2010 (2) TMI 94 - HC - Income Tax

Carry forward and set off under section 43(5), 73 Speculation Business For the assessment year 2003-04 the assessee showed a profit on the sale of shares and securities held as stock-in-trade offered it as a profit of speculation business set it off against speculation loss brought forward from the assessment years 1996-97 to 1998-99 and showed the balance as speculation income. The Tribunal held that the profit form the sale of shares fell within the purview of the Explanation to section 73 and was to be set off against brought forward losses. In this case Bombay High Court held that the Tribunal is consistent with the provisions of section 73. The appeal shall stand dismissed Decision in favor of assessee against the revenue

Summary

Issues:
1. Allowance of brought forward speculation loss against delivery based profits.
2. Invocation of Explanation to section 73 in case of profit from transactions.

Issue 1: Allowance of brought forward speculation loss against delivery based profits

The case involved the appellant showing a profit from the sale of shares and securities, set off against a speculation loss brought forward from previous assessment years. The Assessing Officer did not allow the set off, stating the income from shares was not from a speculation business due to physical delivery. The Tribunal, citing relevant judgments, allowed the set off under the Explanation to section 73. The Revenue contended that profits from delivery-based transactions cannot be set off against speculation losses. However, the court analyzed section 73, emphasizing that the deeming fiction created by the Explanation applies when a company's business includes buying and selling shares. The court clarified that once a business involves shares transactions, the deeming fiction of speculation business applies, regardless of profits or losses. Therefore, the Tribunal's decision aligns with the law, dismissing the appeal.

Issue 2: Invocation of Explanation to section 73 in case of profit from transactions

The Revenue argued that a transaction involving actual delivery of shares should not be considered speculative, thus not falling under section 73. However, the court disagreed, stating that the deeming fiction under the Explanation applies when a company's business includes share transactions. The court emphasized that the deeming fiction defines when an assessee is deemed to be in a speculation business, irrespective of profit or loss. The court clarified that once a business involves share transactions, the deeming fiction of speculation business applies. Therefore, the court upheld the Tribunal's decision, stating it aligns with the provisions of section 73. As a result, the appeal was dismissed, and no costs were awarded.

This detailed analysis of the judgment clarifies the issues regarding the allowance of speculation losses against profits from delivery-based transactions and the invocation of the Explanation to section 73 in case of profits from transactions. The court's interpretation of the law and application of relevant provisions led to the dismissal of the appeal in favor of the respondent.