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TMI Blog2006 (3) TMI 187X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, the assessee's contention was that the loss of Rs. 64,13,807 on account of shares acquired in primary market and subsequent sale thereof was not hit by the Explanation to section 73 of the Act. The Assessing Officer examined the meaning of the terms purchase & sale; Purchase as - (1) the action of buying which cannot be done without making payment; (2) a thing bought - which cannot be done without making payment. Sale as - (1) the exchange of something for money which presupposes the acceptance of payment; (2) the activity of selling - which cannot be done without accepting payment. Both the words according to him carry along with them a physical exchange of the commodity and money; and in the context of purchase money is to be given and commodity is to be taken and conversely, in the context of sale, commodity is to be given and money is to be taken; neither the exchange of commodity nor the exchange of money is absent from either of the two words; and therefore, the existence of a physical exchange of commodity and the physical exchange of money is a must. He further stated both the words, "purchase" and "sales" were complimentary to each other. Not only this, the genesi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of civil suites, in the Civil Appeal No. 512 of 1961 and Appeal No. 486 of 1963, he also observed that the Companies Act, 1956 and the Consumer Protection Act, 1986, were the respective subject-matters of both the appeals and not the Income-tax Act, 1961, leave along Explanation below section 73 thereof. The question before the Supreme Court in the first case was about the meaning of the word "allotment" occurring in section 75(1) of the Companies Act, 1956. This section requires a company to file a return of the allotment of its shares with the registrar within a month of the making allotment. A shareholder of the company moved the Court complaining that the company had not filed the return required by that section. The Supreme Court explained the meaning of term "allotment" particularly because the shares had been forfeited by the company under its articles and then re-issued to a different subscriber. The CIT(A) therefore, held that it would be wholly unreasonable to import the observations and findings of such distinct and distinguished surroundings to an altogether independent and unrelated field viz., the Income-tax Act, 1961. In the second case, he observed that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also been sold in the market. The entirety of facts and the plain reading of Explanation to section 73 of the Act, according to him, safely confirmed the view that the case of the assessee without any iota of doubt, was covered by the Explanation to section 73 of the Act. 5. Shri J.P. Shah, the learned counsel of the assessee raised two main issues for our consideration - (i) a preliminary issue based on the object for inserting the Explanation to section 73; and (ii) Acquisition of shares by allotment are not purchase of shares and therefore, the Explanation even otherwise is not applicable. 5.1 On preliminary issue he referred to paragraph 19.2 of the Circular No. 204 dated 24-7-1976 and submitted that the object of introducing this provision was to curb the device sometimes resorted to by the business houses, controlling groups of companies to manipulate and reduce the taxable income of the companies under their control. He submitted that on such instances having come to the notice of the Government it was thought fit to introduce a provision to the effect that even if share dealings by these companies were real in the sense that there was actual physical delivery and such d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xmi Feeds & Exports Ltd. v. Asstt. CIT [1997] 62 ITD 315, wherein it is held that acquiring shares by subscription of public issue and sale thereof would not amount to purchase and sale of shares so as to apply the Explanation to section 73 of the Act. 5.3 On being invited the attention of the assessee's counsel to the decision of the Supreme Court in the case of CIT v. T.N. Aravinda Reddy's [1979] 120 ITR 46, he gave written submissions stating that (i) T.N. Aravinda Reddy's decision does not apply because it was dealing with purchase of an existing thing; whereas in assessee's case the thing came into existence after an act which was allotment but which is alleged to be purchased by the Department; (ii) that T.N. Aravinda Reddy itself talks about context and other indicia and supports the submission of the assessee; (iii) that allotment is not purchase, is very clearly staled by the Supreme Court in Sri Gopal Jalan & Co.'s case and in spite of a direct Supreme Court decision, allotment should not be imported into the meaning of the word "purchase" in a deeming provision, which is required to be strictly interpreted. It is worth remembering that the Supreme Court in T.N. Aravinda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd carry forward of losses in speculative business. It provides: "Losses in speculation business. 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 shall be carried forward to the following assessment year and so on. (3) In respect of allowance on account of depreciation or capital expenditure on scientific research, the provisions of sub-section (2) of section 72 shall apply in relation to speculation business as they apply in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Explanation in paragraph 19 on which reliance is placed by both the sides reads as under:- "19.1 Treatment of losses in speculation business-section 73 - Section 73 of the Act provides that any loss computed in respect of speculation business carried on by an assessee will not be set off except against the profits or gains, if any, of another speculation business. Further where any loss, computed in respect of a speculation business for an assessment year is not wholly set off in the above manner in the said year, the excess shall be allowed to be carried forward to the following assessment year and set off against the speculation profits, if any, in that year, and so on. The Amending Act has added an Explanation to section 73 to provide that the business of purchase and sale of shares by companies which are not investment or banking companies or companies carrying on business of granting loans or advances will be treated on the same footing as a speculation business. Thus, in the case of aforesaid companies, 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er:- "17. A speculative transaction and the loss arising out of a speculative transaction have been highlighted in the scheme of Income-tax Act, 1961, more particularly in the context of computation of income under the head "Profits and gains of business or profession", for the purpose of restricting the scope of setting off and carry forward of such loss. The law, for that matter, treats speculative transaction carried on by an assessee as a distinct and separate business if the nature of such transactions are such that, it constitutes a business. This is provided under Explanation 2 to section 28 of the Act. Likewise the definition of the term 'speculative transaction' is provided in section 43(5) in a substantive manner. Generally speaking, the ambit and scope of speculative transaction and speculation loss need to be confined within the limit provided by law contained in the above-mentioned provisions. But, further to take care of any device that may be attempted by business houses controlling group of companies for the purpose of '"reducing the tax incidence, the law has annexed an Explanation to section 73 of the Income-tax Act, 1961. The said Explanation is a deeming provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er se. Further, such transactions, even; in the case of certain categories of companies were permitted and were treated as normal business transactions so that the loss arises out of such transactions could be adjusted; against the normal business profits. The ban is applicable only to a very limited category of companies. Therefore, it is all the more necessary to apply the provision only where a device is adopted by the company concerned to reduce its taxable income by indulging, in such share: transactions which are apparently real, and may even involve actual delivery, but are carried but with the object of reducing the taxable income. In the scheme of section 73 fortified by the Explanation, there is no scope for ignoring genuine transactions in shares which have been carried out without any motive of reducing the taxable income of the company." 10.1 We however do not find ourselves in agreement with the assessee and the decision of SMC. The language of the provision is quoted above and is clear. No ambiguity is seen in understanding its plain language and therefore, there is no scope of construing the provision of the Explanation to a certain type of transactions only. "The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in a manner which carries out the intention of the Legislature and that the intention of the Legislature must be gathered from the words of the statute itself. If the words are unambiguous or plain, they will indicate the intention with which the statute was passed and the object to be obtained by it. It is impermissible for the Court to read into a taxing provision any words which are not there or exclude words which are there. The words found in the provision must be given their natural meaning. There is no scope for importing into the statute words which are not there. Such importation would be, not to construe, but to amend the statute. Even if there be a casus omisus, the defect can be remedied only by legislation and not by judicial interpretation. The normal rule of construction is that the intention of the Legislature is primarily to be gathered from the words used in the statute. 11.6 In CED v. Alladi Kuppuswamy [1977] 108 ITR 439 (SC), it was held that "When the phraseology of a particular section of the statute takes within its sweep the transaction which is taxable, it is not for the Court to strain and stress the language of the section so as to enable the taxpayer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sentially ambiguous. [See "Statutory Interpretation": 43 far. LR. 863 (868)]". The observations of Lord Russell of Killowen in Attorney General v. Carlton Bank [1899] 2 QB 158, 164, though an early pronouncement, is refreshing for its broad common sense: "I see no reason why special canons of construction should be applied to any Act of Parliament, and I know of no authority for saying that a taxing Act is to be construed differently from any other Act. The duty of the court is, in my opinion, in all cases the same, whether the Act to be construed relates to taxation or to any other subject, namely, to give effect to the intention of the Legislature, as that intention is to be gathered from the language employed having regard to the context in connection with which it is employed ... Courts have to give effect to what the Legislature has said." 12. Therefore, one of the pillars of statutory interpretation, viz., the literal rule, demands that if the meaning of the statutory interpretation is plain, the Courts must apply the same regardless of the result. The very concept of interpretation connotes the introduction of elements as are necessarily extrinsic to the words in the stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the court dealt with the interpretation of fiscal statute and observed as under:- "Let us, however, at this juncture, consider some of the oft cited decisions pertaining to the interpretation of the fiscal statutes being the focal point of consideration in these appeals. Lord Halsbury as early as 1901, in Cooke v. Charles A. Vogeler Company [1901] AC 102 (HL) stated the law in the manner following: "a court of law, has nothing to do with the reasonableness or unreasonableness of a provision of a statute except so far as it may hold it in interpreting what the Legislature has said. If the language of a statute be plain, admitting of only one meaning, the Legislature must be taken to have meant and intended what it has plainly expressed, and whatever it has in clear terms enacted must be enforced though it should lead to absurd or mischievous results. If the language of this sub-section be not controlled by some of the other provisions of the statute. It must, since, its language is plain and. unambiguous, be enforced, and Your Lordships' House sitting judicially is not concerned with the question whether the policy it embodies is wise or unwise, or whether it leads to consequenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Legislature and the court ought not, under any circumstances, to substitute its own impression and ideas in place of the legislative intent as is available from a plain reading of the statutory provisions." 13. This is the recent trend also. In the case of Vikrant Tyres Ltd. v. First ITO [2001] 247 ITR 821, the Supreme Court while dealing with the levy of interest under section 220(2) in respect of the demand which was paid on the issue of the notice under section 156 but refunded to the assessee due to appellate order, but restored by the High Court order held that interest can be levied under this section only when there was a default of the assessee and there can be no revival of the demand if the original notice of demand was satisfied by the assessee within the prescribed time even though the demand was restored by the subsequent order of the High Court. In that connection, the Supreme Court observed that: "Admittedly, on a literal meaning of the provisions of section 220(2) of the Act, such a demand for interest cannot be made." In this connection, the Supreme Court observed as under:- "It is settled principle in law that the courts while construing 'revenue Acts ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escribed period for notification under section 4(1). The prescription of time limit in section 4(1) is peremptory in nature. After the quashing of a declaration under section 6 the fresh period of one year from the date of quashing of that declaration for issuing a fresh declaration is available to the State Government. That period starts from the date on which the original publication of notification under section 4(1) was made and can be extended only by the period of stay up to the date of the order of the High Court. It cannot be further extended by the period from the date of the order up to the date of receipt of the order quashing the earlier declaration. In that connection, the Constitutional Bench of five Judges following its earlier order in the case of Rishabh Agro Industries Ltd. v. PNB Capital Services Ltd. [2000] 5 SCC 515 held, "the court cannot read anything into a statutory provision which is plain and unambiguous. A statute is the edict of the Legislature. The language employed in a statute is the determinative factor of legislative intent. The first and primary rule of construction is that the intention of the legislation must be found in the words used by the Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collected from the plain and unambiguous expression used therein, rather than from any notions which may be entertained by the court as to what is just or expedient". (III) Allahabad High Court in the case of CIT v. Champarun Sugar Works Ltd. [1997] 225 ITR 863, while dealing with the contention that payment of personal allowance is not a benefit or amenity or perquisite but a part of salary paid to him as defined in clause (h) of Rule 2 of Part-A of the Fourth Schedule to the Income-tax Act, held that the term "personal allowance" has not been defined in the Income-tax Act. The personal allowance does not partake of the character of dearness allowance. Therefore, personal allowance does not form part of "salary" under clause (h) of rule 2 of the Fourth Schedule for the purpose of computing disallowance under section 40(c)(iii) of the Act and in that context, the Court held that it is the cardinal principle of interpretation of fiscal laws that a given provision should be construed strictly and so long as the provision is free from ambiguity, the words used therein should be given plain meaning without importing into it any foreign words and without subtracting any words therefrom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ambiguity: When the words used are ambiguous, then they could stand to be examined and construed in light of surrounding circumstances in CIT v. Sodra Debi [1957] 32 ITR 615 (SC). In construing the Act, one must adhere closely to the language of the Act. If there is ambiguity in the terms of a provision, recourse must naturally be had to well-established principles of construction but it is not permissible first to create an artificial ambiguity and then try to resolve the ambiguity by resort to some general principle in CIT v. Indian Bank Ltd. [1965] 56 ITR 77 (SC). Similarly in Anandji Haridas & Co. (P.) Ltd. v. Engg. Mazadoor Sangh [1975] 99 ITR 592 (SC), it was held that "As general principle of interpretation, where the words of a statute are plain, precise and unambiguous, the intention of the Legislature is to be gathered from the language of the statute itself and no external evidence such as Parliamentary Debates, Reports of the Committees of the Legislature or even the statement made by the Minister on the introduction of a measure or by the framers of the Act is inadmissible to construe those words. It is only where a statute is not exhaustive or where its language is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e idle to expect every statutory provision to be 'drafted with divine presence and perfect clarity'. 14.3 When plain meaning results in absurdity: In Gurudevdatta VKSSS Maryadit v. State of Maharashtra AIR 2001 SC 1980, it has been held: "It is a cardinal principle of interpretation of statute that the words of a statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning, unless such construction leads to some absurdity or unless there is something in the context or in the object of the statute to suggest to the contrary. The golden rule is that the words of a statute must prima facie be given their ordinary meaning. It is yet another rule of construction that when the words of the statute are cear, plain and unambiguous, then the courts are bound to give effect to that meaning, irrespective of the consequences. It is said that the words themselves best declare the intention of the law-giver. The courts have adhered to the principle that efforts should be made to give meaning to each and every word used by the Legislature and it is not a sound principle of construction to brush aside words in a statute as being inap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al instructions and circulars etc. are all subsidiary things which do not control the meaning and ambit of the statute. 15.1 In CIT v. Madurai Mills Co. Ltd. [1973] 89 ITR 45 (SC), the court held that it is well-settled that considerations stemming from these things must not be allowed to override the plain words of a statute. It was a case with regard to legislative history. Similarly for marginal notes in Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585 (SC) it was held that the marginal note or heading is certainly a relevant factor to be taken into consideration in construing the ambit of the section. The marginal note of a section could give an indication as to what exactly was the mischief that was intended to be remedied and also throw light on the intention of the Legislature. CIT v. Vadilal Lallubhai [1972] 15.2 It is undoubtedly true that the marginal note to a section cannot be referred to for the purpose of construing the section but as observed in K.P. Verghese v. ITO [1981] 131 ITR 597(SC), it can certainly be relied upon as indicating the drift of the section or, to use the words of Collins M.R. in Bushel v. Hammond [1904] 2 KB 563 (CA), to show what the section i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not 'law' and Parliament may or may not accept his proposal." 15.6 Departmental instructions, as held in CIT v. K. Srinivasan & K. Gopalan [1953] 23 ITR 87 (SC), cannot be considered in case of construction of a statute. 16. In the case of CED v. Smt. S.T.B. Ameen Khaleeli [1983] 143 ITR 679, referred to by the Single Member, the Madras High Court considered the provisions of section 46(1) of the Estate Duty Act, 1953 and in that connection observed the idea behind both the clauses of this section is based on the apprehension of q the Legislature that the requirement under section 44 of the Act that a debt must be for full consideration and must be incurred bona fide could be easily defeated by the deceased by making an unconditional gift would be creditor and then borrowing the amount of the value of the gift from the donee with a diminution in the deceased's purchasing powers. In other words, the policy behind the provision is to counteract any attempt at avoidance or evasion of estate duty in this manner. In that connection, the Madras High Court observed "Though ordinarily understood the expression 'at any time', used in the words "any person who was at any time entitled to" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... language is at best an imperfect instrument for the expression of human thought. By extracting the famous words of Judge Learned Hand, the Supreme Court observed that they can do no better: "... it is true that the words used, even in their literal sense, are the primary and ordinarily the most reliable source of interpreting the meaning of any writing: be it a statute, a contract or anything else. But it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning." 17.1 The court thereafter, observed as under:- "The primary objection against the literal construction of section 52, sub-section (2), is that it leads to manifestly unreasonable and absurd consequences. It is true that the consequences of a suggested construction cannot alter the meaning of a statutory provision but it can certainly help to fix its meaning. It is a well-recognised rule of construction that a statutory provision must be so construed, if possible, that absurdity and mischief may be avoided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame price at which he originally purchased it, he should be liable to pay tax on the basis as if he has received the market value of the property as on the date of re-sale, if, in the meanwhile, the market price has shot up and exceeds the agreed price by more than 15%. Many other similar situations can be contemplated where it would be absurd and unreasonable to apply section 52, sub-section (2), according to its strict literal construction. We must, therefore, eschew literalness in the interpretation of section 52, sub-section (2), and try to arrive at an interpretation which avoids this absurdity and mischief and makes the provision rational and sensible, unless of course, our hands are tied and we cannot find any escape from the tyranny of the literal interpretation. It is now a well-settled rule of construction that where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the court may modify the language used by the Legislature or even "do some violence" to it, so as to achieve the obvious intention of the Legislature and produce a rational construction: Vide Luke v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onnection, the speech made by the Finance Minister while moving the amendment introducing sub-section (2) was extremely relevant, as it throws considerable light on the object and purpose of the enactment of sub-section (2). It, however, hastened by stating, "now, it is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation was enacted. The Finance Minister's speech for introducing sub-section (2) was quoted as under:- "Today, practically every transaction of the sale of property is for a much lower figure than what is actually received. The deed of registration mentions a particular amount, the actual money that passes is considerably more. It is to deal with these classes of sales that this amendment has been drafted .... It does not aim at perfectl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions where the consideration for the transfer was understated by the assessee and was shown at a lesser figure than that actually received by him. It then observed at page 617 as under:- "Moreover, if sub-section (2) is literally construed as applying even to cases where the full value of the consideration in respect of the transfer is correctly declared or disclosed by the assessee and there is no understatement of the consideration, it would result in an amount being taxed which has neither accrued to the assessee nor been received by him and which from no view-point can be rationally considered as capital gains or any other type of income. It is a well-settled rule of interpretation that the court should as far as possible avoid that construction which attributes irrationality to the Legislature. Besides, under entry 82 in List I of the Seventh Schedule to the Constitution, which deals with "Taxes on income other than agricultural income" and under which the Income-tax Act, 1961, has been enacted, Parliament cannot "choose to tax as income an item which in no rational sense can be regarded as a citizen's income or even receipt." Subsection (2) would, therefore, on the cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estricted to income of that category. 18.1 As held in K.P. Varghese's case itself the external aids like marginal notes, aims and objects, the statements of the Minister at the time of introducing the particular provision cannot be referred to ascertain the meaning of that terms used therein in a statute, they are only to understand the what were the circumstances in which the provision was introduced. They are to be adopted when there is ambiguity or to remedy the mischief or when the literal meaning give absurd results or results contrary to the vires of the Constitution. In this case the Supreme Court applied the external aid of construction, because the plain meaning of the provision of section 52(2) were found to be contrary to sub-section (1), contrary to the mischief sought to be remedied and also contrary to the legislative powers of the Parliament. In the present case neither is there any contradiction to any provision, nor this provision prohibits any mischief to be remedied, nor against the constitutional provisions. 19. In Karnataka High Court in Mysore Rolling Mills (P.) Ltd. the facts that the assessee-private limited company purchased shares of another company and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f shares by companies which are not investment or banking companies or companies carrying on the business of granting loans and advances will be treated on the same footing as 'speculation business'." Therefore, the circular does not leave any room for doubt that the Explanation will apply to the business of purchase and sale of shares of certain companies. Nowhere in the circular has any indication been given that where the only business of a company consists of purchase and sale of shares, the Explanation will not apply." 21. We therefore hold that the provisions of Explanation to all the transactions of purchase and sale of shares of the companies whose business consist of such purchase and sale of shares and the same cannot be restricted to only those transactions which are found to device sometime resorted to by business houses controlling groups of companies to manipulate and reduce the taxable income of companies under their control. 22. Coming to the original case of the assessee that the Explanation to section 73 does not apply to transaction of acquiring shares by allotment. The reliance is placed on Sri Gopal Jalan & Co.'s case decision of the Supreme Court in Laxmi F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h or may be implied from the conduct of the parties. 6. Existing or future goods.-(1) The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or future goods. (2) There may be a contract for the sale of goods the acquisition of which by the seller depends upon a contingency which may or may not happen. (3) Where by a contract of sale the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods." 23. T.N. Aravind Reddy's case dealt with the concept of 'purchase'. In this case the facts were that one of the coparcener sold his house and earned capital gains. He was also a co-owner of a common house with his 3 brothers. These 3 brothers executed released deeds for a consideration of Rs. 30,000 each in his favour and the question was whether the eldest brother will get the benefit of section 54; whether he has fulfilled the condition of having "purchased" a house property for residence? The Supreme Court noted and agreed with an English decision which held that; "purchase primarily means acquisition for money paid, not adjusted." The Supreme Court agreed with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that: "Till such allotment the shares do not exist as such. It is on allotment in this sense that the shares come into existence." But that does not make any difference there can be a purchase and sale of future property or goods as provided under sections 5 and 6 of the Sales of Goods Act extracted above. In any case the share becomes existing property the moment it is allotted. Once allotment is made it becomes a property in existence cannot thereafter be said it was a case of purchase or sale of non-existing goods or property. 24. In Laxmi Feeds & Exports Ltd.'s case the Tribunal held shares allotted are not shares purchased and therefore, the Explanation would not apply, has not taken into consideration that shares are goods and future goods can also be agreed to be sold as provided in the Sales of Goods Act and also the fact that on allotment shares become ascertained and specific goods and amounts to purchase of shares/goods on allotment. 25. Let us have a look on various terms that are frequently used in such like cases. These are 'acquired', 'allotment', 'sale' and 'purchase'. 25.1 "Acquire, in the law of Contracts and Descents is to become the owner's of property: to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is necessary that there should be an agreement between the parties for the purpose of transferring title to goods and it must be supported by money consideration and as a result of the transaction property must actually pass in the goods". On a parity of reasoning, to constitute a purchase of goods there must be an agreement for purchase of goods and the passing of property pursuant to such an agreement. 25.4 Purchase means the acquisition of property by a party's own act, as distinguished from acquisition by act of law. As defined in section 101, Transfer of Property Act purchase means 'To acquire property whether movable or immovable by paying money or its equivalent.' Law Lexicon defines the 'purchase' as a word with two significations - a popular but restricted one, and a legal but enlarged one. As a noun in its popular and more limited sense; acquisition by way of bargain and sale or other valuable consideration, the transmission of property from one person to another by their voluntary act and agreement, founded upon a valuable consideration; the buying of real estate and of goods and chattels; that which is obtained for a price in money or its equivalent; acquisition f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove defining what sales means. Sale in the case of a seller is purchase in the hands of the purchaser and therefore, where under a contract of sale the property is transferred from the seller to the buyer, the contract is called a sale, conversely a purchase. The sale of shares is complete when the shares are allotted as on allotment it becomes an ascertained goods/ property. 28. A careful perusal of Explanation to section 73 indicates that this Explanation lays down that the expression "speculation business", under the specified circumstances, will cover assessee's business 'to the extent to which the business consists of the purchase and sale of such shares'. Unlike the definition under section 43(5) which defines 'speculative transactions', the provisions of Explanation to section 73 lay down the circumstances in which, and the extent to which, a business is to be deemed as, 'speculation business'. The thrust of the provisions under Explanation to section 73 is on the nature of 'business', rather than nature of 'transaction'. Even the circular itself provides that the Explanation would apply to the business of purchase and sale of shares of certain companies. This is how the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee that the assessee does not fall within the purview of Explanation to section 73 because in the year of account, there was only purchase of shares and no sale of shares. Their Lordships have held in the decision that section does not require that both purchase and sale of shares should take place in the same year. What is to be seen is whether the business of the assessee consists in purchase and sale of shares." 28.3 In the case of Paharpur Colling Towers Ltd., the Calcutta Bench of the Tribunal observed as under: "17. We are also of the considered view that even if the loss is only on account of fall in value of stock, it is still in the nature of loss incurred from that business. A carefully perusal of Explanation to section 73 indicates that this Explanation lays down that the expression 'speculation business' under the specified circumstances, will cover assessee's business 'to the extent to which the business consists of the purchase and sale of such shares'. The definition thus sought to be placed is of the 'speculation business' and not 'speculation profits'. As to what will constitute profits from such speculation business, this is to be essentially governed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing. The correct profit or loss cannot be determined without taking into account the value of opening stock and the value of closing stock. In fact, in the Profit & Loss Account, the entire loss of Rs. 1,60,33,083 arising on account of share transactions including valuation of closing stock has been adjusted against the profit and gains from business. The appellant has not adjusted only loss of Rs. 6,26,225 to the Profit & Loss Account and it had adjusted the entire loss of Rs. 1,60,33,083 to the g business profit. Therefore, while making the adjustment under section 143(1)(a), the Assessing Officer was duty bound to examine this aspect as to whether loss arising from share transactions was correctly adjusted against business profit or not. Since the appellant had adjusted the entire loss of Rs. 1,60,33,083 and not of Rs. 6,26,225 the Assessing Officer was justified in treating the entire loss as speculation loss. It may also be mentioned that there cannot be any controversy as made out by the appellant that the loss on share transactions has to be determined by excluding the value of closing stock of the shares, it is only made out by the appellant to wriggle out the rigours of Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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