By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Chartered Accountants
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41. (2009) 33 SOT 168 (Mum.)
Metropolitan Traders (P.) Ltd. v. ITO
A.Y. : 2003-04. Dated : 30-6-2009
S. 43(5) r.w. S. 28 and S. 73 — In case of a company, if
part of its business consists of dealing in shares, then all types of
transactions, whether delivery-based or non-delivery-based, would be treated
as speculative transactions.
The assessee-company was dealing in cement and was also
engaged in the business of dealing in shares. During the relevant year, the
assessee had earned profit from sale of shares held as investments and
accounted for the same in the profit and loss account as speculation profit
and it set off the unabsorbed speculation loss brought forward from earlier
years from the aforesaid speculation profit and claimed allowance for the
same. The Assessing Officer referred to the definition of ‘speculation
transaction’ as contained on S. 43(5) and disallowed the assessee’s claim. The
CIT(A) confirmed the action of the Assessing Officer. He held, inter alia,
that as per the CBDT Circular No. 204 dated 24-7-1976, the object of the
provisions was to curb the device being resorted to by some business people to
manipulate and reduce the taxable income by booking speculative losses.
Relying on the decisions in the following cases, the
Tribunal allowed the assessee’s claim :
(a) Prasad Agents (P.) Ltd. v. ITO, (2009) 180
Taxman 178 (Bom.)
(b) Samba Trading & Investment (P.) Ltd. v. ACIT,
(1996) 58 ITD 360 (Bom.)
(c) ACIT v. Sucham Finance & Investment (I) Ltd.,
(2007) 105 ITD 353 (Mum.)
(d) Starline Ispat & Alloys v. Dy. CIT, (2007) 14
SOT 140 (Mum.)
(e) Jt. CIT v. Kalindi Holdings (P.) Ltd., (2007)
106 TTJ (Pune) 292
The Tribunal noted as under :
(1) Explanation to S. 73 states that if certain
conditions are fulfilled, then the transactions of purchase and sale of
shares would be treated as speculation transactions.
(2) The Legislature itself has used the phrase ‘purchase
and sale of shares’ in the Explanation without any qualification in
contradistinction to the term used in S. 43(5) where it is specifically
stated that the transactions are settled otherwise than by way of actual
delivery. Thus, the term ‘purchase and sale’ has to be given full effect and
its meaning cannot be restricted only with reference to such transaction
where delivery of shares has not been taken.
(3) The Revenue’s contention that only delivery-based
transactions as contemplated u/s.43(5) were to be considered as speculative
transaction was devoid of any merit, because then there was no necessity of
incorporating the Explanation to S. 73. The Explanation to S. 73 enlarges
the ambit of speculative transaction in case of such company where part of
its business is to deal in shares.
