Case: Commissioner of Income Tax-3 Vs. Lokmat Newspapers Private Limited

The facts lie in a narrow compass. During the course of Assessment Yearthe assessee showed a profit of Rs. 28,37,382/on the sale of shares and securities held astrade. The profit was offered by the assessee as a profit of speculation business and was set off against a speculation loss of Rs.27,61,505/brought forward from Assessment Year9. After claiming a set off of the speculation loss, which was brought forward, the assessee showed a balance of Rs. 75,877/as speculation income. The Assessing Officer did not treat the income which arose from the sale of shares as income from a speculation business on the ground that the assessee had settled its transaction of sale and purchase of shares through physical delivery. Consequently, the Assessing Officer did not allow the claim of the assessee for seeking a set off of the income from the sale of shares against the loss on account of speculation business,brought forward from Assessment Year9. The CIT (Appeals) confirmed the order of the Assessing Officer. The Tribunal, following its judgments in the case of Samba Trading and Investment Pvt. Ltd. vs. ACIT, 58 ITD 360 and in the case of Sucham Finance and Investments (I) Ltd., (2007) 107 TTJ 315 (Mum), came to the conclusion that the profit which has been earned from the sale of shares, fell within the purview of the explanation to Section 73 and to be set off against losses which have been brought forward.

Court's reasoning:
10. The submission which has been urged on behalf of the Revenue, cannot be accepted, having regard to the plain meaning of the explanation to Section 73. The submission of the Revenue is that a loss which arises on account of a transaction of the sale and purchase of shares would constitute a loss from a speculation business for the purposes of the explanation. But, that the profit which arises from a transaction involving the actual delivery of shares would not constitute a profit for the purposes of subsections (1) and (2) of Section 73 in respect of which a set off can be granted. To accept the submission of the Revenue would be to introduce a restriction into the scope and ambit of the deeming fiction which is created by the explanation to Section 73, which is not contemplated by Parliament.Once a deeming fiction is created by law, it must be given full and free effect, of course, in relation to the ambit within which it is intended to operate. The deeming fiction created by the explanation to Section 73 defines when an assessee is to be deemed to be carrying on a speculation business for the purposes of the Section. The deeming fiction is, therefore, one which arises specifically in the context of the provisions of Section 73 and is confined to that purpose alone. The explanation stipulates that where an assessee is a company whose business consists in any part of the purchase and sale of shares of other Companies, it shall be deemed to be carrying on a speculation business to the extent to which the business consists of purchase and sale of such shares. Whether or not it is a profit or loss that has resulted from carrying on such business, is a consideration which is alien to the meaning of what constitutes a speculation business by the explanation to Section 73. Once an assessee is deemed to be carrying on a speculation business for the purpose of Section 73, any loss computed in respect of that speculation business, can be set off only against the profits and gains of an other speculation business.Similarly, for the purposes of(2), the loss in respect of a speculation business which has not been set off either in whole or in part, can be carried forward and can be set off against profits and gains "of any speculation business". The expression "any speculation business" means a speculation business of the assessee in respect of which profits and gains for the Assessment Year in question have arisen and there is no justification to restrict the content of that speculation business where profits have arisen by excluding a business involving actual delivery of shares. No such restriction is found in the explanation. To impose one is a legislative function. In other words, once the assessee is carrying on a speculation business and the profits and gains have arisen from that business during the course of the Assessment Year, the assessee is entitled to set off the losses carried forward from a speculation business arising out of a previous Assessment Year.11. In these circumstances, the view which has been formed by the Tribunal is consistent with the provisions of Section 73.