2016 (5) TMI 269 - HC - Income Tax

Addition of speculation loss - amounts received from mutual funds/bonds as business income - Revenue contended that Unit Trust of India is a deemed company and income from units is also a deemed dividend therefore the units have to be considered to be shares covered by Section 73 - Held that - The Apex Court in Apollo Tyres (2002 (5) TMI 5 - SUPREME Court ) negatived the above submission on behalf of the Revenue holding that the provisions of UTI Act creates a fiction to make Unit Trust of India a deemed company and the income received on its unit by an assessee to be deemed dividend. However the Court held that there is no deeming provisions for unit to be considered as share. Thus units are not shares. In the present facts also no specific provision has been pointed out to us which would deem the units in a mutual funds and/or bonds to be shares either for the purposes of the Act or for any other purposes. In that view of the matter, in our view, the decision of the Apex Court in Apollo Tyres Ltd. (supra) would cover the controversy arising for our consideration as units are not shares and therefore dealing in units cannot be considered to be shares. - Decided in favour of assessee

Issues:
Challenge to Tribunal's order on speculation loss addition for Assessment Year 2004-05.

Analysis:
1. The appeal challenges the Tribunal's order regarding the addition of speculation loss for Assessment Year 2004-05 under Section 260A of the Income Tax Act, 1961.
2. The primary issue raised by the Revenue questions the justification of confirming the deletion of the addition of ?4,95,13,114 on account of speculation loss by the CIT(A).
3. The respondent-assessee had bifurcated its profit/loss from share trading as income from speculation and amounts received from mutual funds/bonds as business income for the assessment year 2004-05.
4. The Assessing Officer observed a discrepancy in the bifurcation method used by the respondent, leading to the addition of ?4.95 crores as speculation business income.
5. The CIT(A) allowed the respondent's appeal, citing the decision of the Apex Court in Apollo Tyres Ltd., which held that dealing in units of Unit Trust of India does not amount to speculation business.
6. The Revenue appealed to the Tribunal, which also relied on the Apollo Tyres Ltd. decision and dismissed the appeal.
7. The Revenue contended that the Apollo Tyres Ltd. decision was not applicable to units of mutual funds and bonds other than those of Unit Trust of India, citing a Delhi High Court decision regarding derivatives.
8. The High Court upheld the respondent's position, emphasizing that the Apollo Tyres Ltd. decision covered the issue in favor of the respondent as units are not considered shares for the purposes of the Act.
9. The Court clarified that there is no provision deeming units in mutual funds and bonds as shares, further supporting the conclusion that dealing in units cannot be equated to dealing in shares.
10. The Delhi High Court decision cited by the Revenue was distinguished as it pertained to derivatives based on shares, whereas mutual funds involve various types of securities beyond shares.
11. Ultimately, the High Court concluded that the issue was settled in favor of the respondent by the Apollo Tyres Ltd. decision, and the question raised did not present any substantial legal issue, leading to the dismissal of the appeal.

In conclusion, the High Court dismissed the appeal, upholding the deletion of the speculation loss addition for the Assessment Year 2004-05 based on the legal principles established in the Apollo Tyres Ltd. case and the distinction between units in mutual funds and shares.

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