ingredients of speculative transactions, are as described hereunder, as per the decision reported in the ....
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....him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member (or) (d) An eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognized stock exchange shall not be deemed to be a speculative transaction. Explanation Four the purpose of this clause, the expressions (i) eligible transaction means any transaction (A) Carried out electronically on screen-based systems through a stock broker or sub-broker or such other intermediary registered under section 12 of the Securities and exchange Board of India Act, 1992 (15 of 1992) in accordance with the provisions of the Securities Contracts (Regulation) Act, 195....
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.... assessment year, and- (i) it shall be set-off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year; and (ii) if the loss cannot be wholly to set-off, the amount 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. 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 trading in shares or banking or the granting of loans and advances consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculat....
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.... 404 (Kar HC)):- "What is required for speculation business is that the course of speculative transactions carried on by an assessee is of such a nature as to constitute a business. It is, therefore, necessary in each case to examine and find out whether the speculative transactions carried on by an assessee are of such a nature as to constitute a business. It may be that, in a given case, a single speculative transaction, on application of proper tests, may be found to constitute 'speculation business'. It may equally be true that a plurality of speculative transactions, on application of proper tests, constitute 'speculation business'. It would depend upon the facts of each case. It is not possible to accept the submission of learned standing counsel for the Revenue that no recognised tests are applicable for the purpose of determining whether an assessee is carrying on speculation business by reference to the nature of the speculative transaction carried on by him." "The Explanation is attracted only when part of the business of the assessee-company consisted of the purchase and sale of shares of other companies; it is only in such a situation t....
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....ive business. The Explanation to Section 73 of the Income-tax Act did not apply. Loss in buying and selling of units of the UTI was business loss not speculation loss . (iii) Commissioner of Income Tax vs. Kamani Tubes Ltd. (207 ITR 298 (Bom)):- "So far as the legal proposition advanced by Mr. Jetly is concerned, we do not find any difficulty in accepting the same in view of section 43(5) of the Act which defines "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 meaning and scope of this expression is no more res integra in view of the decision of the Supreme Court in CIT v. Shantilal P. Ltd. [1983] 144 ITR 57. In that case, the Supreme Court explained the distinction between "a settlement of the contract otherwise than by actual delivery of the goods" and "breach of contract". It was observed (at page 60) : ".... A contract can be said to be settled if instead of effecting the delivery or transfer of the commodity envisaged by the contract the prom....
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.... therefore the commission should not be assessed under the head "speculation business". In our opinion, the argument put forward on behalf of the appellant is well-founded and must be accepted as correct. The reason is that there is no element of speculation whatever, in the commission income received by the assessee. The commission was earned and received by the assessee independently of any fluctuation in the market and no risk was involved in the earning of the commission and so it must be treated as profit from the other business of the assessee and not as profit from speculation business (v) Commissioner of Income Tax vs. Hotz Hotel Ltd. (260 ITR 132 (DEL)):- ".... Clause (5) of Section 43 of the Income-Tax Act, 1961, defines speculative transaction to mean a transaction in which a contract for the purchase or sale of any commodity, which may include stocks and shares, is periodically or ultimately settled otherwise than by actual delivery or transfer of the commodity or scripts. However, certain exceptions to the definition of speculative transaction are provided in a proviso to section 43(5). Clauses (a), (b) and (c) of the proviso enumerate the....
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.... a small fund. Many invetors have increased the capital value of their funds through reinvested dividends and interest income. Some wanted income, some capital gains and some a combination of both. Inspite of these variations, several objectives should be considered as a basis to a well-executed investment programme. The guiding principles establish the indifference curve of risk versus return for the investor. 6. Contending that, even a single transaction on share would amount to speculative business and therefore, the assessee is not entitled to set-off the loss as against its business income the following decisions are relied upon by the learned counsel for the respondent:- (i) R.P.G. Industries Ltd. v. CIT and another (2011) 338 ITR 313 (Cal.):- " In the case of S.Sundaram Pillai v. V.R.Pattabiraman, AIR 1985 SC 582, the Supreme Court laid down the general rule of 'interpreatation of an explanation' in the following way:- "It is now well settled that an Explanation added to a statutory provision is not a substantive provision in any sense of the term but as the plain meaning of the word itself shows it is merely meant to explain or clarify ....
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....ngful and purposeful, (d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and (e) it cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same. (ii) CIT v. DLF Commercial Developers Ltd., (2013) 261 CTR Reports:- "8. Section 43 defines, for the purpose of Sections 28 to 41, certain terms. These latter provisions fall in Chapter IV, in Section D, which deal with computation of business income. The said provisions provide for matters relating to computation of such income, rent taxes, insurance of buildings, repairs of plant and machinery, depreciation, reserves for shipping business, rehabilitation fund, expenditure on certain eligible objects or schemes, deductions, amounts not deductible, profits chargeable to tax, etc. Th....
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....pany" has been defined in Section 109(ii) of the said Act as under : 'investment company' means 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'." .... 8. It is by now well-settled that the words "income" or "profits and gains" should be understood as including losses also so that in one sense "profits and gains" represent "positive income" whereas "losses" represent "negative income". In other words, "loss" is "negative profit". Both positive and negative profits are of revenue character. Both must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee. Reference, in this context, may be made to the decision of the Supreme Court in CIT v. Harprasad and Co. P. Ltd. [1975] 99 ITR 118. The Supreme Court in the case of CIT v. J.H. Gotla [1985] 156 ITR 323, in construing the word "income" in Section 16(3) of the Indian Income-tax Act, 1922, held that the word "income" would include loss. (iv) Paha....
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....t the assessee must carry on speculative business exclusively it can be one of the businesses but this must be distinct and separate from any other business. The definition of speculative transaction in section 43(5) demands that there must be actual delivery or transfer of the commodity or scrip. Only if it is by way of a paper transaction it can be said to be a speculative transaction. The Explanation to section 73 will be applicable in respect of companies and companies alone and not any other assessee, namely, individuals or other assessees. However, part of the business of a company other than a few category of companies as mentioned therein, shall be treated as speculation business, if such part consists of the purchase and sale of shares, not other category of speculative dealings. If on a clear and plain reading the statute can be applied without any difficulty or without any aid whatsoever, then the objects and reasons need not be looked into. 6.1. The decisions relied upon by the learned counsel for the respondent are not applicable to the facts of the case. 7. As held in the decisions relied upon by the learned counsel for the assessee, the facts and ci....