2015 (7) TMI 1224 - HC - Income Tax

Loss suffered on account of share trading as share broker - whether not a business loss or speculative loss as per Explanation to Section 73 and as per Explanation 2 to Section 28 and set off against the income from the business of brokerage was not allowed - Held that - come Tax Appellate Tribunal after going through the relevant provisions of Sections 43(5)(d) and 73(1) and Explanation to Section 73 of the Act and after examining as to why Explanation to Section 73 was inserted by the Act with effect from 1.4.1997 i.e. in order to have effective check on the dealings in shares of the company controlled by business houses controlling groups of companies as tax avoidance device correctly answered the same in favour of the assessee. The loss suffered by the assessee on account of misdeals or purchase and sale of shares by actual delivery or trading in derivatives in a recognised stock exchange cannot be considered to be loss on account of speculation. Conversely it has to be treated as the business loss of the assessee. More over it is pertinent to mention that misdeals happen involuntary during the course of the assessee s business activities which is beyond the control of the assessee. Purchase and sale of shares is not the business of the assessee. Purchase and sale of shares is not the business of the assessee company because all such purchase and sale of shares are made on behalf of the clients of the assessee company earning brokerage towards the same. - Decided against revenue Deduction claimed for the expenditure incurred towards fixing false ceiling painting electrical cabling and certain civil works in the rented premises - Held that - Tribunal correctly by relying on the decisions of our High court reported in (i)CIT v. Ayesha Hospitals Pvt. Ltd. (2006 (10) TMI 117 - MADRAS High Court) and (ii)Thiru Arooran Sugars Ltd. V. Dy. CIT (2013) 2013 (2) TMI 450 - Madras High Court held the expenses incurred as revenue expenditure and accordingly allowed deduction on account of the same - Decided against revenue

Summary

Issues:
1. Treatment of loss on account of share trading as speculative loss.
2. Allowance of deduction for expenditure on interior work in rented premises.

Analysis:

Issue 1: Treatment of loss on account of share trading as speculative loss

The appellant, engaged in broking and trading in stocks and securities, filed income for assessment year 2008-2009, showing a loss of &8377; 26,63,131 under the head of misdeals. The Assessing Officer considered this loss as speculative loss under Explanation to Section 73 and Explanation 2 to Section 28, disallowing set off against brokerage income. The Commissioner of Income Tax (Appeals) upheld this decision, treating the loss as speculation loss. However, the Income Tax Appellate Tribunal ruled in favor of the assessee, stating that the loss from purchase and sale of shares cannot be considered speculation loss as it was not a tax avoidance device. The Tribunal held that the loss should be treated as business loss, not speculation loss. The Tribunal's decision was based on a detailed analysis of relevant provisions and judicial precedents, concluding that the loss was incurred involuntarily during business activities and should be treated as business loss. The High Court agreed with the Tribunal's findings, dismissing the appeal by the Revenue.

Issue 2: Allowance of deduction for expenditure on interior work in rented premises

The appellant claimed deduction for expenditure on interior work in the rented premises, arguing it should be treated as revenue expenditure. The Revenue contended it should be considered capital expenditure. The Tribunal, relying on judicial precedents, held that the expenses incurred, including false ceiling, painting, electrical cabling, and civil works, should be treated as revenue expenditure. Citing relevant case laws, the Tribunal concluded that the expenses were revenue in nature and allowed the deduction. The High Court concurred with the Tribunal's decision, stating that the expenses were rightly treated as revenue expenditure based on established legal principles. The Court found no reason to interfere with the Tribunal's findings, and hence, dismissed the Tax Case Appeal, emphasizing that no substantial questions of law arose in this matter.

In conclusion, the High Court upheld the Tribunal's decisions on both issues, confirming that the loss on share trading was a business loss and allowing the deduction for interior work expenses as revenue expenditure. The judgment provides a detailed analysis of relevant legal provisions, precedents, and reasoning behind the decisions, ensuring a fair and just interpretation of the tax laws in the given context.