2009 (7) TMI 919 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of section 73 of the Income-tax Act to the assessee's case.
2. Relief from interest charged u/s 234B and 234C of the Income-tax Act, 1961.

Summary:

Issue 1: Applicability of Section 73 of the Income-tax Act

The assessee-company, engaged in dealing in Cement & Shares, claimed set-off of unabsorbed speculation loss from earlier years against the current year's profit from the sale of shares. The Assessing Officer disallowed this claim, stating that the transactions did not qualify as 'speculation transactions' u/s 43(5) since the delivery of shares had been taken. The AO argued that section 73 pertains to 'losses in speculation business' and cannot be applied to determine the nature of income. The CIT(A) upheld the AO's decision, reasoning that the transactions resulted in 'business income' rather than 'speculation income' and that the Explanation to section 73 is intended to cover losses, not profits.

The Tribunal, however, disagreed with the lower authorities, emphasizing that the Explanation to section 73 should be given full effect. The Tribunal noted that the term "purchase and sale of shares" in the Explanation is unqualified and should include all transactions, whether delivery-based or not. The Tribunal cited the decision of the Hon'ble Bombay High Court in Prasad Agents (P.) Ltd. v. ITO, which clarified that a company engaged in the purchase and sale of shares is deemed to be carrying on speculation business for the purposes of section 73. Consequently, the Tribunal concluded that the assessee's transactions should be treated as speculative transactions, allowing the set-off of unabsorbed speculation loss.

Issue 2: Relief from Interest Charged u/s 234B and 234C

Ground No. 2 regarding relief from interest charged u/s 234B and 234C was deemed consequential to the main issue and was not separately addressed in detail.

Conclusion:

The appeal filed by the assessee was allowed, with the Tribunal holding that the transactions in question should be treated as speculative transactions, thereby permitting the set-off of unabsorbed speculation loss from earlier years.