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2016 (3) TMI 592 - HC - Income TaxShort term capital loss on sale of shares - treated as a speculative loss by virtue of Explanation to Section 73 of the Act when actual delivery and possession has been made in respect of sale of shares - Held that:- The nature of the transaction alleged is important, it has been stated the order of Commissioner of Appeals that the appellant has not purchased the shares as a dealer; shares were purchased because of certain financial problems of the sister company viz., Madras Cements Limited. Subsequently, when the shares were sold the market had not been favourable to the assessee and that is how he sustained loss. There is no intention to speculate and to benefit out of the speculation as there was a clause in the Memorandum of Association to invest surplus funds in shares, the appellant has chosen to invest fund in shares. Moreover, the transaction is not periodic. It was also not settled otherwise than by actual delivery. Only when there is settlement otherwise than by delivery speculative transaction can be thought of. In the present case, it is not so. As the main activity is only in manufacture and sale of yarn, the purchase of shares, having not been regular, should be construed only as an investment. When there is no systametic or organised course of activity and when there is no regularity in the transaction and as the purchase is infact an one time activity it cannot be construed as a speculative transaction. When the purchase of shares cannot come within the definition of business, under Section 2(13) of the Income Tax Act, 1961, there is no point in contending that the assessee is engaged in the business muchless in a speculative business. Therefore, the Assessing Officer ought to have allowed the loss, as short term capital loss and set off against the other business income of the appellant Company. As the appellant Company had properly delivered the shares at the time of selling, the transaction would not come under the provisions of Section 43 (5) of the Income Tax Act, 1961. When the provisions of Section 43 (5) is not applicable to the facts of this case, the contention that the case of the assessee would be covered under explanation to Section 73 of the Income Tax Act, 1961, cannot be accepted. As the genuineness of the transaction is not doubted the contention of the Revenue that it is a case of avoidance of tax liability by dubious means also cannot be accepted. - Decided in favour of assessee
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