ITAT, DELHI BENCH `E’ : NEW DELHI
BLK Securities Pvt. Ltd. v. ITO
ITA No. 4286/Del/2004
RELEVANT EXTRACTS:
11. On a bare perusal of the Explanation to section 73 of the Act, it becomes clear that where any part of the business of a company (other than the company excluded by the Explanation) consists of the purchase and sale of shares of other companies, such company shall, for the purpose of section 73 of the Act, be deemed to be carrying on a speculation business to the extent to which it consists of purchase and sale of shares.
12. At this stage, we may refer to a decision of Hon’ble Calcutta High Court in the case CIT Vs. Arvind Investments (1991) 192ITR 365. which has been referred to in the case of Godawari Capital Ltd. [91ITD 274 (Hyd.) decided by the ITAT, Hyderabad Bench. The Hon’ble Calcutta High Court in the said case of CIT -vs- Arvind Investments (P.) Ltd. has held as under : –
“Sub-section (2) of section 73 of the Income-tax Act. 1961, restricts the scope of section 72 which provides for carrying forward and setting off of business tosses. If any loss computed in respect of a speculation business has not been wholly set off, such loss may be carried forward and set off against profits and gains of any speculation business in the following assessment years. The Explanation to section 73 introduces a legal fiction. The section applies only to a company. It does not apply to individuals firms, Hindu undivided families or associations of persons. The Explanation also does not apply to an investment company or a company who 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 sale of shares of other companies, then such a company shall be deemed to be carrying on speculation business for the purpose of section 73 to the extent to which the business consists of the purchases and sale of such shares.
The provisions of the Explanation to section 73 have to be contrasted with the provision of section 43(5), which defines “speculative transaction” to mean a transaction in which a contract for the purchase or sale of any commodity, including any stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. The Explanation to section 73 treats any purchase and/or sale of shares by certain companies to be speculative for the purpose of section 73 only. For the purpose of setting off and carrying forward of loss, the buying and selling of shares by certain companies are regarded by the statute as speculation business, even though the transaction of purchase and sale was followed up by delivery of scrips and as such cannot be treated as “speculative transaction” as defined in section 43(5). The opening words of the Explanation Explanation to section 73 are “where any part of the business of a company”. “Any” is a word which excludes limitation or qualification. A restricted meaning should not be given to the phrase “any part of the business”. The object of Circular No.204, dated July 24,1976, is to curb devices to manipulate and reduce the taxable income of a company under the management of a controlling group of persons. But the circular has clearly stated in paragraph 19,1 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 and advances will be treated on the same footing as speculation business”. The phrase in the Explanation to section 73 “to the extent to which the business consisted of purchase and sale of such shares” also does not indicate that the Legislature had several other actual and existing non-speculative activities of business in mind. It merely indicates that the business activity, which consists of purchase and sale of shares will be treated as a speculation business. If the entire business activity of a company consists of purchase and sale of shares of other companies, then the entire business will be not treated as speculation business.
Held accordingly, that the Explanation to section 73 applied to the case of the assessee whose entire business consisted of dealing in shares. The loss incurred by the assessee was a speculation loss”
13. On a reading of the said decision, it is seen that the Hon’ble Calcutta High Court in the said case of Arvind Investments (P) Ltd. (supra) has held that Explanation to Section 73 applies to the case of the assessee whose entire business consisted of dealing in shares. In reaching this conclusion, Circular No.204 was also considered, where it has been clarified in para. 19.1 that “the business of purchase and sale of shares by companies (other than excluded category of companies) will be treated on the same footing as speculation business.
15. From the facts so narrated, it is clear that the assessee company had incurred a loss of Rs.1,56.087/ -from share dealing, which was treated to be speculation loss by invoking Explanation to section 73 of the Act In the said case, though the assessee company had no real speculation loss within the meaning of section 43(5) of the Act. the loss from share dealing was held to be speculation toss as the assessee was deemed to be carrying on a speculation bus/ness to the extent to which the business was consisted of the purchase and sale of such shares of other companies, within the meaning of Explanation to section 73 of the Act. The Explanation to section 73 creates a legal fiction for the purpose of section 73 of the Act. Thus, in the light of the decision of Calcutta High Court in the case of Arvind Investment (P.) Ltd., the contention of the assessee is not acceptable. The decision of High Court would have precedence over the decision of the Tribunal when no contrary decision of any other High Court is available, or has been pointed out to us. If the judgment of a higher court taking one view has not been considered in its right and correct perspective or has not been brought to the notice of the lower court, then the view of the lower court cannot have precedence over the view which is in consonance with that of higher court’s view. Judicial decision requires that the view expressed by the higher court should be followed by the lower courts. When a particular point has been decided by one High Court, and there is no contrary decision of any other High Court, the Tribunal being a subordinate authority cannot afford to ignore the ratio of the decision of the High Court. Under these circumstances, we hold that the present assessee company shall, for the purpose of section 73 of the Act, be deemed to be carrying on a speculation business to the extent to which its business consists of the purchase and sale of shares of other companies. Thus, the loss incurred in purchase and safe of shares of other companies shall be deemed to be a speculation loss.
