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2015 (10) TMI 2373 - AT - Income TaxLoss in share business claimed as business loss - treated as speculative loss in terms of Explanation to section 73 by the Revenue - Held that - From the perusal of the CIT Vs. Darshan Securities (P.) Ltd. 2012 (2) TMI 117 - BOMBAY HIGH COURT it is evident that Explanation to section 73 cannot be invoked only for the reason that the assessee is engaged in the share trading activity and does not fall within the exceptions laid down therein. Before applying deeming provisions and explanations to the sections, it is essential to refer to substantive provisions of the Act. Thus, we are of the considered view that the case of the assessee is squarely covered by the judgment of Hon ble Bombay High Court. Accordingly, this ground of appeal of the assessee is accepted. - Decided in favour of assessee. Accrual of Interest - AO held to be taxable in impugned assessment year whereas the assessee has claimed the same in assessment year 2009-10 and the TDS certificate have also been issued in the assessment year 2009-10 - Held that - The assessee is following mercantile system of accounting and recognizing the revenue on accrual basis. Since, the interest has accrued to the assessee in the period relevant to assessment year 2008-09, the same has to be taxed in the relevant assessment year. However, we find force in the submissions of the assessee that once income has been offered to tax in assessment year 2009-10 and the tax has been paid thereon the same income should not be taxed twice. The addition of ₹ 3,81,863/- with regard to the interest income received by the assessee in the impugned assessment year is sustained. The Assessing Officer is directed to delete the interest income that has been added in assessment year 2008-09 from the income of assessee in assessment year 2009-10. This ground of appeal of the assessee is partly accepted.- Decided in favour of assessee in part. Interest on borrowed funds allegedly diverted by the assessee for non-business purposes disallowed u/s. 36(1)(iii) - contention of the assessee is that the assessee has diverted borrowed interest bearing funds for non-business purposes - Held that - Although, the ld. AR has argued that the assessee has sufficient own funds but at the same time has also conceded that proportionate disallowance can be made by considering the availability of own funds. We remit, this issue back to the file of the Assessing Officer to decide this ground afresh after taking into consideration the availability of own funds and the use of same for advancing loans for non-business purposes.- Decided in favour of assessee by way of remand. Commission paid to M/s. Eagle King Investments Development Ltd., Singapore disallowed - no TDS was deducted thereon - Held that - It is a well settled law that if the payment made is commission simpliciter, for the services rendered abroad to an overseas concern having no PE in India, such payment is not taxable. Since, the income accrued to the overseas non-resident concern is not taxable, there is no question of deduction of tax at source on the said payments. Our view is supported by the judgment of the Hon ble Madras High Court in the case of CIT Vs. Faizan Shoes Pvt. Ltd. reported as (2014 (8) TMI 170 - MADRAS HIGH COURT). We remit this issue back to the Assessing Officer for re-examination. In case the assessee is able to show that the payments were made through proper banking channel for the services rendered abroad, the payments were in the nature of commission and the overseas concern has no PE in India, the Assessing Officer shall allow the same. - Decided in favour of assessee for the statistical purpose. Disallowance made u/s. 14A r.w. Rule 8D on shares held as stock-in-trade - Held that - It is an undisputed fact that the shares are held by the assessee as stock-in-trade. The assessee has earned dividend income on such shares. The assessee has not held the shares for earning dividend income. Dividend income is incidental to the share trading business of the assessee. Thus, no disallowance u/s. 14A is warranted on dividend earned on shares held as stock-in-trade. Our view is fortified by the decision of Mumbai Bench of the Tribunal in the case of DCIT Vs. M/s. India Advantage Securities Ltd. 2012 (11) TMI 458 - ITAT, MUMBAI . Also see CCI Ltd. Versus Joint Commissioner of Income-tax 2012 (4) TMI 282 - KARNATAKA HIGH COURT - Decided in favour of assessee.
Issues Involved:
1. Treatment of loss in share trading as speculative loss. 2. Taxability of interest income of Rs. 3,81,863. 3. Disallowance of interest on borrowed funds of Rs. 3,41,955. 4. Disallowance of commission paid to M/s. Eagle King Investments Development Ltd., Singapore. 5. Disallowance under section 14A read with Rule 8D on shares held as stock-in-trade. Detailed Analysis: 1. Treatment of Loss in Share Trading as Speculative Loss: The primary issue is whether the loss suffered by the assessee in share trading should be treated as speculative loss under Explanation to section 73 of the Income Tax Act. The assessee argued that the loss should be considered a business loss since the company is regularly engaged in share trading. The Tribunal noted that the assessee's principal business activity involved trading in shares, which were held as stock-in-trade and not as investments. Referring to the Bombay High Court's rulings in CIT Vs. HSBC Securities & Capital Markets India (P.) Ltd. and CIT Vs. Darshan Securities (P.) Ltd., the Tribunal concluded that Explanation to section 73 creates a deeming fiction and should be construed strictly. Since the assessee's principal business was trading in shares, the loss from share trading should not be considered speculative. Therefore, this ground of appeal was accepted. 2. Taxability of Interest Income of Rs. 3,81,863: The assessee contended that the interest income of Rs. 3,81,863 should be taxed in the assessment year 2009-10, as TDS certificates were issued for that year. The Tribunal noted that the assessee follows the mercantile system of accounting, which recognizes revenue on an accrual basis. Since the interest income accrued in the assessment year 2008-09, it should be taxed in that year. However, to avoid double taxation, the Tribunal directed the Assessing Officer to delete the interest income from the assessment year 2009-10. This ground of appeal was partly accepted. 3. Disallowance of Interest on Borrowed Funds of Rs. 3,41,955: The assessee argued that it had sufficient own funds, and thus, the disallowance of interest on borrowed funds diverted for non-business purposes was unjustified. The Tribunal remitted the issue back to the Assessing Officer to reconsider the availability of own funds and their use for non-business purposes. This ground was sent back for fresh examination. 4. Disallowance of Commission Paid to M/s. Eagle King Investments Development Ltd., Singapore: The assessee claimed that the commission paid to M/s. Eagle King Investments Development Ltd., Singapore, was for services rendered abroad and that the company had no Permanent Establishment (PE) in India, making the payment non-taxable in India. The Tribunal noted that no evidence was provided to show the nature of services rendered. The Tribunal remitted this issue back to the Assessing Officer to verify if the payments were made through proper banking channels, for services rendered abroad, and if the overseas concern had no PE in India. This ground was allowed for statistical purposes. 5. Disallowance Under Section 14A Read with Rule 8D on Shares Held as Stock-in-Trade: The assessee contended that the disallowance under section 14A read with Rule 8D should not apply to shares held as stock-in-trade. The Tribunal agreed, citing the judgment of the Bombay High Court in the case of CIT Vs. India Advantage Securities Ltd., which held that no disallowance under section 14A is warranted for shares held as stock-in-trade. Consequently, the Tribunal directed the Assessing Officer to delete the disallowance made under section 14A. This ground of appeal was accepted. General Ground: The sixth ground was general in nature and did not require adjudication. Conclusion: The appeal was partly accepted with specific directions for each issue. The Tribunal provided detailed reasoning for its decisions, relying on relevant legal precedents and statutory provisions.
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