2003 (3) TMI 264 - AT - Income Tax

Summary

Issues Involved:
1. Whether the business loss claimed by the assessee should be treated as speculation loss u/s 73 of the Income-tax Act, 1961.
2. Applicability of Explanation to section 73 in determining the nature of the loss.
3. Whether the loss should be carried forward as a business loss u/s 72 or as a speculation loss u/s 73.

Summary:

Issue 1: Treatment of Business Loss as Speculation Loss
The assessee filed a return disclosing a loss of Rs. 1,31,043, which included a loss of Rs. 87,000 from the sale of shares. The Assessing Officer treated this loss as speculation loss u/s 73 of the Income-tax Act, 1961. The CIT(A) confirmed this treatment, relying on the Explanation to section 73, which deems the business of purchase and sale of shares by certain companies as speculation business.

Issue 2: Applicability of Explanation to Section 73
The assessee argued that the Explanation to section 73 should not apply as their entire business was dealing in shares, and the loss should be treated as a business loss u/s 72. The Ld. counsel contended that the Explanation to section 73 is only for the purpose of section 73 and does not extend to sections 70, 71, and 72. The Ld. Departmental Representative supported the lower authorities' view, citing decisions from the jurisdictional High Court, which held that the Explanation to section 73 applies even if the entire business is share dealing.

Issue 3: Carry Forward of Loss
The Judicial Member accepted the assessee's contention, stating that the share trading loss should be treated as a business loss. However, the Accountant Member disagreed, emphasizing that section 73, being a specific provision, overrides the general provisions of sections 70, 71, and 72. The Accountant Member held that the loss should be treated as speculation loss and carried forward accordingly.

Third Member Decision:
The Third Member concurred with the Accountant Member, stating that the loss from share trading falls within the category of speculative business loss as per the Explanation to section 73. Therefore, the loss of Rs. 87,000 should be carried forward as a speculation loss.

Final Order:
In accordance with the majority view, the appeal was dismissed, and the loss was to be carried forward as a speculation loss u/s 73 of the Income-tax Act, 1961.