TaxTMI 
TaxTMI 
2026 (3) TMI 708
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....facts and circumstances of the case the Hon'ble Income Tax Appellate Tribunal was justified in holding that loss on account of sale of shares amounting to Rs. 37,47,304/- is speculation loss and so the same cannot be set off against the other income ?" 4. Brief facts giving rise to this Appeal can be summarised as under: 4.1. For the Assessment Year 1996-97, the appellant filed a return of income on 30.11.1996 declaring total income of Rs. 54,794/- from profit and gains of business and profession and income from the other sources i.e. dividend of Rs. 4,050/-. 4.2. It is the case of the appellant that during the year, the appellant had sold certain partly convertible debentures of M.H.Mills & Industries Limited and on sale of these debentures, which are converted into shares, there was a net loss of Rs. 37,47,304/- which was claimed in the return of income. 4.3. The Assessing Officer, however, considered the aforesaid loss claimed by the appellant as a speculation loss by applying the provisions of Section 73 of the Act. 4.4. Being aggrieved, the appellant preferred an Appeal before the CIT (Appeals). It was contended by the appellant before the CIT (Appeals) that....
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.... in favour of the appellant. 5.2. It was submitted that in view of the above, it is not required to go into the second contention of the appellant, which is also rejected by the Tribunal to the effect that the main income of the appellant was income from other sources and not the business income being the interest income. 6. On the other hand, learned advocate Mr.Dev Patel for the respondent-Assessing Officer could not controvert the submissions of learned advocate Mr.B.S.Soparkar to the effect that the decision relied upon by the Tribunal in case of AMP Spinning and Weaving Mills (P.) Limited (Supra) has been reversed by this Court. 7. Considering the submissions made by both the sides, it would be germane to refer to the provisions of Section 73(1) of the Act as relied by the Assessing Officer to consider the loss claimed by the petitioner as speculation loss, which read as under : "73 (1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business. Explanation - "Where any part of the business of a company (other than a company whose g....
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....is an admitted position that the Special Bench of the Tribunal was constituted to decide the following question: Whether on the facts and in the circumstances of the case, loss arising from sale of shares applied for by a dealer and allotted to it in Public Issue is hit by Explanation to Section 73 of the Income-tax Act 1961? 5.1 The Tribunal while deciding the said question has held that even the acquisition of shares by allotment on application in Public Issue and their eventual sale will be speculation business. Section 73 of the Income Tax Act, 1961 deals with carry forward and set off losses from speculation business. Explanation to Section 73 is a deeming provision wherein if specified conditions are satisfied, purchase and sale of shares are deemed speculation activities. This explanation becomes very important now-a-days in view of more and more NBFC activities. In this context it shall be relevant to go through Section 73 of the Act and the Explanation thereto and the same reads as under: "73. Losses in speculation business (1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except....
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....ot exist. It is only on allotment that shares come into existence. In this connection, learned counsel placed reliance on the judgment of this Court in the case of Sri Gopal Jalan & Company v. Calcutta Stock Exchange Association Ltd. Reported in 1964 (3) SCR 698. He also relied upon the judgment of this Court in the case of Sangramsinh P. Gaekwad and ors. V. Shantadevi P. Gaekwad (Dead) through LRs. and ors. reported in (2005) 11 SCC 314. Learned counsel further submitted that there is a vital difference between tax planning and tax evasion. According to the learned counsel, it is perfectly legitimate and permissible for an assessee to so arrange his affairs with a view to reduce its tax liability and such tax planning cannot be equated with tax evasion. In this connection, learned counsel submitted that the transaction in question was not sham or fictitious but real and it was given effect to. Moreover, it was contended that the stand taken by the Department, in this case, was conflicting inasmuch as according to the A.O. what was intended to be evaded was income-tax by the Directors of the appellant-company whereas, according to the CIT(A), the exercise undertaken by the appellan....
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....not amounting to be a transaction. Thus, the Apex Court has held that the same shall not amount to be purchase. The Tribunal has wrongly relied upon the decision of the Apex Court in the case of T.N. Arvinda Reddy (supra) which has nothing to do with the point at issue. As held in the decision in the case of Khoday Distilleries (supra) there is a vital difference between "creation" and "transfer" of shares. As stated hereinabove, the words "allotment of shares" have been used to indicate the creation of shares by appropriation out of the unappropriated share capital to a particular person. We are of the view that whichever rule of interpretation is followed, whether literal or object wise or purposive, the transactions of the assessee cannot imaginably be deemed to be a speculative business. Therefore the first question in Tax Appeal No. 957 of 2006 is answered in favour of assessee and against the revenue." 11. In view of the above decision, where the decision relied upon by the Tribunal is reversed, the same would be applicable in the facts of the present case also because the petitioner has received the shares on the conversion of partly convertible debentures by allotment of....