2015 (5) TMI 887 - AT - Income Tax

Treatment of the loss on share trading - the specified income under Explanation to section 73 Held that - In the admitted facts of the case, the assessee has income from advisory charges and brokerage at ₹ 121.81 lacs and ₹ 14.93 lacs respectively. Its other incomes are rent; dividend; and capital gains (long-term), at ₹ 6.39 lacs, ₹ 3.41 lacs and ₹ 19.68 lacs respectively. Quite plainly, the assessee s GTI, whichever way one may reckon it, cannot be considered as consisting mainly of the incomes under the heads specified under Explanation to section 73, viz. income from house property , capital gains and income from other sources . Even though we do not subscribe thereto, and is also not consistent with the forgoing discussion, the difference is so huge and apparent, that even the set off of loss on trading in shares, again a business income, incurred at ₹ 44.16 lacs, would not alter this position and the assessee s principal source of income would be business income. Accordingly, the said loss is a loss from a speculation business in terms of Explanation to section 73, and is to be treated as such. We, thus, find no infirmity in the treatment of the same as a speculative loss by the Revenue. Decided against assessee. Allocation of the expenditure - Held that - A reading of the orders by the authorities below, show the A.O. to have made the allocation of the expenditure at para 2.2 of his order, so that the basis of the allocation of the commission expenditure by the A.O. has been clarified. No infirmity therein, which found confirmation with the ld. CIT(A), was brought to our notice during hearing, so that we have no reason to disturb the same. We decide accordingly. We may also clarify that in finally computing the loss on speculation business, the A.O. has also considered the said expenses as well as the dividend relatable to the speculation business, and which aspects have not been impugned by the assessee. We decide accordingly. - Decided against assesse. Assessment of the rental income as income from other sources - Held that -This matter stands covered against the assessee by the order by the tribunal in the assessee s own case for the immediately preceding year, i.e., A.Y. 2003- 04, with the ld. CIT(A). - Decided against assesse.

Summary

Issues:
Validity of treatment of loss on share trading under section 73 of the Income Tax Act, 1961 for the assessment year 2004-05.

Analysis:
The appeal concerns the assessment of the Assessee under section 143(3)(ii) of the Income Tax Act, 1961 for the assessment year 2004-05. The primary issue raised in the appeal is the treatment of the loss on share trading as specified income under Explanation to section 73 of the Act. The dispute revolves around the quantification of income to determine the applicability of section 73 to the Assessee. The Assessee argues that the loss being less than the positive income should not be considered as specified income under section 73. The key contention is whether the provision is applicable to the Assessee based on the computation of gross total income (GTI) for the purpose of section 73.

The Explanation to section 73 deems a company engaging in the purchase and sale of shares as carrying on a speculation business to the extent of such activities. The issue centers on how the ratio mentioned in the Explanation is to be calculated when one or more specified incomes are negative. The Assessee argues that negative income should not be compared with positive income for determining GTI. The Tribunal emphasizes that GTI must be computed by excluding negative incomes to fulfill the purpose of section 73. The legislative intent is crucial in interpreting the provision, and the Tribunal relies on various decisions to support its conclusion.

In the present case, the Assessee's GTI does not consist mainly of incomes specified under the Explanation to section 73, even after considering the loss on share trading. Therefore, the loss is treated as a speculative loss by the Revenue. The Tribunal upholds the treatment of the loss as speculative based on the legislative intent and precedents cited. Additionally, the Tribunal addresses the allocation of expenditure and the assessment of rental income, finding no reason for interference. Consequently, the Assessee's appeal is dismissed based on the findings and analysis presented.

This detailed analysis of the judgment highlights the key legal issues, arguments presented, statutory provisions involved, and the Tribunal's reasoning in arriving at its decision regarding the treatment of loss on share trading under section 73 of the Income Tax Act, 1961 for the assessment year 2004-05.