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TMI Blog2004 (6) TMI 288X X X X Extracts X X X X X X X X Extracts X X X X ..... the section, as we have already stated, and a reading of the heading puts it beyond doubt that this section cannot be invoked in a case where there is a profit from a speculative transaction. Coming to the explanation to section 73, the same should be so read as to harmonise with and clear up any ambiguity in the main section and should not be so construed as to widen the ambit of the section. [Reliance is placed on Bihta Co-operative Development and Cane Marketing Union Ltd. v. Bank of Bihar [ 1966 (10) TMI 145 - SUPREME COURT] . The explanation is only for the purposes of section 73 and when the section itself does not apply, the explanation cannot be invoked, under the facts and circumstances of this case. The argument of the learned dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 9,61,168 from non-speculative transactions. It had a profit on speculative transactions to the tune of Rs. 6,61,337. The division of the transactions into speculative transactions and non-speculative transactions was done by applying the definition of 'speculative transaction' in section 43(5) of the Income-tax Act. 4. During the year, the assessee arranged for taking on lease the first floor of the building which is occupied by it and which is owned by the directors and their family members, and in the process the assessee earned a commission of Rs. 2,50,000. This commission earned by way of brokerage was offered to tax under the head 'income from business or profession'. 5. The Assessing Officer, relying on the judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income therefrom was lawfully assessable under the head 'other sources', that if it is so assessed, the assessee would be having income mainly from dividend and commission and that this would result in the explanation to section 73 not being applicable to the case of the assessee company. He submitted that income from other sources would be Rs. 4.87 lakhs and loss in shares would be Rs. 2.99 lakhs and as income from other sources is more, the decision of the Hyderabad Bench of the Income-tax Appellate Tribunal in the case of Prudential Construction Co. Ltd.'s case and the judgments of Hon'ble Calcutta High Court in the cases in CIT v. Arvind Investments Ltd. [1991] 192 ITR 365 and Eastern Aviation Industries Ltd.'s case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions in shares as well as speculative transactions in shares. This segregation had been made keeping in view the definition of 'speculative transaction' in section 43(5). It is also not disputed that the assessee had earned a profit in the speculative transactions in shares and had incurred a loss in its non-speculative activity. 9. Now, the question is whether section 73 applies to a case where the assessee earns profit in speculative transactions. Section 73 of the Income-tax Act, 1961, reads as follows: 73. Losses in speculation business. (1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business. (2) Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd advances, consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. The Marginal note of this section suggests that it is applicable only in cases where losses are incurred in speculation business. Sub-section (1) starts with the wording 'Any loss, computed in respect of a speculation business....' Thus, a plain reading of this section suggests that the section does not apply to cases where there has been profit in the speculation business. Circular No. 204 dated 24-7-1976, which is extracted at page 3273 of Chaturvedi Pithisaria's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o by business houses controlling groups of companies to manipulate and reduce the taxable income of companies under their control. 19.3 This provision will come into force with effect from 1-4-1977 and will apply in relation to the assessment year 1977-78 and subsequent years. From this CBDT circular, it is clear that the object of this provision is to curb the device being resorted to by some business houses to manipulate and reduce the taxable income by booking speculative losses. A plain reading of the section, as we have already stated, and a reading of the heading puts it beyond doubt that this section cannot be invoked in a case where there is a profit from a speculative transaction. 10. Coming to the explanation to section 73, the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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