TMI Blog2004 (6) TMI 288X X X X Extracts X X X X X X X X Extracts X X X X ..... income on 1-12-1997. The income declared for the current year was set off with carried forward business loss relating to assessment year 1996-97 and nil income was declared under regular assessment proceedings. The assessee computed income under section 115J of the Income-tax Act, 1961, at Rs. 32,960 and paid tax accordingly. 3. The assessee during the year traded in purchase and sale of shares. This trading was divided into speculative and non-speculative transactions. The assessee had a net loss of Rs. 9,61,168 from non-speculative transactions. It had a profit on speculative transactions to the tune of Rs. 6,61,337. The division of the transactions into speculative transactions and non-speculative transactions was done by applying the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that section 73 of the Income-tax Act, 1961, does not apply to the facts of the assessee's case as the undisputed fact is that the assessee had no losses in speculative business. He further argued that once section 73 itself is not applicable, the explanation cannot be invoked by the Assessing Officer. Thus, he prayed for relief. Alternatively, he contended that the assessee had earned commission income by arranging a party for taking on lease certain commercial property, that the income therefrom was lawfully assessable under the head 'other sources', that if it is so assessed, the assessee would be having income mainly from dividend and commission and that this would result in the explanation to section 73 not being applicable to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such. He submitted that it is not open for the assessee to turn around and claim the same under the head 'other sources'. He relied upon the order of the CIT(A) and submitted that the same should be upheld. 8. Rival contentions have been heard. We have read all the papers on record and the orders of the authorities below as well as the case law cited by both parties. The undisputed fact in this case is that the assessee had non-speculative transactions in shares as well as speculative transactions in shares. This segregation had been made keeping in view the definition of 'speculative transaction' in section 43(5). It is also not disputed that the assessee had earned a profit in the speculative transactions in shares and had incurred a l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment year for which the loss was first computed. Explanation .- Where any part of the business of a company other than a company whose gross total income consists mainly of income which is chargeable under the heads 'interest on securities', 'income from house property', 'capital gains' and 'income from other sources', or a company the principal business of which is the business of banking or the granting of loans and advances, consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares." The Marginal note of this section suggests that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the losses from share dealings will now be set off only against profits or gains of a speculation business. Where any such loss for an assessment year is not wholly set off against profits from a speculation business, the excess will be carried forward to the following assessment year and set off against profits, if any, from any speculation business. 19.2 The object of this provision is to curb the device sometimes resorted to by business houses controlling groups of companies to manipulate and reduce the taxable income of companies under their control. 19.3 This provision will come into force with effect from 1-4-1977 and will apply in relation to the assessment year 1977-78 and subsequent years." From this CBDT circular, it is cle ..... X X X X Extracts X X X X X X X X Extracts X X X X
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