2014 (1) TMI 494 - HC - Income Tax

Whether transaction of shares on line trading is speculative transaction as specified under Section 43(5) - Held that - Section 43(5)(d) of the Act was introduced by Finance Act 2005 w.e.f 1.4.2006. The said provision would thus be applicable from assessment year 2006-07 - The assessee s claim that it was entitled to set off short term capital loss, has been rightly declined by the authorities below - Decided against assessee. Whether the date on which the units were sold would fall outside the ambit of three months from the record date - Held that - According to Halsbury s Laws of England third Edition Volume 37, the word month has been described as - When the period prescribed is a calendar month running from any arbitrary date the period expires with the day in the succeeding month immediately preceding the day corresponding to the date upon which the period starts; save that, if the period starts at the end of a calendar month which contains more days than the next succeeding month, the period expires at the end of the latter month - In common parlance, the month is hardly understood as a calendar month according to the Gregorian calendar, but it by and large means space of time from a day in one month to the corresponding day in the next - Both the general tenor of the term as well as the clear meaning that could be derived from the interpretation of the term occurring in S. 12(2) of the Rent Act clearly point to only one conclusion, namely, that the month referred to there is a span of time between two dates of two Contiguous months and not a calendar month - The period of three months reckoned from the date of purchase of the units on 26.12.2003, would expire on 26.3.2004 - The Assessing Officer, CIT(A) and the Tribunal were right in holding that the provisions of Section 94(7) (b) of the Act were fully applicable - Decided against assessee.

Summary

Issues:
1. Interpretation of provisions of Section 43(5) and Section 94(7) of the Income Tax Act, 1961.
2. Determination of whether the transaction of shares on line trading is speculative or short term capital loss.
3. Calculation of the period under Section 94(7) of the Act for claiming short term capital loss.

Analysis:
1. The appellant challenged the order disallowing the claim of loss from speculative transactions of stock options, arguing it should be treated as short term capital loss under Section 43(5)(d) of the Act. Additionally, the appellant contended that the units bought on a specific date were sold just after three months and one day, making them eligible for short term capital loss under Section 94(7)(b). The appellant cited legal definitions of 'month' from the General Clauses Act and Halsbury's Laws of England to support their argument. The revenue, however, supported the authorities' decision to disallow the claim of short term capital loss. The court found no merit in the appeal, stating that Section 43(5)(d) was applicable from a later assessment year, and the claim for short term capital loss was rightly declined.

2. The primary issue under consideration was whether the date of sale of units fell outside the three-month period from the record date, as per Section 94(7) of the Act. The court referred to relevant legal definitions of 'month' and judicial precedents to interpret the calculation of the three-month period. Citing the Gujarat High Court and the Apex Court's judgments, the court concluded that the period of three months reckoned from the date of purchase of units expired on the date of sale. Therefore, the authorities were correct in applying the provisions of Section 94(7)(b) and disallowing the claim of short term capital loss made by the appellant. The court dismissed the appeal, answering the substantial questions of law against the appellant and in favor of the revenue.