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| DATE: | February 7, 2011 (Date of publication) |
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| Click here to download the judgement (paharpur_expl_73_speculation_loss.pdf) |
Under Expl to s. 73 even delivery-based loss on shares is “speculation” loss
The assessee, a company, was engaged in the business of purchase & sale of shares. It suffered a loss of Rs. 1.41 crores and claimed that this could not be treated as “speculation loss” under the Explanation to s. 73 on the ground that (i) the assessee had taken/given delivery of the shares and they were not “speculative transactions” as defined in s. 43 (5), (ii) the object of the Explanation to s. 73 (as per CBDT Circular dated 24.7.1976) was to curb “manipulation” and artificial loss and it had to be confined to only such cases & (iii) the loss was only on account of fall in value of shares held as closing stock and not on account of purchase and sale of shares. The AO, CIT (A) & Tribunal {85 ITD 745 (Kol)} rejected the assessee’s claim. On further appeal, HELD dismissing the appeal:
(i) The Explanation to s.73 creates a fiction that the loss suffered by certain companies from the business of purchase & sale of shares shall be deemed to be speculation loss. The Explanation is not inconsistent with the object of introduction. The CBDT Circular dated 24.7.1976 cannot be treated as guide for interpretation of s. 73 when the provision is very clear and free from any ambiguity;
(ii) The definition of “speculative transaction” in s. 43(5) is not applicable to the Explanation to s. 73. The fact that the assessee settled the transactions by physical delivery is irrelevant. CIT vs. Arvind Investments 192 ITR 365 followed);
(iii) The fact that the Explanation to s. 73 was introduced to curb manipulation does not mean that it has to be confined to only those cases in view of the clear language of the provision.
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