TMI Blog2000 (5) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... ss income will be computable as has been interpreted by the decision of Bombay Tribunal and in that view of the matter, all purchases and sale transaction of shares and the resultant position thereof will be also computed under section 28 which means automatically all the profit and loss on purchase and sale of shares of all kinds would get set off, which means the returned income will have to be accepted, i.e. deduction claimed of loss of Rs. 1,99,850 on purchase of shares would form parts of computation under section 28 regarding the business income as occurring in section 73 (explanation). This is what is claimed before the Tribunal now based on the interpretation of explanation to section 73 placed by Hon'ble Tribunal, Bombay Bench reported in 41 ITD P. 469." The learned counsel for the assessee Shri K.S.V.S. Manian submitted that the accounting year of the assessee company comprises of 21 months ending31st March, 1989relevant to assessment year 1989-90 due to adoption of uniform accounting year in the Act. Paper Book containing 84 pages has been filed whereby consolidated profit loss account for 21 months ended31st March, 1989, Balance-sheet as on31-3-1989, details of purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Laws (1989) which is the relevant year section in the law for assessment year 1989-90. Sub-section (5) of section 43 reads as under:-- "(5) "Speculative transaction" means 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 commodity or scraps." The learned counsel further pointed out that the transactions resulting in a loss have been incurred by payment of settlement of differences of the losses, without taking delivery or giving delivery of the shares in terms of sub-section (5) of Section 43 of the Act. He submitted that in view of proviso (b) to sub-section (5), even though the shares were purchased and sold otherwise than by actual delivery or transfer of scrips, it cannot be deemed to a "speculative transaction". He claimed that if the shares were not sold in short period, there was a fear that the fall in price may be more which might result in greater loss. Pointing out the Object Clause of the Memorandum of the Company (P. 78 of the Paper Book), the learned counsel submitted that the entire income of the company is from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss is not a speculative transaction even otherwise and therefore claimed that the computation of income filed, setting off the loss on sale of shares by the assessee in the return should be accepted. The learned counsel also pointed out the details of computation filed before the Assessing Officer and submitted that the gross total income determined therein in the statement of Computation filed with the return is Rs. 4,53,018.18 which should have been the basis for assessment. To a query that the company had only settled the differences between the purchase and sale price, and not taken delivery, the learned counsel replied that that is a fact in the trading transactions in the Stock Exchange as a matter of trade practice. Over the phone, directions are given for the purchase or sale of shares to the broker and the broker carries out the same and sends their bill popularly known as broker note and that is binding on placing the order and a commitment. He also pointed out in the Paper Book that he had enclosed extract from Law of Income-tax by Sampath Iyengar's 9th edition Vol. 2 dealing with section 43(5) in Chapter 4--internal pages 2912 to 2914 and also 2924 comprising of pages 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith respect to gross total income of the assessee without applying the provisions of Explanation to section 73 of the Act. Further it was submitted that since the assessee is an investment company and money lending company, the loss incurred by the assessee on purchase and sale of shares, would not be speculative in nature within the meaning of Explanation to section 73 of the Act. Thus the above loss arising out of purchase and sale of shares of Rs. 1,99,850 should be part of the computation as made in the return by the assessee and should be allowed. Referring to the Chandigarh Bench judgment in M. Gulab Singh Sons (P.) Ltd.'s case, the learned counsel submitted that the loss on purchase and sale of shares has to be adjusted in the computation as claimed by the assessee. 3. The learned DR Shri Abhey Tayal on the other hand, relied upon the orders of the authorities below and referring to the order of the Commissioner (Appeals) dated 28-9-1993 submitted that in view of section 43(5) it is a speculative transaction and the assessee company has sold the shares within a very short time of a week and in some of the cases on the very next day, for example shares of Colgate. He furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (5) of Section 43 reads as under: "Provided that for the purpose of this Clause- (a) * * * * (b) a contract in respect of stocks and shares entered into by dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; (c) * * * * shall not be deemed to be speculative transaction." According to the learned Counsel for the assessee, the purchase and sale of shares in settlement is made otherwise than actual delivery or transfer of shares within the meaning of sub-section (5). The proviso (b) makes specific provision in respect of contracts related to stocks and shares by a dealer or investor entered to guard against the loss in holding through price fluctuation shall not be deemed to be a speculative transaction. It has to be understood that there is mandate under proviso (b) that if such a transaction as per sub-section (5) takes place by a dealer or investor it would not be a speculative transaction. The contract entered into by the assessee with M/s. T.H. Vakil Co. was to guard against the loss in holding of shares through price fluctuation. According to the assessee, the very purchase covered by contract with stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also fact that the transaction resulting in a loss is arising out of contract for purchase and immediately the sale has taken place of the same shares purchased because of price fluctuation. This was done by the assessee to arrest further loss in respect of shares purchased under the contract. Such loss if occurred would fall under the proviso (b) to section 43(5). Referring to the extracts taken from Law of Income-tax by Sampath Iyengar 9th Edition, Vol. 2, pp. 2912 to 2914 (pp. 81 to 84 of the Paper Book) we find the case laws of Supreme Court regarding details of speculative transaction under section 43(5) are given. The features envisaged are dealt in four sub-heads:-- (i) The Contract for purchase or sale must be valid contract. (ii) Purchase or sale should be of a share. (iii) Periodical or ultimate settlement of the contract, the author has detailed under the heading "periodical or ultimate settlement the contract" making it clear that by the usage of the words periodical or ultimately that even a part of the contract settled otherwise by delivery is covered. He has also dealt with the dictionary meaning of the word "settled" and noted that the proper meaning of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of income and set off or carry forward of losses. Explanation to Section 73 deals with any part of business of company consists in the purchase and sale of shares in other companies, such company shall, for the purposes of this section, will be deemed to be carrying on speculative transaction to the extent to which the business consists of the purchase and sale of such shares. This Explanation contains two exceptions namely, a company whose gross total income consists mainly of income which is chargeable under the head interest on securities, house property, capital gains of other sources or a company the principle business of which is the business of banking or the granting of loans and advances. The assessee has claimed that the second category of the exception namely the company whose principle business is in the business of banking or granting of loans and advances applies to it besides dealing in the shares. On the facts the assessee has also established that he does fall in the category of this company supported by evidences given in the Paper Book which are also given to the lower authorities. Therefore, the claim of the assessee that it is an investment company and the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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