2013 (4) TMI 345 - AT - Income Tax

Set off dividend income against the speculation loss - AO contested against the directions of CIT for directing to set off ignoring the fact that speculation loss cannot be set off with any income other than speculation income &only the balance amount is to be considered to be speculation loss to be carried forward and to be set off only against the share business profit in subsequent years - Held that - It is not denied that the shares are held by the assessee as stock in trade and the assessee earned dividend income on the shares as stock in trade. The finding of CIT(A) that the assessee is engaged in speculation business and the loss incurred by the assessee on the purchase and sale of shares by applying Explanation (b) to section 73 and the Revenue has not come in appeal against this finding. The dividend income earned by the assessee on stock in trade of such speculation business formed integral part of such deemed speculation business and was eligible to be set off against its so called speculation loss. In this regard, it is held that the dividend income is to be set off against the speculation loss and only the balance amount is to be considered to be speculation loss to be carried forward to be set off only against the speculation profit in subsequent years. Respectfully following the said decision of the Tribunal no infirmity in the order of the CIT(A) is found - against revenue.

Summary

Issues:
Late filing of appeal by Revenue, applicability of Explanation to section 73, setting off dividend income against speculation loss, treating dividend income as part of business of purchase and sale of shares.

Late Filing of Appeal:
The Revenue filed an appeal against the order of the CIT(A) after a delay of 39 days. The reasons for the delay were explained through an affidavit, which the Tribunal found plausible. The delay was condoned, and the appeal was admitted.

Applicability of Explanation to Section 73:
The original assessment under section 143(3) held Explanation to section 73 applicable to the assessee company, which was challenged by the CIT(A). The Tribunal directed the AO to re-examine the claim, emphasizing that the principal business of the assessee was granting loans and advances. The AO, upon re-examination, again applied Explanation to section 73, leading to the computation of taxable income, including dividend income and interest income. The CIT(A) upheld the AO's decision, confirming that the assessee fell under the purview of Explanation to section 73.

Setting Off Dividend Income Against Speculation Loss:
The CIT(A) directed the AO to set off dividend income against speculation loss under Explanation to section 73. The CIT(A) viewed the dividend income received on shares held as stock-in-trade as part of the business of purchase and sale of shares. The Tribunal, based on precedent, agreed with the CIT(A) and held that dividend income earned on stock in trade formed an integral part of the speculation business. It ruled that the dividend income should be set off against the speculation loss, with the balance to be carried forward and set off against speculation profit in subsequent years.

Treating Dividend Income as Part of Business of Purchase and Sale of Shares:
The AR argued that dividend income from shares held as stock-in-trade should be treated as income arising from the speculation business. The Tribunal, in line with precedent, agreed that such dividend income should be set off against speculation loss. As no contrary decision was presented, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to set off dividend income against speculation loss and treating dividend income from shares held as stock-in-trade as part of the business of purchase and sale of shares, in accordance with Explanation to section 73.