ORDER
Egbert Singh, Accountant Member
1. The appeal is by the assessee which is directed against the order of the learned CIT (Appeals) by which he has sustained the loss of Rs. 3,50,562 which was considered as a speculation loss. It is also argued that the appeal by the assessee that the CIT (Appeals) erred in holding the disallowance for Rs. 1,60,000 (correct figure is Rs. 1,63,210) resulting from the sale of 2000 shares of Standard Batteries stated to be represented stock-in-trade. It is also another ground of appeal by the assessee in respect of the disallowance of loss of Rs. 1,05,230 (correct figure is stated to be Rs. 1,02,020) arising from the valuation of closing stock of shares.
2. The next point of appeal is regarding disallowance of interest of Rs. 68,923 paid for loan of Rs. 9,19,040 taking for the purchase of a portion of the shares dealt in during the year and that the CIT(Appeals) erred also in sustaining the disallowance of Rs. 16,409 representing cost of stamps, miscellaneous expenses and proportionate expenses of audit fees, printing and stationery, service charges, etc., connected with the business of share dealing which are connected with such business. The claim of the assessee is also that the CIT (Appeals) should have allowed carried forward of loss of Rs. 3,50,562 arising from the share dealing business and that the expenses relating to proportionate service charges should be allowed in the computation of dividend income.
3. In the assessment order, the Assessing Officer has taken the status of the assessee as Company. He noted that the assessee disclosed the loss under the head ‘dividend income’ and loss out of share dealing. Hearing was given and the parties placed various papers which were considered by the Assessing Officer. Amongst other things, he noted that the assessee purchased 3178 equity shares of Rs. 100 of Standard Batteries Ltd. for Rs. 12,12,740 and sold away 2000 equity shares at Rs. 6,00,000 and the rest of the shares i.e. 1178 were held by the assessee which claimed to have incurred a loss of Rs. 3,50,562. The assessee claimed the same as business loss.
4. The Assessing Officer pointed out that the principal objects of the assessee was to take over the assets and liabilities of Rupajuli Tea Co. Ltd., incorporated under the English Companies Act and to plant, grow, import, export by sale process etc. of tea, coffee, rubber etc. and other produce of the soil. He noted that the company was engaged in purchasing and selling of shares. He pointed out that the assessee-company though claimed loss arising out of the purchase and sale of shares to be taxed as business income, but this loss was nothing as the same arose out of speculation within the meaning of Explanation inserted in Section 73 of Taxation Laws (Amendment) Act, 1975. He was of the view that the assessee was not an Investment company nor was it engaged in business of banking or grant of loans and advances but the assessee was engaged in dealing in shares. He, therefore, concluded that the loss arising out of the purchase and sale of shares should be deemed as loss arising out of speculation which has to be computed subject to the above discussion.
5. He proceeded to compute the income from dividend from M/s. McNally Bharat Engineering Company Ltd. at Rs. 2,62,700 which he assessed as income from other sources. He allowed audit fees as claimed and printing charges of Rs. 955. In respect of the assessee’s claim for deduction of interest of Rs. 4,65,825, the Assessing Officer has dealt with the same separately. For the time being, we shall first deal with the speculation business as dealt with by the Assessing Officer.
6. The Assessing Officer noted that the assessee purchased 3178 shares on different dates i.e, from 1-3-1983 to 15-11-1983 at Rs. 380 per share which the assessee claimed to have been sold at Rs. 300 per share for 2000 shares which came to Rs. 6,00,000 and thereby a loss of Rs. 1,60,000 was incurred. He pointed out that the remaining stock of shares held by the assessee was valued at Rs. 295 per share and as a result the assessee claimed to have incurred a loss of Rs. 2,65,230. He noted that he asked the assessee to furnish names and addresses of the persons to whom the said 2000 shares were sold together with the market quotation at the time of sale, but the same was not furnished to the Assessing Officer. He pointed out that only one certificate from the Broker dated 31-10-1986 was furnished regarding the valuation of shares as on 31-12-1983 on the basis of which, the value of the closing stock of the share was taken by the assessee. The Assessing Officer scrutinized the details of shares purchased and he observed that the assessee purchased shares on the above dates at Rs. 380 per share and, therefore, the market value per share was at Rs. 380 as on 15-11-1983. The assessee’s accounting year ended on 31-12-1983. He, therefore, held that the assessee has failed to substantiate how the value of the share was reduced from Rs. 380 per share to Rs. 300 per share and later on to Rs. 295 per share. He found that no evidence was furnished regarding the sale of shares at Rs. 300 per share as well as the market quotations of the share at the time of sale. He, therefore, declined to accept the loss as claimed. The income was, therefore, taken as income from other sources from the dividend income and Nil from the speculation business.
7. The assessee took up the matter before the learned CIT(Appeals) and claimed, amongst other things, deduction of interest on loan from the dividend income. The assessee also agitated before the CIT (Appeals) that the Assessing Officer went wrong in holding that the loss in share dealing was speculative within the meaning of Section 73 and also erred in not accepting the loss for carry forward of the same and equally erred in not carried forward such loss though the assessee did not admit that such business loss was a speculation loss.
8. The learned CIT (Appeals) heard the appeal by the assessee and in respect of the interest of Rs. 4,65,825, on reasons recorded by him, the CIT (Appeals) directed that the deduction should be allowed while computing the income from other sources.
9. The CIT (Appeals) dealt with the grounds relating to the amount of loss of Rs. 3,50,562 claimed by the assessee in the share dealing. The CIT (Appeals) reproduced the relevant portion of the assessment order in this regard. Thereafter, he observed that at the time of hearing, the assessee’s counsel was asked as to why he has not furnished the names of the persons to whom shares were sold and why the assessee did not furnish the market quotation on the basis of which the closing stock was valued. He also noted that the assessee had been asked as to how the shares were purchased at Rs. 380 while the market value was lower. He categorically noted that the assessee’s learned counsel could not explain these things and, therefore, keeping in view the order of assessment, he was of the opinion that the Assessing Officer was justified in disallowing the loss which he got in share dealing and no interference is called for. Hence, this appeal by the assessee.
10. At the time of hearing, the assessee’s learned counsel painstakingly took us to the various papers of the paper-book to stress the point that the authorities below erred in ignoring or rejecting the claim of the assessee which was genuine and in not considering certain facts and materials brought on record. In the assessee’s paper-book, the copy of a letter dated 26-4-1991 from M/s. Salasar Industrial Services Ltd. at page 27 is enclosed. Apparently, this was not before the authorities below, as the CIT (Appeals) has passed the order appealed against on 19-1-1989. On being drawn to this factual aspect of the matter, the assessee’s learned counsel submits that the same may be considered as the Assessing Officer had never asked the assessee to produce such document at the time of hearing, as otherwise there could not have been any difficulty for the assessee to produce such evidence. But this contention appears to be without any basis as from the order of the CIT (Appeals), this point could not be said to have been taken by the assessee in the grounds of appeal before the CIT (Appeals) or at the time of hearing. In fact, the CIT (Appeals) has categorically mentioned this aspect of the matter as briefly mentioned by us earlier. At any rate, under the rules neither parties could place fresh materials before the Appellate Tribunal at this stage. Of course, the Appellate Tribunal may on his own accord call for certain material or evidence if it deem fit which is not the situation in the present case. That apart, there is no application for admission of such fresh evidence. In the circumstances, this fresh piece of materials cannot be taken into account.
11. The Assessing Officer was of the view that the loss arising out of its purchase and sale of shares should be deemed to be a loss from the speculation business. But there was no further discussion in the order nor any material was placed to indicate on what basis or facts such conclusion was drawn by the Assessing Officer. Of course, the assessee has held shares in other companies from which dividend income was derived and duly assessed by the Assessing Officer, as income of the assessee from other sources. The shares of the Standard Batteries were purchased by the assessee on different dates at an uniform rate of Rs. 380 per share as could be seen from the chart placed by the assessee in the paper book. As mentioned earlier, the assessee did take specific grounds before the CIT (Appeals) that the Assessing Officer erred in treating the said loss as speculative loss, but the CIT (Appeals) has given a finding as briefly narrated by us in the earlier paragraph.
12. Before we infer that a transaction is speculative or not, there are various criteria to be taken into account. If the dispute is settled between the parties, then it is not a speculative transaction, whereas a contract having settled and damages had been paid, it would amount to speculative transaction. As held by the Hon’ble Mysore High Court in the case of Bhandari Rajmal Kushalraj v. CIT [1974] 96 ITR 401, in order that that a transaction may fall within the scope of the expression “speculative transaction” various facts have to be ascertained and found out and whether a contract for purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transaction of the commodity or scrips. Of course, a contract can be settled only during the subsistence of the contract. It was held in the said case that in order to decide whether a loss arose out of speculative transaction, the parties would have to decide a question of fact after bringing material facts on record. The Appellate Tribunal in the present case could not have decided this point and question of fact in the absence of the relevant materials.
13. Certain facts which are basically required would have to be brought out before dealing with the assessee’s claim that a settlement of a claim for damages arising out of a breach of contract would not be a speculative transaction.
14. It has to be ascertained on facts to be brought on record in order to find out whether there was actual delivery or transfer of the commodity in order to take a transaction out of the definition of the speculative transaction. It has also to be considered whether the delivery of a pucca delivery or without delivery of the goods cannot be treated as “actual delivery”. But again basic facts are essential which are lacking in the present case although the Assessing Officer held that any shares held by the assessee should be deemed as a speculative business, whereas the assessee’s claim was that he was dealing in shares and, in fact, held them as stock-in-trade as appearing in the balance-sheet as well as in other copies of accounts placed in the paper book. In the case of CIT v. Ganesh Das Ram Swaroop Kakarti [1990] 181 ITR 93, the Hon’ble Rajasthan High Court has dealt with similar situation in which a business loss or loss in speculative transaction was considered.
15. In this connection, it will be helpful to refer to a decision of the Hon’bie Supreme Court of India in the case of Nirmal Trading Co. v. CIT [1980] 121 ITR 54, in which case the assessee, a dealer in paper, hessian, etc., entered into several transactions of sale and purchase with different parties which were settled by handing over delivery orders and payment by cheque. It was found in the said case that there was no evidence that actual delivery of the goods was ever effected to the assessee or to the subsequent purchaser from the assessee. The transaction in that particular case was held by the Hon’ble Court as “speculative transaction” under the provisions of the Indian Income-tax Act, 1922. In the case of Madanlal Nemani (P.) Ltd. v. CIT [1976] 105 ITR 244 (Bom.) noted the facts of that case, in which the assessee was having its main business as selling agent and entered into a trade transaction for purchase of hessian cloth. It was noted that the evidence on record disclosed that the assessee never received actual delivery of the goods nor there was anything to show the ultimate buyers had actually received delivery of the goods and that the fact remained only an agreement for purchase and sale and the loss there from was speculative loss.
16. From the few bare facts placed before us, it is not possible to decide the dispute either way. It is seen that the assessee had been buying shares of the Standard Batteries on several dates-on the same rate per share i.e., Rs. 380, of which major block was sold in one transaction at a latter part of the year at Rs. 300 per share. It is, thus, not clear whether the shares were acquired with a view to obtain control of the company whose shares were purchased or that the shares were to be held as stock-in-trade or otherwise. Thus, from any angle which one may look at the present problem, conclusion could not be reached at unless the basic facts are brought on record by the Assessing Officer. The claim of the assessee, on the other hand, is that it has a business in dealing in shares. For that purpose, various materials and facts are required to be considered by the Assessing Officer or by the CIT (Appeals). Actually, in the present case, facts are very scanty and actually there were no findings in the orders of the authorities below and that is why the assessee was having a genuine grievance in the present case. As pointed out earlier, the assessee’s learned counsel submits that names and addresses of the purchaser of 2000 shares could not be furnished as the Assessing Officer never asked the assessee to do so. It is submitted that those details were available. In our opinion, such details or fact would have a bearing on the present dispute. It would, in the interest of justice, that the assessee should be given opportunity to place those facts, so that the Assessing Officer may verify the same and if necessary to cross-examine such party or parties with whom the assessee had those business contacts relating to this particular dispute. Such finding and such bringing on record all basic facts would help the authorities to come to a proper conclusion as this issue is likely to crop up in other assessment years also. In the circumstances, we deem it fit that the matter should be dealt with by the Assessing Officer afresh after giving the assessee an opportunity of being heard, so that the assessee’s claim that the purchase and sale of shares of Standard Batteries was his regular business in share dealing and not a speculative business. In fact, other surrounding circumstances would have to be ascertained regarding the valuation of shares at the relevant point of time as would be needed as the assessee could not place basis for its valuation of stock at the rate of Rs. 295 per share although similar shares were sold in a short time at the rate of Rs. 300 per share, whereas the cost was at Rs. 380. At the same time, as held by the various courts in many decided cases, few of which have been discussed by us above, various facts are to be brought on record and that too after examining the transaction and the parties involved, so that a proper conclusion of fact can be made.
17. Thereafter, it would be necessary for the authorities below to consider that such loss, whether business or speculative loss, as the case may be, could be allowed as deduction or could be allowed to carry forward for set off to latter assessment years. Thus, in the circumstances narrated above, we consider that this dispute as raised by the assessee in the first three grounds of appeal are restored to the file of the Assessing Officer for fresh disposal and after giving the assessee opportunity of being heard. Both the sides will be at liberty to bring fresh material and facts for proper consideration.
18 to 20. [These paras are not reproduced here as they involve minor issues.].
