TMI Blog2008 (10) TMI 389X X X X Extracts X X X X X X X X Extracts X X X X ..... no interest under section 234B should be charged." 3. The loss amounting to Rs. 45,74,931 from sale and purchase of shares has been treated by the Assessing Officer as deemed loss from speculation business by invoking the provisions contained in Explanation to section 73 of the Act. 4. On an appeal, the CIT (Appeals) confirmed the Assessing Officer s action by observing as under : "4. I have considered the issue carefully. The appellant company derives income from commission and brokerage in sale and purchase of shares. Some income is from commission and brokerage on sale and purchase of shares. Some income is also derived from dividend and interest. Besides, the appellant company has shown a loss of Rs. 45,74,931 on account of sale and purchase of shares. It has been argued by the ld. A.R. that these shares were transacted physically through demat account and therefore, these transactions did not fall within the definition speculative transaction under section 43(5) of the Income-tax Act, 1961. The arguments of the ld. A.R. are highly misplaced under section 73 of the Income-tax Act, 1961, the losses suffered on account of share transactions are deemed speculation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee, shall not be set off except against profits and gains, if any, of another speculation business . -Thus, the above clarifies that section 73 is to be applied only when : ( a )There are losses in speculation business. ( b )Thereafter, if there are such losses. As to how these speculation losses are to be set off. -Now, Explanation simply provides that for giving effect to the provisions of section 73(1) to section 73(4), the non-speculative share transactions shall be deemed to be as speculative transactions. -From this it is apparent, that, for invoking Explanation to section 73, following factors must exist : -There must be actual speculative losses as specified in section 43(5). -The said loss must remain unadjusted/unsettled off from Speculative gains of the same year. -Then there must exist income from actual sale purchase of shares. -Only then actual profit from actual sale purchase of shares will be allowed to be adjusted/set off against speculative share losses. -In the case of Godawari Capitals Ltd. 91 ITD 274 (Hyd.), it has been held that section 73 is applicable only in cases where losses are incurred in speculation business as defined u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided cases on the issue. 9. The assessee-company is a share broker having brokerage/commission income. The assessee has been trading in shares in its own account. The assessee has incurred loss of Rs. 45,74,931 on trading transactions of shares entered into by the assessee on its own account. The Assessing Officer opined that insofar as loss from a trading in shares in assessee s own account is concerned, it was a deemed speculative loss as the assessee shall be deemed to be carrying on a speculative business of purchase and sale of shares of other companies as per provisions of Explanation to section 73 of the Act. 10. The assessee has submitted that the assessee entered into share transaction on delivery basis and are thus of non-speculative nature as per section 43(5) of the Act. He further submitted that no real loss of speculative in nature, as per section 43(5) of the Act, has been incurred by the assessee in the year under consideration and so, the section 73 is not applicable to the assessee s case, and when section 73 is itself not applicable, the question of applying the Explanation thereto does not arise. To decide the controversy, it is necessary to refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny shall be deemed to be carrying on speculation business for the purpose of section 73 to the extent to which the business consists of the purchases and sale of such shares. The provisions of the Explanation to section 73 have to be contrasted with the provision of section 43(5), which defines speculative transaction to mean a transaction in which a contract for the purchase or sale of any commodity, including any stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. The Explanation to section 73 treats any purchase and/or sale of shares by certain companies to be speculative for the purpose of section 73 only. For the purpose of setting off and carrying forward of loss, the buying and selling of shares by certain companies are regarded by the statute as speculation business, even though the transaction of purchase and sale was followed up by delivery of scrips and as such cannot be treated as speculative transaction as defined in section 43(5). The opening words of the Explanation to section 73 are where any part of the business of a company . Any is a word which excludes limitation or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis of the amendment by way of Explanation to section 73 of the Income-tax Act, 1961, which came into force with effect from 1-4-1977. On appeal, the Commissioner of Income-tax (Appeals) confirmed the above action of the Income-tax Officer. The assessee filed a second appeal to the Income-tax Appellate Tribunal and it was contended on behalf of the assessee that the Explanation to section 73, on which reliance was placed by the lower authorities had no application, inasmuch as the assessee s only business was in share-dealings. It was claimed on behalf of the assessee that, in a case where the only business is in share-dealings, the Explanation can have no application and it applies when share dealing is only a part of the business carried on by the assessee. It was contended on behalf of the revenue that the Explanation applies even if the business is only in share dealings since part includes whole . Secondly, it was contended that the assessee had also business in money-lending as held by the Commissioner of Income-tax (Appeals) in which case the Explanation is indisputedly applicable. The Tribunal, after interpreting section 73, held that, where a part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recedence over the view which is in consonance with that of higher court s view. Judicial decision requires that the view expressed by the higher court should be followed by the lower courts. When a particular point has been decided by one High Court, and there is no contrary decision of any other High Court, the Tribunal being a subordinate authority cannot afford to ignore the ratio of the decision of the High Court. Under these circumstances, we hold that the present assessee company shall, for the purpose of section 73 of the Act, be deemed to be carrying on a speculation business to the extent to which its business consists of the purchase and sale of shares of other companies. Thus, the loss incurred in purchase and sale of shares of other companies shall be deemed to be a speculation loss. 16. In the case of CIT v. Park View Properties (P.) Ltd. [2003] 261 ITR 473 (Cal.), there was a loss in the share dealing account amounting to Rs. 8,98,799. The income from other sources and dividend income was of Rs. 5,73,701. The loss of Rs. 8,98,799 was treated to be a negative profit. The main income was consisting of share trading. In the light of these facts, the Hon ble High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, it is clear that the Explanation was inserted with a view to supply the meaning of speculation business carried on by a company, whose any part of business consists in the purchase and sale of shares of other companies for the purpose of section 73 of the Act, i.e., for the purpose of set-off of losses in speculation business carried on by the assessee. 18. To sum up the above discussion, we hold that the loss suffered by the assessee on trading as speculation loss, is to be treated as speculation loss as the assessee was deemed to be carrying on speculation business to the extent of business of purchase and sale of shares of other companies within the meaning of Explanation to section 73 of the Act, which Explanation was inserted for the purpose of section 73 of the Act and not otherwise. Thus, the loss so incurred would be eligible to be set-off against the speculation profit as per provisions contained in section 73 of the Act. The order of the CIT (Appeals) is thus upheld on this aspect of the matter as clearly supported by the decision of High Courts, the question having divergent opinion on the issue does not arise in such a manner so as to give any benefit t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
