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Issues Involved: Interpretation of Explanation to section 73 of the Income-tax Act, 1961 regarding applicability to a company not involved in purchase of shares during the assessment year.
Summary: The High Court of Calcutta addressed the question of law referred by the Tribunal regarding the applicability of the Explanation to section 73 of the Income-tax Act, 1961. The assessment year in question was 1978-79, with the relevant period ending on 3-6-1977. The Tribunal found that the assessee, a limited company, was engaged in various businesses including dealing in paper, coal, chemicals, and coal handling. The Income Tax Officer made an addition citing speculation loss under section 73, which was upheld by the Commissioner of Income-tax (Appeals). The Commissioner observed that the company primarily dealt in coal, paper, and coal handling, with minimal transactions in shares and debentures during the year. The loss in share dealings arose from the valuation of closing stock of shares. The Tribunal, in further appeal, disagreed with the Commissioner's interpretation of the Explanation to section 73, emphasizing the requirement of both purchase and sale of shares for the Explanation to apply. Since there was no purchase of shares during the year, the Tribunal ruled in favor of the assessee, deleting the disallowance of the speculated loss. Section 73 of the Act deals with losses in speculation business, stating that such losses can only be set off against profits of another speculation business. The section also allows for the carry-forward of unabsorbed losses to subsequent assessment years. The Explanation to section 73 deems a company to be carrying on a speculation business if a part of its business involves the purchase and sale of shares. The Court clarified that the section applies if any part of the company's business consists of share transactions, regardless of whether both purchase and sale occur in the same year. In conclusion, the Court ruled against the assessee, stating that the business of buying and selling shares constituted a speculation business, as per the provisions of section 73 and its Explanation. The judgment was delivered by Sen, J., with Banerjee, J., concurring.
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