Explanation to Section 73 Enlarge its Scope !

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The Explanation to section 73 actually not the definition of Speculation under Income Tax Act , but only a deeming fictaion by which in case of companies the meaning of speculation is enclarged to include even delvery based share tranaction.

Facts Related to Reassessment Case under Section 147

The assessee filed return on 30-12-1991 disclosing a loss of Rs. 1,31,043 and it was selected for scrutiny and the notices under sections 143(2) and 142(1) were issued and served on the assessee. The controversy arose regarding the loss disclosed by the assessee for the purpose of sale of shares amounting to Rs. 87,000 being treated as speculation loss in view of the Explanation added to section 73 of the Income-tax Act. On appeal, the CIT(A) was of the view that the Explanation to section 73 of the Act was attracted in the instant case and the loss was regarded as a speculation loss. The contention of the assessee, on the other hand, was that the Explanation to section 73 of the Act was not applicable in this case
The assessee appealed to the Tribunal. The learned Judicial Member accepted the claim of the assessee whereas accountant member and the Vice-President thereof gave verdict against assessee.

The issue before , Calcutta in R.P.G. Industries Ltd vs CIT 338 ITR 313 was

Whether the transaction arising from the business of purchasing and selling of shares where there has been actual delivery of transfer of the scripts come within the ambit and scope of speculative transaction as defined in section 43(5) of the Act so as to apply section 73 of the Act by taking aid of the Explanation to section 73 of the Act.”

Calcutta held on issue of Reassessment Proceeding under Section 147

The Calcutta held vide its order 17-03-2011 as under :

An ordinary assessee, who has suffered loss from his business, is entitled to have adjustment from other heads as provided in sections 71 and 72 except in the case of speculation business as provided in section 43(5). In the instant case, undisputedly, the loss suffered by the assessee resulted from a transaction of shares where there was actual delivery of share scripts and, therefore, the same could not be a speculative transaction as provided in the definition. However, by the added Explanation to section 73, a legal fiction has been created by which if the assessee is a company, as indicated in the said Explanation, and deals with the transaction of shares and suffers loss, such transaction should be treated to be a speculative transaction within the meaning of section 73, notwithstanding the fact that according to the definition of speculative transaction mentioned in section 43(5), the transaction may not be within its purview as there has been actual delivery of the scripts of shares.

Thus , the assessee and taxpayer should always take note of the aforesaid judgment of the Calcutta in a case of reassessment proceeding under section 147