2014 (1) TMI 17 - HC - Income Tax

Whether loss on share trading activity be set off against profits of business of the company - Held that - Following Commissioner of Income-tax Vs. M/S Narain Properties Ltd 2012 (6) TMI 38 - ALLAHABAD HIGH COURT - The petitioner is covered under Explanation to Section-73 of the Act 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 advance - Decided in favour of petitioner.

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 against the petitioner.

Analysis:
The writ petitions were filed to challenge the notices issued by the Assessing Officer under Section 148 of the Income Tax Act, 1961, and under Section 142(1) for re-assessment against the petitioner. 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 accepted the petitioner's return initially but later issued notices for re-assessment, claiming that income had escaped assessment due to the adjustment of losses from share trading activities against profits. The petitioner argued that the Explanation to Section 73 of the Act was not applicable and challenged the validity of the reassessment notices.

The main controversy in the case revolved around whether the petitioner was entitled to set off losses from share trading activities under Section 73 of the Act. Section 73 restricts the set off of losses from speculation business against profits of another speculation business. The Explanation to Section 73 deems a company engaged in the purchase and sale of shares to be carrying on a speculation business if its principal business involves banking, granting loans, or advances. The court found that the petitioner's principal business was earning interest on advances and loans, and the purchase and sale of shares was done from the income derived from interest. Therefore, the court held that the petitioner was entitled to set off losses from share trading against profits from the business of loans and advances, as per the Explanation to Section 73.

Based on the above analysis, the court allowed the writ petitions, quashing the notices issued for re-assessment by the Assessing Officer. The court held that the petitioner was entitled to set off losses from share trading activities against profits from the business of loans and advances, in accordance with the Explanation to Section 73 of the Income Tax Act, 1961.