TMI Blog2010 (2) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... office objections are waived. The registry shall register the appeal. With the consent of counsel appearing on behalf of the Revenue and the assessee, the appeal is taken up for final disposal. 2. The appeal by the Revenue under section 260A of the Income-tax Act), 1961 raises the following substantial questions of law: "1. Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in allowing brought forward speculation loss to be set off against delivery based profits earned by the assessee-company from sale and purchase of shares? 2. Whether, on the facts and in the circumstances of the case and in law, the Explanation to section 73 can be invoked in a case where there is a profit from transactions?" 3. The facts lie in a narrow compass. During the course of the assessment year 2003-04, the assessee showed a profit of Rs.28,37,382 on the sale of shares and securities held as stock-in-trade. The profit was offered by the assessee as a profit of speculation business and was set off against a speculation loss of Rs. 27,61,505 brought forward from the assessment years 1996-97 to 1998-99. After claiming a set off of the speculatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which were earned by the assessee from the sale of shares during the assessment year in question, since the profits were earned from a delivery based transaction in the sale of shares. 5. In order to consider the tenability of the submissions which have been urged on behalf of the Revenue, a reference to the provisions of section 73 would be in order. Section 73 provides as follows: "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. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of section 73 deemed to be carrying on a speculation business, to the extent to which the business consists of the purchase and sale of shares. The Explanation carves out an exception in the case of a company whose gross total income consists mainly of income under the heads of "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. The exception carved out by the Explanation, however, is not attracted to the facts of this case and its interpretation, therefore, does not call for consideration here. What is material for the purposes of this case is, that the Explanation postulates a situation where any part of the business of a company consists of the purchase and sale of shares of other companies. Therefore, the Explanation is attracted in a situation where something more than an isolated transaction involving sale and purchase of shares is involved. A business postulates a systematic course of activity or dealing. Unless the business of a company consists of the sale and purchase of shares, the deeming fiction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submission of the Revenue is that a loss which arises on account of a transaction of the sale and purchase of shares would constitute a loss from a speculation business for the purposes of the Explanation. But, that the profit which arises from a transaction involving the actual delivery of shares would not constitute a profit for the purposes of sub (1) and (2) of section 73 in respect of which a set off can be granted. To accept the submission of the Revenue would be to introduce a restriction into the scope and ambit of the deeming fiction which is created by the Explanation to section 73, which is not contemplated by Parliament. Once a deeming fiction is created by law, it must be given full and free effect, of course, in relation to the ambit within which it is intended to operate. The deeming fiction created by the Explanation to section 73 defines when an assessee is to be deemed to be carrying on a speculation business for the purposes of the section. The deeming fiction is, therefore, one which arises specifically in the context of the provisions of section 73 and is confined to that purpose alone. The Explanation stipulates that where an assessee is a company whose busin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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