TMI Blog2016 (6) TMI 1123X X X X Extracts X X X X X X X X Extracts X X X X ..... speculation loss, as also the assessee is doing the trading of the shares, which has been rightly held by the A.O. and confirmed by the Tribunal and it cannot get settle as business income with the other trading. Thus, this Court is in agreement with the view taken in the case of R.P.G Industries Ltd., (supra) that the loss suffered by a company in share transactions is to be treated as a speculative loss within the meaning of Section 73 of the Act. On consideration of the entire materials on record including the decision cited, as well as, order passed by the AO and the Tribunal, we hold that the learned Tribunal took the correct view of the law and we accordingly answer the question formulated in this appeal in favour of the Department and against the assessee. - TAX APPEAL NO. 1132 of 2006 - - - Dated:- 29-6-2016 - MR.KS JHAVERI MR.G.R.UDHWANI JJ. Appearance: MRS SWATI SOPARKAR, ADVOCATE for the Appellant(s) No. 1 MR NITIN K MEHTA, ADVOCATE for the Opponent(s) No. 1 JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) By way of this appeal, the appellantassessee has challenged the order of the ITAT made in ITA No.1791/Ahd/2000 dated 20/01/2006, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determined at ₹ 39,73,505/is not correct. 3.3 Learned Counsel for the appellant has taken us to the order passed by the CIT (A), more particularly, paragraph No.4 and contended that provisions of Explanation to Section 73 shall not be applicable to the share transactions of the appellant and therefore the claim of the appellant of loss of business loss is justifiable and the same should be allowed to be set off against the other income of the assessee. 3.4 Learned Counsel for the appellant has further contended that the learned Tribunal has also not correctly interpreted the provision of Explanation to Section 73 of the Act in view of the decision in case of Commissioner of Incometax v Darshan Securities (P.) Ltd. [2012] 341 ITR 556 (Bombay). He has relied upon the discussion made in paragraph No.8 of the aforesaid decision which reads thus: 8. In our view, the submission which has been urged on behalf of the Revenue cannot be accepted. Leaving aside for a moment, the exception, which is carved out by the explanation to Section 73, the explanation creates a deeming fiction by which a company is deemed to be carrying on a speculation business where any part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ross total income consists predominantly of income from the four heads that are referred to therein. Obviously, in computing the gross total income the normal provisions of the Act must be applied and it is only thereafter, that it has to be determined as to whether the gross total income so computed consists mainly of income which is chargeable under the heads referred to in the explanation. 3.5 Learned Counsel for the appellant has further contended that, if the gross income is taking into consideration, then it will squarely cover by the decision of the Hon ble Bombay High Court in case of Darshan Securities (P.) Ltd. (supra) and therefore the appeal of the assessee is required to be allowed and answer may be given in affirmative in faovur of the assessee. 4. On the other hand, learned Counsel for the revenue Mr.Mehta has mainly contended that this will fall under Explanation to Section 73 of the Act and it is a speculative business and the very purpose of Section 73 is to give effect of loss on speculation and it cannot give set off against business income and therefore, there is no speculation income and this aspect has rightly been considered by the A.O., as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the assessee who is engaged in a business involving the actual delivery of shares, cannot be regarded as being engaged in speculation business. 10. The submission which has been urged on behalf of the Revenue, cannot be accepted, having regard to the plain meaning of the explanation to Section 73. The 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 subsections (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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 TAXMAN 0223 and has relied upon following paragraph of the said decision which reads as under: Sec, 73 of the Act deals With loss in speculation business. It provides as follows: 73. Losses in speculation business.- ( 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, any, of another speculation business. S. Subs. (2) of s. 73 lays down that where any loss in respect of a speculation business has not been wholly set off under subs. (1), so much Of the loss as has not been set off shall be carried forward to the following assessment Year. It is also further provided that such carried forward loss In speculation business shall be set off against profits and gains of any speculation business of the subsequent assessment year. No loss shall be carried forward under this section for more than succeeding eight assessment years. There IS an Explanation to s. 73 which provides as follows : Explanation : Where any part of the business of a company (other than an investment company, as defined in cl. (ii) of s. 109, or a company the principal business of which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has also relied upon the decision in case of R.P.G. Industries Ltd. vs. Commissioner of Income Tax Anr. (2011) 338 ITR 0313 and has relied upon paragraph Nos.15, 25, 27 and 35 which reads as under: 15. After hearing the learned counsel for the parties and after going through the aforesaid provisions quoted above, we find that in case of an ordinary assessee, who has suffered loss from his business, is entitled to have adjustment from other heads as provided in Sections 71 and 72 of the Act except the case of speculation business as provided in Section 43(5) of the Act. In the case before us, undisputedly the loss suffered by the assessee resulted from a transaction of share where there was actual delivery of share scripts and therefore, the same could not be a speculative transaction as provided in the definition. However, by the added Explanation to Section 73, a legal fiction has been created by which 14 among the assessees who is a company, as indicated in the said Explanation, deals with the transaction of share and suffers loss, such transaction should be treated to be speculative transaction within the meaning of Section 73 of the Act notwithstanding the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted with the provisions of s.54 (5), which defines speculative transaction to mean a transaction in which a contract for the purchase or sale of any commodity, including any stock and share, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. The Explanation to s.73 treats any purchase and/or sale of shares by certain companies to be speculative for the purpose of s.73 only. For the purpose of setting off and carrying forward of loss, buying and selling of shares of certain companies are regarded by the statute as speculation business, even though the transaction of purchase and sale was followed by delivery of scrips and as such cannot be treated as speculative transaction as defined in s.43 (5) of the IT Act. 4.7 Taking into account the aforesaid decisions of various High Courts as relied upon, learned Counsel for the revenue has contended that the view taken by the AO and Tribunal is just and proper and therefore, the findings arrived at by the Tribunal and A.O. may not be disturbed and answer may be given in favour of the revenue. 5. We have heard learned Counsel appearing for the respective parties. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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