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TMI Blog2004 (9) TMI 321X X X X Extracts X X X X X X X X Extracts X X X X ..... th the object of reducing the taxable income. In the scheme of section 73 fortified by the Explanation, there is no scope for ignoring genuine transactions in shares which have been carried out without any motive of reducing the taxable income of the company. In the present case, there is absolutely no material brought on record by the income-tax authorities to show that the assessee is a company controlled by a business house and that the share transactions have been effected with a view to manipulate and reduce its taxable income. In other words, there is no evidence to show that the requirements of para 19.2 of the circular issued by the CBDT are satisfied. I am, therefore, of the view that the income-tax authorities were not justified in treating the loss of Rs. 2,94,834 as a speculative loss by invoking the Explanation to section 73. I direct the Assessing Officer to treat it as a normal business loss and allow the same as claimed by the assessee. On the basis of the judgment of the Supreme Court in the case of K.P. Varghese [ 1981 (9) TMI 1 - SUPREME COURT] , I do not consider it necessary to discuss the authorities cited on behalf of the assessee. In the result, the appeal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent case, it must be held that the Explanation to section 73 cannot be invoked as there is no device or manipulation by any controlling group of companies to reduce their taxable income. 4. Ld. DR submitted that since the Explanation is clear, it should be applied without any reference to the circular or the object mentioned in the circular. He submitted that there is no room for any intendment and the present appeal cannot be decided on the basis of the supposed intention of the law. 5. In my opinion, there is considerable merit in the case of the assessee. When section 73 was introduced, it did not have the Explanation. The Explanation was inserted only w.e.f. 1-4-1977 by the Taxation Laws (Amendment) Act, 1975. The Explanation applies only to a company. It does not apply to assessable entities other than companies. Even amongst companies, it is not applicable to a case of a company whose gross total income consists mainly of income chargeable under the head 'interest on securities, house property, capital gains and other sources'. It is not also applicable to a company whose main business is that of banking or the granting of loans and advances. It is only in the case of other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of such companies, and any manipulation by them by indulging in speculation could be separately dealt with. Apparently, the need to exercise control was felt only in the case of business houses where there was controlling groups which controlled companies under the same group. Instances might have come to the notice of the Government that such business houses were manipulating the share dealings in such a manner that the taxable income of the companies controlled by them were reduced. Therefore, it was thought fit to introduce a provision to the effect that even if share dealings by these companies were real in the sense that there was actual physical delivery and such dealings cannot be described as speculative transactions stricto senso, still in view of the revenue loss and the unethical nature of the practice, these transactions should not be recognized for income-tax purposes. It was thought proper to deem those share dealings as speculative dealings, on par with speculative transactions proper, by a deeming provision introduced in the Explanation to the effect that even these dealings would be considered as if there was no physical delivery of the scrips. The loss which aro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ITOs not to invoke section 52(2) in cases where understatement of consideration cannot be established; (e) not only is the principle of contemporanea exposito applicable on the basis of the circulars, such circulars are also legally binding on the revenue, even if they are not in accordance with the correct interpretation of sub-section (2) of section 52 and they depart or deviate from such construction. The Madras High Court, in CED v. Smt. S.T.B. Ameen Khaleeli [1983] 143 ITR 679 was concerned with section 46(1) of the Estate Duty Act, 1953. This sub-section provided for an abatement of the debt incurred by the assessee and allowable as a deduction, if the value of the consideration given for the debt consisted of either property derived from the deceased or consideration given by a person who was at any time entitled to, or amongst whose resources there was at any time included, any property derived from the deceased. With reference to this provision, earlier the Madras High Court had held in A. Kandaswami Pillai v. CED [1969] 73 ITR 564 that the policy behind the provision was obvious, namely, to avoid evasion of estate duty and further observed that the section appeared to o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt are applied to the present case and to the Explanation below section 73, I find that they fit in. The Explanation is a provision against tax-avoidance, as already seen, which deems certain actual transactions in shares as speculative transactions. It is a basic rule of construction that a deeming provision shall be construed strictly. Be that as it may, the construction of the section cannot exclude considerations such as the object for which it was introduced. I have already adverted to the object of the provision which even according to the circular is to curb the device resorted to by business houses controlling groups of companies to manipulate and reduce the taxable income of such companies which are under their control. The Taxation Laws (Amendment) Act, 1975 was originally introduced as Taxation Laws (Amendment) Bill, 1973 which was popularly known as "Black Money Bill". It is also well known that this Bill was introduced as a result of the recommendations made by Justice Wanchoo Committee suggesting ways and means of curbing proliferation of unaccounted income. The statement of objects and reasons of the Bill states as under: "The main objectives of the amendments prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions which are apparently real, and may even involve actual delivery, but are carried out with the object of reducing the taxable income. In the scheme of section 73 fortified by the Explanation, there is no scope for ignoring genuine transactions in shares which have been carried out without any motive of reducing the taxable income of the company. 8. In the present case, there is absolutely no material brought on record by the income-tax authorities to show that the assessee is a company controlled by a business house and that the share transactions have been effected with a view to manipulate and reduce its taxable income. In other words, there is no evidence to show that the requirements of para 19.2 of the circular issued by the CBDT are satisfied. I am, therefore, of the view that the income-tax authorities were not justified in treating the loss of Rs. 2,94,834 as a speculative loss by invoking the Explanation to section 73. I direct the Assessing Officer to treat it as a normal business loss and allow the same as claimed by the assessee. 9. In the view, I have taken on the basis of the judgment of the Supreme Court in the case of K.P. Varghese, I do not consider it neces ..... X X X X Extracts X X X X X X X X Extracts X X X X
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