Law:

Section:

Explanation to section 73, read with section 43(5), of the Income-tax Act, 1961 - Losses - Speculation losses - Assessment year 1978-79 - Whether unless it is conclusively established that assessee has entered into a transaction clearly as a speculative venture it cannot be inferred that transaction is of a speculative venture only because assessee has derived benefit of tax reduction subsequently - Held, yes - Whether in a case where assessee has incurred loss in transaction of purchase and sale of shares crucial time is time when assessee purchased shares and if possible to find out intention behind such a purchase and not to draw an inference of speculation from fact that subsequently shares were sold at a low price - Held, yes FACTS The assessee-company's main object was manufacturing of aluminium and other allied activities. One of its objects included dealing in shares. During the assessment year 1978-79, the assessee-company purchased shares of its sister concern in April and September 1976 but subsequently sold them in April and August 1977. In the process, the assessee-company sustained loss. The assessee claimed the same as a short-term capital loss. The Assessing Officer did not accept the assessee's contention and held that the loss sustained by the assessee was a speculative loss within the meaning of Explanation to section 73. On appeal, the Commissioner (Appeals) found that the sister concern wanted to modernise the plant and the assessee-company acquired the shares as investment and, therefore, allowed the assessee's claim. On appeal by the revenue, the Tribunal held that the transaction was a speculative venture. On reference: HELD The Tribunal assumed that the assessee-company purchased the shares as a dealer, and not as an investor. It was not possible to agree that a dealer is not interested in profit making. The Tribunal had also not considered the aspect that it was possible for a sister concern to purchase the shares of the said concern to aid its development activities. In such a situation, it might not be strictly as an investment or as a dealer, but as a person interested in rescuing another person who was closely related to the former…

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