2013 (9) TMI 798 - AT - Income Tax

Business loss or speculation loss - set off of share loss against income under other heads for the assessment year under consideration - Whether the share loss is to be considered as speculation loss or business loss of the assessee - Held that - findings given by the AO is contrary in itself. On the one hand, AO has held that capital gain arising to the assessee u/s. 50 of the Act is not normal capital gain arising out of sale of investments and has considered it akin to business profit while considering applicability of the Explanation to Section 73 of the Act. Accordingly, AO has held that the share loss to the assessee is more than the income of the assessee under the head interest on securities , income from house property , capital gains and income from other sources . Therefore, assessee is not entitled to the exception as provided in explanation to Section 73 of the Act and, accordingly, considered the share loss to the assessee as speculation loss. On the other hand, AO while considering the set off of brought forward business loss of the earlier years, has held that it can not be allowed to set off of the capital gain computed under section 50 of the Act on the ground that said short term capital gain on sale of asset is capital gain and it is not a business income. In the first appeal, ld CIT(A) has held that capital gain arising u/s.50 of the Act should not be treated differently than the other capital gain. Ld CIT(A) has held that provisions of section 45 do not specify the capital gains arrived at u/s.50 to be treated differently. Thus, for all the purposes of Income tax Act, 1961, the capital gains arising u/s.50 of the Act have to be treated as capital gains only in quite normal sense and not otherwise. In view thereof, ld CIT(A) has treated the said short term capital gain computed u/s.50 of the Act as normal capital gain and has held that income of the assessee from capital gain and house property is more than the loss arrived at by the AO on trading of shares. Therefore, said share loss cannot be treated as speculation loss in view of exception to Explanation of Section 73 of the Act. Since ld CIT(A) has treated the capital gain computed u/s.50 of the Act as normal capital gain, he has also held that the unabsorbed business loss cannot be allowed to be set off against capital gain computed u/s.50 of the Act. Short term capital gain computed u/s.50 of the Act has been held by us as capital gain of the assessee and admittedly, the income of the assessee from capital gain and house property is more than the share loss computed by the AO, we agree with ld CIT(A) that Explanation to Section 73 of the Act is not applicable. Hence, the share loss cannot be deemed to be loss from speculation business in the assessment year under consideration. Therefore, we uphold the order of ld CIT(A) in directing the AO to allow set off of share loss against income under other heads for the assessment year under consideration. Consequently, action of the AO to apportion expenses towards speculation loss is also set aside as the same will form part of business expenses of the assessee, which are allowable as per provisions of the Act - Decided against Revenue.

Issues Involved:

1. Treatment of loss in share transactions as speculation loss.
2. Apportionment of expenses towards speculation loss.
3. Set off of unabsorbed business loss against income for the year.
4. Levying of interest under section 234B of the Income Tax Act.

Detailed Analysis:

1. Treatment of Loss in Share Transactions as Speculation Loss:

The department contended that the loss in share transactions amounting to Rs. 32,43,945/- should be treated as speculation loss, as the short-term capital gain arose under section 50 of the Act and not from the normal capital gain arising out of the sale of investment. The Assessing Officer (AO) argued that the principal business of the assessee was dealing in securities, and thus, the loss should be considered as speculation loss under Explanation to Section 73 of the Act. However, the CIT(A) disagreed, stating that the capital gains under section 50 should be treated as normal capital gains. Consequently, the CIT(A) directed that the share loss be treated as a business loss and allowed it to be set off against other income for the current year. The Tribunal upheld this view, agreeing with the CIT(A) that the Explanation to Section 73 was not applicable, and thus, the share loss could not be deemed speculation loss.

2. Apportionment of Expenses Towards Speculation Loss:

The AO had apportioned expenses amounting to Rs. 12,09,897 towards speculation loss. However, since the Tribunal upheld the CIT(A)'s decision that the share loss should be treated as business loss and not speculation loss, the apportionment of expenses towards speculation loss was also set aside. The expenses were to be considered as part of the business expenses of the assessee, allowable under the provisions of the Act.

3. Set Off of Unabsorbed Business Loss Against Income for the Year:

The assessee argued that the short-term capital gain computed under section 50 of the Act should be considered as business income, allowing the set off of unabsorbed business loss against it. The assessee relied on various decisions, including those of ITAT in the cases of J.K. Chemicals vs. ACIT and Digital Electronics Ltd vs. ACIT, which supported the view that such gains should be treated as business income. However, the Tribunal referred to the Special Bench decision in the case of Nandi Steels Ltd. vs. ACIT, which held that capital gains arising from the sale of business assets should not be set off against brought forward business losses. Consequently, the Tribunal upheld the CIT(A)'s decision that the unabsorbed business loss could not be set off against the capital gains computed under section 50 of the Act.

4. Levying of Interest Under Section 234B of the Income Tax Act:

This issue was not explicitly detailed in the judgment, but it was part of the grounds of appeal by the assessee. The Tribunal's decision to uphold the CIT(A)'s order implies that any related contentions about the levy of interest under section 234B were also resolved against the assessee.

Conclusion:

The Tribunal dismissed both appeals from the assessee and the department. It upheld the CIT(A)'s decision that the share loss should be treated as business loss, not speculation loss, and allowed it to be set off against other income. It also agreed that the unabsorbed business loss could not be set off against the capital gains computed under section 50 of the Act. Consequently, the department's grounds for treating the share loss as speculation loss and apportioning expenses towards speculation loss were rejected.

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