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TMI Blog2015 (2) TMI 361X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee had drawn a composite income and expenditure statement in which the income from various sources like brokerage, handling charges, commission, profit on sale of current investments, etc., are reflected. The assessee filed a return of income showing a loss of Rs. 52 lakhs for the assessment year 2001-02. The remand report dated November 8, 2005, shows that the transactions are in the nature of jobbing and arbitrage, done to guard against loss which could have arisen in the ordinary course of the assessee's business as a member. The assessing authority came to the conclusion that the assessee is a private company and not a banking company, therefore, the case falls squarely within the provisions and in terms of Explanation to section 73 of the Act. Therefore, held that the specific provisions by way of Explanation to section 73 of the Act necessarily suggests that the business loss should be considered as speculation business loss and loss arising therefrom needs to be treated as speculative loss. Therefore, he rejected the claim of the assessee for set off against other business profits but allowed to be carried forward by setting of the loss from speculation business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal was correct in holding that the speculative loss incurred by the assessee in the course of trading in shares can be set off against income arising under other heads as it satisfy proviso (c) to section 43(5) of the Act and, consequently, the Explanation to section 73 is not attracted ?" 7. The speculative transaction has been defined under sub-section (5) of section 43 of the Act, which reads as under : "Section 43(5) of the Income-tax Act, 1961 'Speculative transac tions' means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips : Provided that for the purposes of this clause- (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him ; or (b) a contract in respect of stocks and shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber or an intermediary, registered under the bye-laws, rules and regulations of the recognised association for trading in commodity derivative in accordance with the provisions of the Forward Contracts (Regulation) Act, 1952 (74 of 1952), and the rules, regulations or bye- laws made or directions issued under that Act on a recognised association ; and (B) which is supported by a time stamped contract note issued by such member or intermediary to every client indicating in the contract note, the unique client identity number allotted under the Act, rules, regulations or bye-laws referred to in sub-clause (A), unique trade number and permanent account number allotted under this Act ; (iii) 'recognised association' means a recognised association as referred to in clause (j) of section 2 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952), and which fulfils such conditions as may be prescribed and is notified by the Central Government for this purpose ;" A reading of the aforesaid provisions makes it clear that the transaction in which a contract for the purchase or sale of any commodity including stocks and shares is periodically or ultimately settled otherwise th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipal business of which is the business of banking or the granting of loans and 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 specu lation business to the extent to which the business consists of the purchase and sale of such shares." A reading of the aforesaid provisions makes it clear that any loss computed in respect of a speculation business carried on by the assessee has to be set off only against the profits earned in such speculation business. There is a total prohibition for setting off such loss against profits and gains arising from any other business. However, an Explanation was added by the Taxation Laws (Amendment) Act, 1975, which came into effect from April 1, 1977, providing for a deeming clause. "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', 'Capital gains' and 'Income from o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax arrears and to ensure that in future, tax arrears do not accumulate ; to rationalise the exemptions and deductions available under the relevant enactments, and to streamline the administrative set up and make it functionally efficient. 3. The Notes on Clauses, appended to the Bill, explain the various provisions thereof.' 'Treatment of losses in speculation business-section 73. 19.1 Section 73 of the Act provides that any loss computed in respect of speculation business carried on by an assessee will not be set off except against the profits or gains, if any, of another speculation business. Further, where any loss, computed in respect of a speculation business for an assessment year is not wholly set off in the above manner in the said year, the excess shall be allowed to be carried forward to the following assessment year and set off against the speculation profits, if any, in that year, and so on. The Amending Act has added and Explanation to section 73 to provide that the business of purchase and sale of shares by companies which are not investment or banking companies or companies carrying on business of granting loans or advances will be treated on the same foot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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