High Court of Gauhati

Bhikamchand Betala & Sons

v.

Income-tax Officer

D. BISWAS AND SMT. A. HAZARIKA, JJ.

IT APPEAL NO. 41 OF 2003

August 21, 2007

Section 43(5) of the Income-tax Act, 1961 - Speculative transactions - Assessment year 1995-96 - During relevant year, assessee purchased shares from one ‘R.K.’ on principal to principal basis and resold them to same R.K. without taking physical delivery of shares - Assessee paid only difference amount of purchase and sale value of shares and in said transaction, incurred loss - Assessee claimed deduction of said loss as share business loss - Whether in view of section 43(5), transaction in question was a speculative transaction and loss arising therefrom being speculative loss could not be allowed - Held, yes

FACTS

During the assessment year 1995-96, the assessee purchased certain shares from one ‘R.K.’ on principal to principal basis and resold the shares to the same ‘R.K.’ without taking physical delivery of the shares. The assessee also paid only the difference amount of purchase and sale value of the said ‘R.K.’ and claimed deduction of the loss incurred in the said transaction as share business loss. However, the Assessing Officer concluded that the transaction in question could not be treated as genuine. Accordingly, the share business loss was not allowed and the same was added back to the total income of the assessee.

On appeal, the Commissioner (Appeals) held that the disallowance of the loss of share business was based on a wrong perception of the facts and, thus, he directed the Assessing Officer to allow the loss so claimed. On revenue’s appeal, though the Tribunal held that there was no cogent material to show that the said share transactions were not genuine, but, in view of the provisions contained in section 43(5), the loss so suffered by the assessee was speculation loss and, hence, not allowable.

On appeal under section 260A:

HELD

In Hoosen Kasam Dada (India) Ltd. v. CIT [1964] 52 ITR 171 (Cal.), it was held that, under Explanation 2 to section 24, a transaction in which a contract for purchase and sale of any commodity is settled otherwise than by delivery, is a speculative transaction irrespective of whether the parties initially intended to give delivery or not. On the other hand, however, speculative a transaction might be, if there is delivery, it cannot be considered as a speculative transaction for the purpose of section 24. [Para 17]

In CIT v. Maya Ram Jia Lal [1986] 162 ITR 520/25 Taxman 206 (Punj. & Har.), it was held that to find out whether a transaction is speculative or not, the following are the criteria. If the dispute is settled between the parties then it is not a speculative transaction, but if the contract is settled and under the settlement of the contract, damages are paid, it would be a speculative transaction. [Paras 19, 20]

In view of the said decisions, the assessee’s arguments, that in spite of holding by the Tribunal that no cogent material could be brought on record by the revenue to show that the share transactions were not genuine, the holding that loss so suffered by the assessee was speculation loss was based on wrong perception of laws and not justified, had to be over-ruled. [Para 26]

Therefore, the contention of the assessee that as there was no initial intention on his part to settle the contract in question, by payment of difference, but he was only forced by the subsequent circumstances to do so, the transactions were not speculative in nature, could not be accepted. [Para 27]

The loss thus, was to be held to be speculation loss and, therefore, there could be no deduction of tax on the aforesaid amount. [Para 28]

CASE REVIEW:

CIT v. Kamani Tubes Ltd. [1994] 207 ITR 298/75 Taxman 55 (Bom);

CIT v. Mangal Chand [2002] / [2001] 255 ITR 329 119 Taxman 614 (Raj.); and

CIT v. Shantilal (P.) Ltd. [1983] 144 ITR 57/14 Taxman 1 (SC); Distinguished on facts

Hoosen Kasam Bada (India) Ltd. v. CIT [1964] 52 ITR 171 (Cal.);

CIT v. Maya Rama Jia Lal [1986] 162 ITR 520/25 Taxmann 206 (Punj. & Har.);

V. N. Sarsetty v. CIT [1987] 162 ITR 727 [1986] 26 Taxman 459 (Kar.);

Abdul Gani Haji Babib v. CIT [1969] 72 ITR 6 (Cal.); and

CIT v. Jagannath Mahadeo Prasad/Gauri Dutt Bhagwan Dass & Co. [1969] 71 ITR 296 (SC) - followed.