Per R.P. Garg, Vice-President. - The President, Income-tax Appellate Tribunal vide order under section 255(3) of the Income-tax Act, 1961 constituted a Special Bench for the aforesaid appeal and to consider the following question :

"Whether on the facts and in the circumstances of the case, loss arising from sale of shares applied for by a dealer and allotted to it in Public Issue is hit by Explanation to section 73 of the Income-tax Act, 1961 ?"

2. The assessee is engaged in the business of trading in cloth and shares. During the year under consideration sales of cloth have been shown at Rs. 10,93,95,764 and the sales of shares at Rs. 7,35,12,152, both aggregating to Rs. 18,29,07,916. Assessee claimed a loss of Rs. 1.26 crores arising out of the trading in shares.

3. In response to Assessing Officer’s query as to why the loss be not taken as speculative loss in view of Explanation to section 73 of the Act, the assessee’s contention was that the loss of Rs. 64,13,807 on account of shares acquired in primary market and subsequent sale thereof was not hit by the Explanation to section 73 of the Act. The Assessing Officer examined the meaning of the terms purchase & sale; Purchase as - (1) the action of buying which cannot be done without making payment; (2) a thing bought - which cannot be done without making payment. Sale as - (1) the exchange of something for money which presupposes the acceptance of payment; (2) the activity of selling - which cannot be done without accepting payment. Both the words according to him carry along with them a physical exchange of the commodity and money; and in the context of purchase money is to be given and commodity is to be taken and conversely, in the context of sale, commodity is to be given and money is to be taken; neither the exchange of commodity nor the exchange of money is absent from either of the two words; and therefore, the existence of a physical exchange of commodity and the physical exchange of money is a must. He further stated both the words, "purchase" and "sales" were complimentary to each other. Not only this, the genesis, the existence and the death of each of these words are equally complimentary meaning, and therefore, when the purchase takes birth it is by automatic implication that the word ‘sales’ also takes birth. He also stated that the two words "purchase" or "sales" have no independent and exclusive birth, existence and death. All of the above three factors, for both the words, are the direct and implied consequence of each other. Such basic and primary conditions being, the exchange of commodity and the exchange of money, he observed that in the present instance all of such conditions have been fully satisfied in the instant case. Since these are the only conditions which need to be satisfied, and, therefore, no other factor other than these can be allowed to influence any decision on the existence and happening of purchase and sale in the instant case.

3.1 Referring to the manner, method and procedure of acquisition of shares from primary market being totally different from the manner, method and procedure of purchase of shares from open market; he observed that such procedure as is involved in the purchase of shares primary market and the secondary market does not form part of any primary and basic condition which needs to be satisfied by deciding whether the activity constitutes purchase and sales or not. Therefore, the irrelevance and non-applicability of such procedural difference, as may or may not exist, is not only apparent but is also established. He thus rejected the contention of the assessee that the purchase of shares from the primary market and loss amounting to Rs. 64,13,808 incurred on the sale of such shares does not fall within the purview of being categorized as speculated loss under the provisions of Explanation to section 73 of the Act.

4. Before the CIT(A) the assessee relied upon three cases - (i) Sri Gopal Jalan & Co. v. Calcutta Stock E