Suhas Chandra Sen, J. - (1.) The Tribunal has referred the following questions of law under Section 256(1) of the Income-tax Act, 1961, to this court: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in holding that the Explanation to Section 73 of the Income-tax Act, 1961, has no application in the case on the view that the entire business of the assessee was in share-dealing ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in holding that the assessee is entitled to claim deduction of the loss of Rs. 1,56,087 under the head 'Business' and that the finding that the loss was speculation loss has to be vacated ? "
(2.) In this proceeding, the assessment year involved is 1977-78 for which the relevant year of account is the year which ended on March 31, 1977.
(3.) The facts found by the Tribunal narrated in the statement of case are as under ; "The assessee is a company and the reference relates to the assessment year 1977-78 for which the accounting period ended on March 31, 1977. For the year under reference, the assessee-company disclosed a loss of Rs. 1,56,087 from share-dealings. The Income-tax Officer disallowed the loss and treated the same as a loss incurred in speculation business on the basis of the amendment by way of Explanation to Section 73 of the Income-tax Act, 1961, which came into force with effect from April 1, 1977. On appeal, the Commissioner of Income-tax (Appeals) confirmed the above action of the Income-tax Officer. The assessee filed a second appeal to the Income-tax Appellate Tribunal and it was contended on behalf of the assessee that the Explanation to Section 73, on which reliance was placed by the lower authorities had no application, inasmuch as the assessee's only business was in share-dealings. It was claimed on behalf of the assessee that, in a case where the only business is in share-dealings, the Explanation can have no application and it applies when share dealing is only a part of the business carried on by the assessee. It was contended on behalf of the Revenue that the Explanation applies even if the business is only in share-dealings since "part" includes "whole". Secondly, it was contended that the assessee had also business in money-lending as held by the Commissioner of Income-tax (Appeals) in which case the Explanation is indisputedly applicable. The Tribunal, after interpreting Section 73, held that, where a part of the business of a company consists in the purchase and sale of shares, then alone the Explanation will come into play and that it will have no application in a case where the sole business of the company is in share-dealings. The Tribunal found that there was only one and single transaction of investing the surplus amount lying with the assessee in a concern temporarily for a brief period and, in that process, the assessee received interest of Rs. 1,740 only. From this fact, the Tribunal came to the conclusion that such a transaction did not amount to the carrying on of money-lending business and that it amounted only to a temporary investment of surplus funds and not with a view to carrying on business. According to the Tribunal, in order to constitute business, there should be an organised activity and not merely one isolated transaction. Finally, the Tribunal came to the conclusion that the only activity of the assessee was dealing in shares, that is to say, the entire business of the assessee was in share-dealings in which case the Explanation to Section 73 has no application.";