Loss from shares dealing cannot be deemed to be from “speculation” under Explanation to s. 73 if company is not engaged in the “business” of shares dealing

CIT vs. Orient Instrument Pvt. Ltd (Delhi High Court)

Loss from shares dealing cannot be deemed to be from “speculation” under Explanation to s. 73 if company is not engaged in the “business” of shares dealing

The assessee, engaged in the business of trading of crafts paper etc claimed a loss of Rs. 5.53 lakhs arising on account of a transaction whereby it purchased and sold shares. The AO held that under the Explanation to s. 73, the said loss was deemed to be arising from a speculation business and could not be set off against other

business profits. However, the CIT(A) and Tribunal allowed the assessee’s claim on the basis that the assessee was not engaged in the “business of purchase and sale of shares” so as to fall into the mischief of the Explanation to s. 73. In appeal before the High Court, the department relied on Bhikam Chand Jankilal 131 ITR 554 (MP) and argued that even a single transaction of sale or purchase of shares might amount to a “business”. HELD by the High Court dismissing the appeal:

The assessee was engaged in the business of trading of crafts paper, installation, job work, consultancy and commission. By all means, the transaction whereby it purchased the shares and incurred loss on account of the fall in the value of the share was a solitary one. The findings of the Tribunal that the transaction did not constitute the business carried on by the company, cannot be termed as perverse or unreasonable. No substantial question of law arises (Standipack 350 ITR 251 (Cal) noted)

See also Prasad Agents 333 ITR 275 (Bom), Lokmat Newspapers 322 ITR 43 (Bom) & Paharpur Cooling Towers 338 ITR 295 (Cal) on the scope of Explanation to s. 73