TaxTMI 
TaxTMI 
1991 (1) TMI 26
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....ee-company sustained a loss of Rs. 10,86,300. This the assessee claimed as a "short-term capital loss". The assessing authority held that, as per the memorandum of association of the assessee-company, its objects included dealing in shares. Therefore, he treated the loss sustained by the assessee-company as speculation loss within the meaning of the Explanation to section 73 of the Income-tax Act and permitted the said loss to be carried forward and to be adjusted in future towards the profits from speculation, if any. The Commissioner of Income-tax (Appeals) held that the assesseecompany was not dealing in shares at all at any time and that the transaction in question was a solitary transaction and that the assessee-company did not purchase the shares of P. G. Textile Mills, Baroda, with view to speculate at all. The said company wanted to modernise its plant and the assessee-company acquired the shares as an investment. The Commissioner further observed that just because the objects of the company included dealing in shares, it cannot be said that the dealing in shares was part of the assessee's business. The Commissioner further found that the Baroda company was a sister c....
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.... referred to above, appears to us contrary to each other. The Tribunal assumes that the assessee-company purchased the shares as a dealer, but not as an investor which necessarily implies that a dealer is not an investor. It is not possible for us to agree that a dealer is not interested in profit-making. Profit-making is the very purpose of dealing. The Tribunal has also not considered the third aspect, viz., that it is possible for a sister concern to purchase the shares of the said concern to aid its developmental activities. In such a situation, it may not be strictly as an investment or as a dealer, but as a person interested in rescuing another person who is closely related to the former. The Commissioner of Income-tax (Appeals) has found that the assessee-company was interested in the Baroda company and obviously purchased the shares to help the said Baroda company to modernise its plant. Having realised that it was not possible to develop the said company, immediately the assessee-company sold the same after about a year. The short question for us is the interpretation of the Explanation to section 73 because the question referred to us is entirely based on the Explanati....
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....de in the waters of trade ; but the sale of a piece of property-if that is all that is involved in the plunge-may easily fall short of anything in the nature of trade. Transactions of sale are characteristic of trade, but they are not necessarily distinctive of it ; much depends on the circumstances." The learned authors further state : "Unless ex facie the single transaction is obviously commercial, the profit from it is more likely to be an accretion of capital and not an yield of income." The decision in CIT v. Bhikamchand Jankilal [1981] 131 ITR 554 (MP) is based on the facts of the said case. In fact, at page 559, the Bench observed that: "Our conclusion, therefore, is that if the transaction under which the assessee paid Rs. 13,500 to M/s. Rallis India Ltd. amounted to speculative transaction, it also amounted to speculation business attracting the operation of section 73(1) and the loss of Rs. 13,500 could not be set off against the profits of the other business of the assessee." CIT v. Sri Venkateswara Rice and Oil Mills [1985] 154 ITR 756 is a decision of the Andhra Pradesh High Court. The question that arose was under section 43(5) of the Income-tax Act. Th....
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.... as either to secure profit or to minimise loss, before the vaida day ; and, similarly, when he enters into a contract of sale, he simultaneously enters into one or more contracts to purchase the same quantity before the vaida day. The result of such dealings, when the sale and purchase are to and from the same person, has the effect of cancelling the contracts leaving only differences to be paid (vide Tod v. Lakhmidas Purshotamdas [1892] ILR 16 Bom 441, Perosha Cursetji Parakh v. Manekji Dossabhai Watcha [1898] ILR 22 Bom 899 and Sassoon v. Tokersey Jadhawjee [1904] ILR 28 Bom 616." Again at page 766, the Bench concluded: "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, o....