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TMI Blog2009 (7) TMI 919X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant assessment year, was engaged in dealing in Cement Shares. Besides, the company had earned capital gains from sale of shares held as investments and received a sum of Rs. 23,37,862 as dividend on shares. The Assessing Officer noticed that the total turnover of the company was Rs. 2,44,26,66,463 out of which, cement was Rs. 2,42,88,87,061 and shares was Rs. 1,37,79,403. From the computation of income filed by the assessee, the Assessing Officer noticed that the profit from sale of shares was accounted for as under : ( a ) Speculation profit Rs. 52,53,024 ( b ) Long-term capital gain (without indexation) Rs. 10,89,694 ( c ) Short-term capital gain Rs. 2,13,905 He noticed from item ( a ) above, that a sum of Rs. 45,42,499 had been deducted as unabsorbed speculation loss, brought forward from earlier years. He examined the case records and found that the said unabsorbed loss of Rs. 35,06,775 and Rs. 10,35,724 was incurred during the years 1994-95 and 1996-97, relevant to assessment years 1995-96 and 1997-98, respectively. The Assessing Officer examined the composition of turnover of Rs. 1,37,79,403 from shares which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of delivery cannot be discarded. He, therefore, did not allow set-off of speculation of loss of earlier years to the assessee from the income. He relied on the decision of the Hon ble Bombay High Court in the case of CIT v. Badridas Gauridu (P.) Ltd. [2003] 261 ITR 256 1 , Rajasthan High Court in the case of CIT v. Mangal Chand [2002] 255 ITR 329 2 and the decision of the Hon ble Supreme Court in the case of Davenport Co. (P.) Ltd. v. CIT [1975] 100 ITR 715. 4. Ld. CIT(A) confirmed the Assessing Officer s action for the following reasons : ( i )The impugned transaction did not fell within the definition of speculative transaction as defined in section 43(5) of the Income-tax Act. ( ii )It is not disputed that the delivery of shares had been taken and, therefore, the share transaction entered into by the assessee would give rise to the business income rather than income from speculation business . ( iii )Section 73(1) deals with loss computed in respect of speculation business. The Explanation to section 73 will also be applicable only for the purpose of losses because nowhere in section or Explanation , it is stated that the profits of those compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he judgment of the Calcutta High Court in the case of Soorajmull Nagarmull [1981] 129 ITR 169, with which we agree." Similarly, in the case of Mangal Chand ( supra ), the head note reads as under, which makes it clear that the provisions of Explanation to section 73 were not considered : "Business income-speculative transaction-delivery of blank transfer forms along with share certificates - If the assessee has concluded the transaction by taking delivery of shares and has sold the same by giving delivery along with blank transfer forms it is immaterial whether the shares were not registered in the name of assessee or dividends were not paid to the assessee. Delivery of blank transfer forms along with share certificates results in completing transaction between the transferee and the transferor notwithstanding that same may not be registered in the register of members. Thus, the transactions of purchase and sale of shares were conducted by actual delivery of scrips. Such transactions were not speculative transactions within the meaning of section 43(5) and the consequential loss was not speculative loss." Therefore, Ld. Counsel submitted that these two decisions have wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Investment (I) Ltd. [2007] 105 ITD 353 (Mum.) ( iii ) Starline Ispat Alloys v. Dy. CIT [2007] 14 SOT 140 (Mum.) ( iv ) Jt. CIT v. Kalindi Holdings (P.) Ltd. [2007] 106 TTJ (Pune) 292. As regards the decision in the case of Godavari Capital Ltd. ( supra ) relied upon by the CIT(A), Ld. Counsel submitted that the said decision does not go against the assessee because in that case, the Tribunal was mainly concerned with the issue regarding applicability of section 73 to such speculative transaction where there was profits but the ambit of speculative transaction as per Explanation 73 was not examined. 8. Ld. D.R. relied on the orders of the authorities below and submitted that in view of definition of speculative transactions contained in section 43(5), as per which, only those transactions are to be considered as speculative transactions, where delivery or transfer of commodity or scrips has not been taken place but since in the present case it is not disputed that delivery of shares had been taken by the assessee, therefore, it cannot be said to be a speculative transaction, particularly because there has been profit from such transactions and section 73 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and ( i )it shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year; and ( ii )if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on. (3) In respect of allowance on account of depreciation or capital expenditure on scientific research, the provisions of sub-section (2) of section 72 shall apply in relation to speculation business as they apply in relation to any other business. (4) No loss shall be carried forward under this section for more than (four) assessment years immediately succeeding the assessment year for which the loss was first computed. [ Explanation. Where any part of the business of a company (other than a company whose gross total income consists mainly of income which is chargeable under the heads "Interest on securities", "Income from house property", ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tempt would imply doing violence with the statute which is not permissible. Ld. CIT(A) in his order has referred to CBDT Circular No. 204, dated 24-7-1976 and has pointed out that as per this circular the object of the provisions was to curb device being resorted to by some business to manipulate and reduce the taxable income by booking speculative losses. Therefore, the purpose of introduction of the Explanation was to cover losses. This circular does not deal with the ambit of Explanation. As a matter of fact, the Legislature consciously did not qualify the words "purchase and sale" in order to cover all kinds of contingencies which a company could possibly qualify resort to in order to manipulate its income by way of loss being brought into business by any device. 13. The revenue s contention is that only delivery based transactions as contemplated under section 43(5) were to be considered as speculative transactions. This argument is devoid of any merit because, then there was no necessity of incorporating Explanation to section 73. As a matter of fact, Explanation to section 73 enlarges the ambit of speculative transaction in case of such company where part of its ..... X X X X Extracts X X X X X X X X Extracts X X X X
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