2008 (1) TMI 882 - HC - Income Tax

Summary

Issues involved:
1. Whether the loss incurred by the assessee in the purchase and sale of shares can be treated as speculation loss or regular business loss u/s.70 & 71 of the I.T. Act.
2. Whether the loss incurred by the assessee in the business of dealing in shares can be treated as speculation loss within the meaning of explanation to S.73 of the I.T. Act.

Issue 1: Loss treatment as speculation or regular business:
The Tribunal held that the loss incurred by the assessee in the purchase and sale of shares should be treated as regular business loss, not speculation loss, and adjusted against other income u/s.70 & 71 of the I.T. Act. The judgment cited the case of Commissioner of Income-tax vs. Amritlal & Co. Ltd., 212 ITR 540 (Bom.), but clarified that it was not applicable to the present case due to different provisions being considered.

Issue 2: Loss treatment under explanation to S.73:
The Tribunal also considered whether the loss incurred by the assessee in dealing in shares could be classified as speculation loss under the explanation to Section 73 of the I.T. Act. The judgment distinguished this case from Aryasthan Corporation Ltd. vs. Commissioner of Income-tax, 253 ITR 401 (Cal.), which interpreted Section 109 (11) of the Income Tax Act, 1961. The judgment emphasized that the explanation to Section 73 creates a legal fiction, and in a related case, it was held that if income from sources other than trading in shares exceeds the income from trading in shares deemed as speculation, the explanation would not apply. Therefore, the Tribunal concluded that the explanation to Section 73 did not apply in this case, leading to the dismissal of the Appeal.

This judgment clarifies the treatment of losses in share transactions and the application of specific provisions under the Income Tax Act, providing insights into the distinction between speculation and regular business losses for tax purposes.