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2008 (7) TMI 618 - AT - Income TaxLoss suffered on account of share trading as share broker - speculative or non-speculative - Treatment of software expenses. Loss suffered on account of share trading as share broker - speculative or non-speculative - business of share brokering and the main activity in this line of business is that of earning brokerage income from sale and purchase of shares - Applicability of Explanation to section 73 - HELD THAT - On a bare perusal of this Explanation appended to section 73 it becomes clear that where any part of the business of a company other than those specified herein consists of the purchase and sale of shares of other companies such company shall be deemed to be carrying on a speculation business to the extent to which it consists of purchase and sale of shares - We are unable to accept ld. AR s point of view for the reason that the business of share-broker is to make purchase and sale of shares on behalf of the customers and earn brokerage therefrom. There is no stipulation or requirement for the broker to be directly engaged in the purchase and sale of shares at his own. Without making any purchase and sale of shares on his own account a broker can very well carry on his business of brokerage from sale and purchase of shares on behalf of the customers. To contend that both these activities are tied in a single indivisible rope is wholly incorrect. The Hon ble Calcutta High Court in Sun Distributors Mining Co. Ltd. s case 1990 (4) TMI 288 - CALCUTTA HIGH COURT considered a case in which the assessee s business was that of buying and selling of shares. In that case it was held that section 73 will apply where any part of the business of the company consisted in the purchase and sale of shares of other companies. It was observed that it may be that in a particular year shares were only sold or in a particular year the shares were only purchased. The section did not require that both sale and purchase should take place in the same year. The shares may be purchased in one year and then sold in the subsequent year. The Hon ble Court held that what was to be seen was whether the business of the company consisted in purchase and sale of shares. In that case the company had a business of buying and selling the shares. The shares were treated as stock-in-trade. In these circumstances it was held that Explanation to section 73 was applicable. Coming back to the facts of our case we observe that the assessee had shown share trading loss. There is no material on record to show that shares were held by the assessee as investment and not as stock-in-trade. On the contrary the AO has recorded a categorical finding that the assessee was trading in shares. This finding has not been controverted by the assessee either before the first appellate authority or us - Therefore we hold that the loss suffered by the assessee in the trading of shares is only speculative loss and cannot be set off against non-speculative income. The view taken by the ld. CIT(A) therefore does not require any interference. Hence this ground fails. Treatment of software expenses - Revenue or Capital - No evidence was furnished before the authorities below in regard to the details of software acquired by the assessee - HELD THAT - Ld. AR has placed reliance on three bills to contend that it is a revenue expenditure. From the perusal of the details as per the three bills we find that this detail is incomplete as the total thereof is not matching with the figure claimed by the assessee as deduction on its account - Special Bench of the Tribunal in the case of Amway India Enterprises v. Dy. CIT 2008 (2) TMI 454 - ITAT DELHI-C in which certain tests have been laid down for determining the character of such expenses. Since complete details of these expenses are not emanating from the orders of the authorities below nor they are before us we therefore cannot adjudicate on the question of deductibility or otherwise of such expenses. In this scenario we set aside the impugned order on this score and remit this issue to the file of the AO for deciding it afresh in the light of the guidelines laid down in above noted order of the Special Bench after allowing a reasonable opportunity of being heard to the assessee. In the result the appeal of the assessee is allowed for statistical purpose.
Issues Involved:
1. Confirmation of addition of Rs. 1,47,877 as speculative loss. 2. Treatment of software expenses. Issue-wise Detailed Analysis: 1. Confirmation of Addition of Rs. 1,47,877 as Speculative Loss: The primary issue revolves around whether the loss of Rs. 1,47,877 incurred by the assessee, a share broker, from trading in shares should be treated as speculative loss. The Assessing Officer (AO) treated the trading loss as speculative, disallowing its set-off against regular business income. The CIT(A) upheld this view, relying on precedents including CIT v. Sun Distributors & Mining Co. Ltd., CIT v. Arvind Investment Ltd., and SRJ Securities Ltd. v. Asstt. CIT. The assessee contended that its business activities, comprising sub-brokerage and trading in shares, should be viewed as a composite business. The assessee argued that the Explanation to Section 73 should not apply since the trading activity was integral to its share brokering business. The assessee cited various Tribunal orders and Circular No. 204 to support its stance. Conversely, the Departmental Representative (DR) argued that the Explanation to Section 73 was fully applicable, distinguishing share brokering from trading in shares. The DR cited the judgment in CIT v. Park View Properties (P.) Ltd., asserting that the loss was rightly treated as speculative. The Tribunal, after considering rival submissions and relevant material, held that the assessee's trading in shares on its own account, distinct from brokering for clients, constituted speculative transactions. The Tribunal referred to the Explanation to Section 73, which deems a company's business of purchasing and selling shares as speculative unless the company falls under specific exceptions. The Tribunal noted that the assessee's business did not fall under these exceptions. The Tribunal relied on the Calcutta High Court's judgment in Arvind Investments (P.) Ltd., which upheld that the Explanation to Section 73 applies even if the entire business consists of share trading. The Tribunal rejected the assessee's argument that Circular No. 204 should limit the Explanation's scope, emphasizing that statutory language prevails over circulars. The Tribunal acknowledged conflicting Tribunal orders but emphasized adherence to High Court judgments. It concluded that the CIT(A) correctly treated the loss as speculative, aligning with the Calcutta High Court's view. Consequently, the Tribunal upheld the CIT(A)'s decision, confirming the addition of Rs. 1,47,877 as speculative loss. 2. Treatment of Software Expenses: The second issue concerns the classification of software expenses amounting to Rs. 16,165. The AO treated these expenses as capital expenditure, allowing depreciation at 60% and disallowing Rs. 8,866. The CIT(A) upheld this treatment. The Tribunal noted that the assessee failed to provide complete details of the software expenses before the authorities. The Tribunal referred to the Special Bench decision in Amway India Enterprises v. Dy. CIT, which laid down criteria for determining whether software expenses are capital or revenue in nature. Given the incomplete details, the Tribunal remitted the issue back to the AO for fresh adjudication, directing the AO to apply the guidelines from the Amway India Enterprises case and allow the assessee a reasonable opportunity to present its case. Conclusion: The appeal was partly allowed for statistical purposes. The Tribunal upheld the CIT(A)'s decision on the speculative loss issue, confirming the addition of Rs. 1,47,877. On the software expenses issue, the Tribunal remitted the matter to the AO for fresh consideration based on the guidelines from the Special Bench decision in Amway India Enterprises.
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