TaxTMI 
TaxTMI 
2016 (6) TMI 1123
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....er in the facts and circumstances of the case, the Income Tax Tribunal was right in law in holding that even valuation loss can be treated as speculation loss within the meaning of provisions of Explanation to Section 73 of the Act?" 3. Learned Counsel for the appellant has contended that the assessee has not disclosed any opening stock of the share and he has relied upon the profit and loss account as per the audited accounts of the assessee which reads as under: Expenditure Income Opening Stock NIL Sales 1850 Purchases of Shares 11989650 Commission 4000000 Administrative Expenses 35610 Closing stock of shares 8566540 Interest 455153 Net Profit 87977 12588390 12588390 3.1 Learned Counsel for the appellant has also relied upon the computation of taxable income under the head of business income which reads as under: Business Income Net profit as per profit and loss account 87997 Less: Items not considered NIL Preliminary expenses 4033 Less : Unabsorbed Depreciation of earlier years: 8689 Total Income 75255 3.2 Learned Counsel for the appellant has further contended that the A.O., has wrongly held that loss arising from the appellant's transa....
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....ss. If, the submission of the Revenue is accepted, it would lead to an incongruous situation, where in determining as to whether a company is carrying on a speculation business within the meaning of the explanation, sub section (1) of Section 73 is applied in the first instance. This would in our view not be permissible as a matter of statutory interpretation, because the explanation is designed to define a situation where a company is deemed to carry on speculation business. It is only thereafter that sub section (1) of section 73 can apply. Applying the provisions of Section 73(1) to determine whether a company is carrying on speculation business would reverse the order of application. That would be impermissible, nor, is it contemplated by Parliament. For, the ambit of Sub Section (1) of Section 73 is only to prohibit the setting off of a loss which has resulted from a speculation business, save and accept against the profits and gains of another speculation business. In order to determine whether the exception that is carved out by the explanation applies, the legislature has first mandated a computation of the gross total income of the Company. The words "consists mainly" are ....
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....ares in the course of the financial year. The explanation will cover both shares which are stock in trade and shares which are traded in the course of the financial year for the purpose of considering the loss and profit for that year. The Tribunal, in our opinion, has correctly answered the issue by holding that the loss of profit on account of valuation amounts to revenue losses or revenue receipt. The second question, therefore, also will have to be answered against the assessee and in favour of the Revenue." 4.3 Learned Counsel has also relied upon the decision in case of Commissioner of Income Tax V. Lokmat Newspapers P. Ltd. [2010] 322 ITR 43 (Bom) and relied upon the following paragraphs: "9. The contention of the Revenue in the present case, in essence is that the definition of the expression "speculative transaction" in Section 43(5) must be read into the provisions of Section 73, because a business cannot be a speculation business unless there is a speculative transaction and a speculative transaction is defined by the former as one, not involving an actual delivery of shares. Hence, it was submitted that a transaction which involves an actual delivery of shares would....
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.... forward and can be set off against profits and gains "of any speculation business". The expression "any speculation business" means a speculation business of the assessee in respect of which profits and gains for the Assessment Year in question have arisen and there is no justification to restrict the content of that speculation business where profits have arisen by excluding a business involving actual delivery of shares. No such restriction is found in the explanation. To impose one is a legislative function. In other words, once the assessee is carrying on a speculation business and the profits and gains have arisen from that business during the course of the Assessment Year, the assessee is entitled to set off the losses carried forward from a speculation business arising out of a previous Assessment Year. 11. In these circumstances, the view which has been formed by the Tribunal is consistent with the provisions of Section 73. The questions of law shall stand answered accordingly. The appeal shall stand dismissed. There shall be no order as to costs." 4.4 Learned Counsel has also relied upon the decision in case of Commissioner of Income Tax v. Sun Distributors & Min....
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...., whether the company was engaged in the business of sale and purchase of shares. If it is found that any part of the business of the company con5ists in the purchase and sale of shares, then for the purpose of s. 73 such a company shall be deemed to be carrying on a speculation business to the extent the business consisted of purchase and sale of such shares. It is not the requirement of the section that both purchase and sale of shares should take place in the same year. But what the section requires is that there will be business of sale and purchase of shares and the assessee-company Will carry on that business in the relevant year of account. The very fact that shares were valued as stock-in-trade and the loss was disclosed, as a result of the valuation of the shares, goes to show that the business of share purchase and sale of shares was carried on by the company. To the extent such business was carried on, the business of the assessee-company must be treated as speculation business. 7. In that View of the matter, the question is answered in the negative and in favour of the Revenue. There Will be no order as to costs. " 4.5 Learned Counsel for the revenue has also relied u....
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....the assessee, shall not be set off except against profits and gains, if any, of another speculation business and if the assessee is a company indicated in the explanation to Section 73, for such an assessee, there shall be a different definition of Speculation business than the one applicable to other types of the assessee. In our view, 29 there is nothing illegal for the legislature to enact two different definitions of Speculation business applicable to the two different categories of the assessee in a taxing statute. Thus, the factors which weighed with the Supreme Court in the above case are not present in the facts and circumstances of the case and we propose to adopt the only possible interpretation of the Explanation added to Section 73 of the Act. The above decision thus is not applicable to the facts of the present case." 4.6 Learned Counsel for the revenue has also relied upon the decision in case of Commissioner of Income Tax vs. Intermetal Trade Ltd., (2006) 285 ITR 0536 and has relied upon paragraph No.8 thereof which reads as under: "8. The provisions of the Explanation to s.73 have to be contrasted with the provisions of s.54 (5), which defines "speculative....