2014 (12) TMI 808 - HC - Income Tax

Scope of section 73 for setting off - Whether a single transaction of purchase of shares of TISCO carried forward from settlement to settlement can be said to be series of transactions so as to constitute a speculation business within the scope of Section 73 of the Act depriving the assessee to set off of loss against other business profits Held that - The Tribunal was rightly of the view that in the case of Pankaj Oil Mills Versus Commissioner Of Income-Tax, Gujarat 1976 (5) TMI 3 - GUJARAT High Court has explained the subtle and significant distinction between speculative transaction and hedging transaction the AO was justified in treating the loss suffered by the assessee as business loss since it was a loss sustained in speculation business also in Commissioner of Income Tax vs. Shree Textiles 1993 (5) TMI 14 - RAJASTHAN High Court it has been held that it was a speculation transaction and as such could not be adjusted against the business income. In a case where a trader carries on a business part of which (even one transaction) is in the category of speculative transaction as defined under section 43(5) and part of which falls in the category of business, then the object of Explanation 2 is to treat them separately. A single transaction may constitute a speculative business so as to be treated differently from other business under section 28. Decided against assessee.

Summary

Issues:
1. Disallowance of loss in share transaction as speculative transactions.
2. Whether a single transaction of purchase of shares can be considered a series of transactions constituting a speculation business.

Issue 1: Disallowance of Loss in Share Transaction as Speculative Transactions

The appellant filed a return of income for the assessment year 1993-94, declaring income of Rs. 4,17,944. An adjustment was made to the income returned, which was challenged by the appellant under section 154 of the Income Tax Act, 1961. The adjustment was rectified, and the income was computed at Rs. 4,17,944. However, an assessment order was passed later, computing the total income at Rs. 8,77,684, mainly due to the disallowance of a loss in share transactions as speculative transactions falling under section 43(5). The appellant contended that the transactions were not speculative as per proviso (b) to section 43(5) and a Circular of the CBDT dated 12.9.1660. The appellant's appeal against the assessment order was dismissed by the CIT (A), who upheld the disallowance of the loss. The Income Tax Appellate Tribunal also confirmed this decision, leading to the filing of appeals by the appellant.

Issue 2: Whether a Single Transaction of Purchase of Shares Constitutes a Speculation Business

The court formulated the question of law regarding whether a single transaction of purchase of shares carried forward from settlement to settlement can be considered a series of transactions constituting a speculation business under Section 73 of the Act. The appellant argued that the transactions were not speculative and that the loss should be set off against other income. The appellant contended that the transaction was a single transaction of speculation distinct from speculation business, especially as it was carried over seven settlement dates. The appellant relied on various court decisions to support these contentions.

The respondent opposed the appellant's contentions, stating that the appeals should be dismissed based on the concurrent findings of the authorities below. The Tribunal had partly allowed the appeals after considering all facts. The court, after hearing both parties and examining the material on record, referred to the distinction between speculative and hedging transactions as explained by the Full Bench of the Gujarat High Court. The court ultimately agreed with the Tribunal's findings that the loss suffered by the appellant constituted a business loss in speculation business. It cited a similar case decided by the Rajasthan High Court to support its decision. Consequently, the appeals were dismissed, and the question of law was answered in favor of the revenue and against the assessee.

This detailed analysis of the judgment addresses the issues of disallowance of loss in share transactions as speculative transactions and whether a single transaction of purchase of shares can be considered a series of transactions constituting a speculation business. The court's decision, based on legal interpretations and precedents, provides a comprehensive understanding of the case and the reasons behind the dismissal of the appeals.