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TMI Blog2007 (8) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee of share business loss amounting to Rs. 3,99,860. On various grounds mentioned in the assessment order dated March 31, 1998, the Assessing Officer concluded that the transaction in shares as claimed by the assessee cannot be treated as genuine. Accordingly, the share business loss of Rs. 3,99,860 was not allowed and the same was added back to the total income of the assessee for the said year. 4 The assessee preferred an appeal before the Commissioner Income-tax (Appeals), Guwahati, questioning the addition of the aforesaid amount to its income. The appellate authority, vide order dated October 30, 1998, allowed the said appeal of the assessee by holding that the disallowance of the loss of share business amounting to Rs. 3,99,860 was based on a wrong perception of the facts. The Assessing Officer was directed to allow the loss so claimed. 5 Against the aforesaid order, the Revenue came up in appeal before the Income-tax Appellate Tribunal, Gauhati Bench, Guwahati ("the Tribunal" for short). The said appeal was registered as I. T. A. No. 118(Gau)/99. The Tribunal, vide its order dated January 24, 2003, allowed the said appeal of the Revenue. Though the Tribunal held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and justified in treating the said share transaction loss as speculation loss. Referring to the provisions of Explanation 2 to section 28, section 43(5) and section 73 of the Act, learned standing counsel asserted that the said transactions came within the ambit of the meaning of speculative transaction and, therefore, the Tribunal was justified in treating the said loss as speculation loss. 10 Before proceeding further it would be apposite to note down the relevant provisions of the Act relating to speculative transaction and speculation loss "Section 28, Explanation 2.— Where speculative transactions carried on by an assessee are of such a nature as to constitute business, the business (hereinafter referred to as the 'speculation business'), shall be deemed to be distinct and separate from any other business. Section 43. In sections 28 to 41 and in this section, unless the con text otherwise requires— (5) 'Speculative transaction' means a transaction in which a con tract 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Raj), the court held that 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 the assessee or dividend were not paid to the assessee. The court further held that delivery of blank transfer form along with share certificates results in completing transaction between the transferee and transferor notwithstanding that the same may not be registered in the register of members, thus the transaction of purchase and sale of shares were conducted by actual delivery of scrips. Therefore, such transactions were not speculative transactions within the meaning of section 43(5) and the consequential loss was not speculative loss. 14 In CIT v. Shantilal P. Ltd. [1983] 144 ITR 57, the apex court held that a transactions cannot be described as a "speculative transaction" within the meaning of sub-section (5) of section 43 of the Income-tax Act, 1961, where there is breach of contract and on a dispute between the parties damages are awarded as compensation by an arbitration award. 15 There is no dispute with the above propos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ritten agreements between the assessee and various parties. The Appellate Assistant Commissioner upheld the claim of the assessee. The Tribunal found that in respect of almost all transactions, the settlement was made long after the date of delivery as contemplated in the contracts, that the claim of the assessee was based on breach of contract and did not come within the meaning of a contract "settled" as used in section 43(5) and that the loss was allowable as a trading liability. The court on the reference made, after detailed deliberation held that compensation paid by the assessee to the various parties for non-fulfilment of the contracts was a speculative transaction within the meaning of section 43(5). 19 While arriving as above, the court in Maya Ram [1986] 162 ITR 520 (P H) relied upon the two decisions of the Supreme Court rendered in Nirmal Trading Co. v. CIT reported in [1980 121 ITR 54 and Jute Investment Co. Ltd. v. CIT reported in [1980] 121 ITR 56 for the proposition that if the delivery of the goods is not made and it is not shown that there was any dispute between the contracting parties, then it is to be held that the settlement arrived at between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no place in the scheme of section 24. 24 In CIT v. Jagannath Mahadeo Prasad and CIT v. Gauri Dutt Bhagwan Dass and Co. [1969] 71 ITR 296 (SC) the question that arises in the appeals was whether speculative loss can be set off against profit from any other business activity under section 10 in spite of the first proviso to section 24(1) of the Indian Income-tax Act, 1922. 25 After elaborate discussion, the apex court held that the assessee is not entitled to set off speculative losses against profits from other business activities of the same year, for the purpose of computing the income, profits and gains under section 10(1) of the Indian Income-tax Act, 1922; the second proviso to section 24(1) of the Act prior to the amendment of the section by the Taxation Laws (Extension to Jammu and Kashmir) Act, 1954, or the first proviso after that amendment applies. It provides in unmistakable and unequivocal terms that any losses sustained in speculative transactions which are in the nature of a business shall be taken into account except to the extent of the amount of profits or gains in any other business consisting of speculative transactions. 26 On the above authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X
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