Law:

Section:

Section 73 of the Income-tax Act, 1961 - Losses - In speculation business - Assessment year 2001-02 - Whether in view of clear language of Explanation to section 73, a company carrying on business of purchase and sale of shares shall be deemed to be carrying on speculation business - Held, yes - Whether Circular No. 204, dated 24-7-1976, which contains explanatory notes to Taxation Laws (Amendment) Act, 1975, may be considered to mean that Explanation to section 73 also includes cases of group companies, but that does not mean that Explanation must be restricted only to group companies and not to other companies who carry on business of sale and purchase of shares either having no controlling interest in other companies or purchasing shares to control other companies - Held, yes - Whether Explanation to section 73 cannot be read to mean only when there is purchase and sale of shares in course of a financial year, but it will cover both, shares which are stock-in- trade and shares which are traded in course of financial year, for purpose of considering loss and profit for that year - Held, yes - Whether, therefore, loss or profit on account of valuation of stock-in-trade of shares would amount to revenue loss or revenue receipt - Held, yes Circulars & Notifications : CBDT's Circular No. 204, dated 24-7-1976 FACTS The assessee, a non-banking financial company, was carrying on business of sale and purchase of shares of other companies. While making assessment, the Assessing Officer treated the loss suffered by the assessee on account of valuation of stock of shares as a speculation loss by virtue of the Explanation to section 73. On appeal, the Commissioner (Appeals) held that the said loss could not be treated as a speculation loss. On the revenue's appeal, the Tribunal set aside the order of the Commissioner (Appeals) and treated the loss as a speculation loss. On appeal to the High Court, the assessee contended that theExplanation to section 73 has to be read with Circular No. 204, dated 24-7-1976 and if so read it would be clear that the object of the provision is to curb the device sometimes resorted to by the business houses controlling groups of…

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