TMI Blog1996 (8) TMI 149X X X X Extracts X X X X X X X X Extracts X X X X ..... loss of Rs. 61,60,000 on sale of units. Under the provisions of section 73 of the I.T. Act, if any company not being an investment company or financial company, deals in purchase and sale of shares/units of other company, such transactions will amount to speculation business. Yours was neither an investment company nor a financial company. Therefore, the loss of Rs. 61,60,000 sustained was speculation loss under provisions of section 73 of the I.T. Act. Thus, you are not entitled for getting the said loss set off against the income under any other head. The adjustment of speculation loss of Rs. 61,60,000 against your business income claimed and allowed in the assessment was not correct. This has resulted in under assessment of income by Rs. 61,60,000." 3. In response to the show-cause notice, it was contended before the CIT that section 73 does not apply to the transactions in sale purchase of units of Unit Trust of India. It was argued before him that there is difference between units and shares as defined on page 3 of the order. Reference was made to the Company Law Board Circular dated 16-1-1965, wherein it has been stated that the units issued by the UTI under section 21 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer as loss in his order dated 18-3-1993. He, therefore, submitted that the impugned order be quashed. He further argued that the units cannot be treated as shares. Moreover, as each purchase and sale was accompanied by physical delivery of units, he argued that, it cannot be said that the assessee indulged in speculative transaction when it dealt with in purchase and sale of units. Explaining further that units of UTI are separate and distinct from shares of a company, Shri Goyal pointed out that units are issued under a specific scheme of the UTI Act, 1963, while shares are issued and governed by the provisions of the Companies Act, 1956 ; whereas units can be sold and repurchased by the UTI, shares cannot be purchased by the issue company unless prescribed capital reduction procedure is followed ; shares are generally issued after obtaining necessary statutory approval, while authority to issue units is granted to the UTI under the Governing Act itself. Inviting our attention to the Explanation below section 73(4) of the Act, Shri Goyal submitted that the deeming fiction relating to the speculation business can be applied only where the business of the specified company co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of units was entitled to be set off against other income in the assessment year 1990-91, which was rightly done by the Assessing Officer. Elucidating the point further, Shri Goyal submitted that in the assessment order, the Assessing Officer has separately computed dividend income from units at Rs. 63 lacs and portion of interest attributable to above at Rs. 10,99,007 was not considered under the business expenses, but against this source treating it to be different from business, which has also been held by the CIT(A) in his order dated 4-4-1993 (copy of P.P. 1-22 of the paper book). He, therefore, argued that the assessee-company is not doing business in purchase and sale of units ; on the contrary, the company has invested in the units and, therefore, the Explanation below section 73(4) is not at all attracted. He also took us to the relevant provisions of the UTI Act and argued that the units cannot be considered as share, as the nature and character of it are not akin to share in the company and when the Legislature has made section 32 as deeming provision, it has to be restricted to the extent provided and should not be extended so as to mean that units are shares when r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead as under : "73. Losses in speculation business.--(1) Any loss, computed in respect of speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business. (2) Where for any assessment year any loss computed in respect of a speculation business has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business, shall, subject to the other provisions of this Chapter, be carried forward to the following 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 so set off the amount of loss not so set off shall be carried forward to the following assessment year and so on. (4) No loss shall be carried forward under this section for more than eight 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 gros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner, the loss of Rs. 61,60,000 sustained on sale of units by the assessee was speculation loss within the meaning of section 73 of the Act. He was, therefore, of the view that the assessee was not entitled for set off of the said loss against the income under any other head. We are unable to subscribe this view of the Commissioner. The term "Speculative transaction" has been defined in sub-section (5) of section 43 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 commodities or scrips. The assessee's stand is that the assessee's transaction of purchase and sale of units was all settled by the actual delivery or transfer of the scrips and as such could not be regarded as 'speculative transaction' within the meaning of the Act. There is no material on record in rebuttal of the above stand of the assessee. Unless and until the transaction is brought within the ambit of 'speculative transaction', the loss suffered in such transactions cannot be treated as 'speculation loss'. 10.1 Again the Commissioner is of the view th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the U.T.I. shall be deemed to be a company. It is, thus, abundantly clear from the provisions of section 32(3)(a) and (b) of the U.T.I. Act that the legal fiction has been extended to income 'received by the unitholder' from the U.T.I. and to the 'U.T.I.' itself. This legal fiction has not been extended to the 'Units' as such. In other words, the units have not been deemed to be shares of a company in the fiction created in section 32(3)(a) and (b) of the U.T.I. Act, 1963. Furthermore, the word 'share' is defined in section 2(46) of the Companies Act to mean 'share' in the share capital of a company. This definition of the word 'share' reveals that shares do not include units. There are umpteen number of features, which distinguish share of a company from units of the U.T.I. In the submissions made by the assessee before the Commissioner, some of the distinguishing features have been highlighted, which have been mentioned by him on page 3 of the impugned order. For the reasons aforesaid, we hold that the Commissioner is not justified to equate units of U.T.I. with shares of a company. This view is supported by the clarification given by the Department of Company Affairs in i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... units of U.T.I. have been covered and included as shares of a company. The view of the Commissioner is not tenable. Section 80M has used the words 'income by way of dividend from another domestic company'. The words 'Shares' or 'Units' have not been used therein. On the other hand, Explanation to section 73 speaks of purchase and sale of shares of other companies. The expression 'Unit' in the Explanation to section 73 is conspicuous by its absence which has wrongly been included by the Commissioner in the notice dated 16-3-1995. We find force in the arguments of Shri Goyal that omission of the word 'shares' or its equivalence to units under section 32(3) of the U.T.I. Act, 1963 explains fully the reason why relief under section 80M is available to income by way of units. He has rightly argued that when Legislature intended to exclude income from units from section 80M, necessary amendments were brought about from the assessment year 1994-95 and onwards. 13. Thus, the conclusion is inevitable that the Explanation to section 73 has created a legal fiction to the effect that losses from share dealing by companies, which are not investment or banking companies, shall be deemed to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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