1991 (5) TMI 124 - AT - Income Tax

Carrying On Business, Earlier Decision, Partnership Deed, Res Judicata, Speculative Transactions, Tax Authorities

Issues Involved:

1. Nature of loss in share dealings: whether it is a business loss or a speculative loss.
2. Applicability of Section 43(5) of the Income Tax Act.
3. Consistency of the assessee's business activities across different assessment years.
4. Validity of the transactions based on actual delivery of shares.
5. Transfer of shares in the name of the assessee.
6. Receipt of dividends by the assessee.
7. Payment for the purchase of shares.
8. Relevance of previous assessments and principles of res judicata.

Issue-wise Detailed Analysis:

1. Nature of Loss in Share Dealings:
The primary issue was whether the loss of Rs. 2,73,053 incurred by the assessee in share dealings was a business loss or a speculative loss. The Income Tax Officer (ITO) classified the loss as speculative, arguing that the assessee did not engage in regular share trading and that the transactions were settled without actual delivery of shares. The Commissioner of Income Tax (Appeals) [CIT(A)], however, concluded that the loss was a business loss, noting that the assessee had engaged in share dealings as part of its business activities and had taken actual delivery of the shares.

2. Applicability of Section 43(5):
Section 43(5) defines speculative transactions as those settled otherwise than by actual delivery. The ITO argued that the transactions fell under this section since the shares were not transferred to the assessee's name, and no dividends were received. The CIT(A) disagreed, stating that the transactions did not qualify as speculative because actual delivery of shares had occurred. The Tribunal upheld the CIT(A)'s view, emphasizing that the transactions involved actual delivery, thus falling outside the purview of speculative transactions as defined in Section 43(5).

3. Consistency of Business Activities:
The CIT(A) observed that the nature of the assessee's share dealings in the assessment year 1982-83 was consistent with those in the previous year (1981-82), where a similar loss was treated as a business loss by the ITO. The Tribunal agreed, noting that the ITO could not take a different view for the assessment year 1982-83 without new facts or evidence to justify the change.

4. Validity of Transactions Based on Actual Delivery:
The ITO questioned the actual delivery of shares, citing the lack of transfer in the assessee's name and the absence of dividend receipts. However, the CIT(A) found that the shares were delivered through blank transfers, a practice permitted under the law. The Tribunal confirmed that the delivery notes and other documentation provided by the assessee demonstrated actual delivery, thereby validating the transactions.

5. Transfer of Shares in the Name of the Assessee:
The ITO pointed out that the shares were not transferred to the assessee's name. The CIT(A) and the Tribunal noted that the shares were held in blank transfer forms, which is a legally acceptable practice. The Tribunal emphasized that the lack of transfer in the assessee's name did not invalidate the transactions, as blank transfers are recognized under Section 108(1A) of the Companies Act, 1956.

6. Receipt of Dividends:
The ITO argued that the absence of dividend receipts indicated speculative transactions. The CIT(A) countered that dividends would only be relevant if the shares were registered in the assessee's name, which was not the case due to the blank transfer practice. The Tribunal upheld this view, stating that the lack of dividend receipts did not affect the classification of the transactions as business dealings.

7. Payment for the Purchase of Shares:
The ITO claimed that the assessee only paid the difference between the purchase and sale prices, not the full purchase price. The CIT(A) found that the assessee made payments to the broker through account payee cheques, and the broker's account was settled by the end of the year. The Tribunal confirmed that the payments were made as required, supporting the CIT(A)'s conclusion.

8. Relevance of Previous Assessments and Principles of Res Judicata:
The Tribunal noted that while the principle of res judicata does not strictly apply to income tax proceedings, consistency in decisions is important. The ITO had accepted the share dealings as business transactions in the previous year (1981-82). The Tribunal held that, in the absence of new evidence or facts, the ITO could not change his stance for the subsequent year (1982-83).

Conclusion:
The Tribunal dismissed the Department's appeal, affirming the CIT(A)'s order that the loss incurred by the assessee in share dealings was a business loss and not a speculative loss. The Tribunal emphasized the importance of actual delivery, consistency in business activities, and the validity of blank transfers in reaching its decision.

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