Case Law Details
RELEVANT PARAGRAPH
9. We have heard both the parties and perused the material on record. In this case there no dispute that trading in shares is not the business of the assessee as authorised by memorandum of association. It is also a fact that the assessee had dealt in futures and as well as traded in shares of other companies. Therefore, we have to see the applicability of the Explanation to section 73 of the Act to the share trading activities carried on by the assessee. As per Explanation to Section 73. where any part of business of the company an assessee whose gross total income is not consisted mainly of income which is chargeable under the heads “Interest on securities”, “Income from house property'”. “Capital gains” and “Income from other sources”, or a company the principal business of which is the business or” banking or the granting of loans and advances, consists of the purchase and sale of shares of other companies, such company shall, for the purposes of section 73, be deemed to be carrying on a speculation business to the extent to winch the business consists of the purchase and sale of such shares. The provisions of Explanation to section 73 do not distinguish between the transaction of trading in shares on actual delivery or without delivery basis. Admittedly the assessee does not fall under any of the exceptions provided in the Explanation and hence, the purchase and sale of shares traded during the year under consideration is in nature of speculation business within the meaning of proviso to section 73 of IT Act, 1961.
9.1 Hon’ble Madhya Pradesh High Court in the case of Intermetal hade Ltd. (supra) has held that the Explanation to section 73 does not apply to an investment company or a company whose principal business is banking or money lending. If the business of a company which does not fall within the excluded categories consists of purchase and sales of shares of other company, than such a company shall be deemed to carrying in speculation business for the purpose of section 73 to the extent to which the business consists of purchase and sale of shares.
9.2 Hon’ble Calcutta High in the ease of Arvind investments Ltd. (supra) has also held the similar view. In this case it has been held that the Explanation to section 73 applies to the case of the assessee whose entire business consisted of dealing in shares. A loss incurred by the assessee was a speculation loss.
9.3 In the case of Mysore Rolling Mills (supra) Hon’ble Kamataka High Court held that where shares have been purchased as an investor, the provisions of Explanation to section 73 could not be applied.
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