2013 (4) TMI 549 - HC - Income Tax

Re opening of assessment - whether the petitioner is entitled to set off the losses of the business in share trading activities under Section 73? - Held that - It is admitted between the parties that principal business of the petitioner is earning interest on the advances and loans. It also carries on business of purchase and sale of shares from the income derived from the interest. Under the Explanation to Section 73, the business of purchase and sale of shares by the petitioner is speculation business. As decided in CIT Vs. M/S Narain Properties Ltd. 2012 (6) TMI 38 - ALLAHABAD HIGH COURT the petitioner is covered under Explanation to Section-73 and is entitled to set off the losses from sale and purchase of the share against the profits of the business of the company from loans and advances. Thus proceedings for re-assessment are quashed. In favour of assessee.

Summary

Issues:
- Quashing of notices issued by Assessing Officer under Section 148 of the Income Tax Act, 1961 and under Section 142 (1) for re-assessment.
- Interpretation of Section 73 of the Income Tax Act regarding set off of losses in speculation business.

Analysis:
1. The writ petitions were filed to challenge the notices issued by the Assessing Officer under Section 148 and Section 142 (1) of the Income Tax Act for re-assessment for different assessment years. The petitioner, a Public Limited Company, was involved in earning interest on advances and loans, as well as in the purchase and sale of shares. The Assessing Officer contended that the losses in share trading activities could not be adjusted against the profits of the company's main business, leading to the initiation of re-assessment proceedings.

2. The main issue in question was whether the petitioner was entitled to set off the losses from share trading activities under Section 73 of the Income Tax Act. Section 73 prohibits the set off of losses in speculation business except against profits and gains of another speculation business. The Explanation to Section 73 deems a company involved in the purchase and sale of shares as carrying on a speculation business. The petitioner's principal business was earning interest on advances and loans, with share trading being a secondary activity.

3. The court referred to a previous judgment in Commissioner of Income-tax Vs. M/S Narain Properties Ltd., where it was held that a company engaged in share trading alongside its main business is covered under the Explanation to Section 73. Therefore, the losses from share trading activities could be set off against the profits of the company's main business. The court agreed with this interpretation and ruled in favor of the petitioner.

4. Consequently, the court allowed the writ petitions, quashing the notices for re-assessment issued by the Assessing Officer for the relevant assessment years. The parties were directed to bear their own costs in the matter. The judgment clarified the applicability of Section 73 and the treatment of losses in speculation business, providing relief to the petitioner in this case.