Law:

Section:

Section 73 of the Income-tax Act, 1961 - Losses - In speculation business - Assessment year 1991-92 - Whether Explanation to section 73, which makes business of purchase and sale of shares as business of speculation, is applicable to transaction of sale and purchase of units - Held, no - Whether, therefore, loss incurred on account of purchase and sale of units of UTI could not be said to be speculative loss under section 73 - Held, yes Section 28(i) of the Income-tax Act, 1961 - Business loss/deductions - Allowable as - Assessment year 1991-92 - Whether once a transaction is genuine, merely because it has been entered into with a motive to avoid tax, it would not become a colourable device and, consequently, earn any disqualification - Held, yes - In May, 1990, assessee purchased certain units of UTI at then prevailing rate and after receiving dividend thereon in July, 1990, sold same in same month at then prevailing rate which was lesser than purchasing price - In that transaction, assessee incurred loss which it claimed as short-term capital loss and also claimed set off of same against its income - Revenue authorities held that transactions were not bona fide because they were entered into with a motive to reduce liability of tax which is not permissible, in law, and, accordingly, assessee was not entitled to set off of said loss against its income from business - On appeal, though Tribunal accepted that transactions were genuine, yet upheld orders of authorities below - Whether when Tribunal had held transaction concerning purchase of units to be genuine, it was not justified in holding that transactions were not bona fide transactions and were entered into with a motive to avoid liability for tax - Held, yes FACTS On 21-5-1990 the assessee-company had purchased 25 lakhs units of 'US 64' of the UTI at the prevalent market rate of Rs. 15 per unit from a bank on credit. On 6-7-1990, the assessee received the dividend on the said units. On 20-7-1990, the bank debited the overdraft account of the assessee by the amount of consideration at which the said units were sold by the bank to the assessee. On account of non-availability of surplus funds and cost of…

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