2018 (12) TMI 993 - HC - Income Tax

Allowability of loss from business of Futures and Options - Tribunal allowed claim - whether company is authorized to do business in futures and options. - Held that - Assessing Officer while disallowing the losses in futures and options, have accepted the income of ₹ 25,520/shown on account of Futures & Options. This itself would be evidence of the fact that the MOU entitles the respondent assessee to carry on business in futures and options. Thus, dismiss the Revenue s appeal. On facts we find that the view taken by the CIT(A) as well as the Tribunal, cannot be faulted with. The losses on futures and options was incurred post 30th December, 2005 i.e. after clause 68 was introduced in the MOU by an amendment. This appeal is in respect of A.Y. 2007-08 when clause 68 of the MOU was in existence. This entitled the respondent to do business in Futures and Options. No substantial question of law

Issues:
1. Interpretation of the Memorandum of Association (MOU) regarding business activities.
2. Allowability of losses from business of Futures and Options.
3. Validity of the assessment order disallowing losses on Futures and Options.
4. Appeal to the Commissioner of Income Tax (Appeals) [CIT(A)].
5. Tribunal's decision on the Revenue's appeal.
6. Compliance with the MOU clauses for conducting business in Futures and Options.
7. Existence of substantial question of law for consideration.

Analysis:
1. The case involved a dispute over the interpretation of the Memorandum of Association (MOU) regarding the respondent's business activities in Futures and Options. The Assessing Officer disallowed the loss on account of Futures and Options, citing that the MOU did not authorize the company to engage in such activities. However, the CIT(A) allowed the appeal, highlighting specific clauses in the MOU that permitted the respondent to deal with shares, futures, and options. The introduction of clause 68 before the relevant assessment year supported the respondent's business activities in Futures and Options.

2. The key issue was the allowability of losses from the business of Futures and Options. The Revenue contested the CIT(A)'s decision to allow the respondent's losses incurred in Futures and Options as part of its business loss. The Tribunal upheld the CIT(A)'s decision, emphasizing that the Assessing Officer had accepted income shown on account of Futures & Options, indicating that the MOU authorized the respondent to conduct business in Futures and Options. Therefore, the Tribunal dismissed the Revenue's appeal.

3. The validity of the assessment order disallowing losses on Futures and Options was questioned. The Assessing Officer disallowed the loss based on the MOU's alleged lack of authorization for engaging in Futures and Options. However, the CIT(A) and the Tribunal both found in favor of the respondent, stating that the MOU clauses permitted such business activities, especially after the introduction of clause 68.

4. The respondent's appeal to the Commissioner of Income Tax (Appeals) [CIT(A)] was crucial in determining the interpretation of the MOU clauses and the allowability of losses from Futures and Options trading. The CIT(A) analyzed the MOU clauses, particularly clause 68, and concluded that the respondent was entitled to conduct business in Futures and Options, thus allowing the losses incurred in these activities.

5. The Tribunal's decision on the Revenue's appeal played a significant role in resolving the dispute. The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s decision, emphasizing that the MOU clauses, especially clause 68, authorized the respondent to engage in business activities related to Futures and Options. The Tribunal's ruling was based on the evidence that the Assessing Officer had accepted income from Futures & Options, indicating the respondent's entitlement to conduct such business.

6. Compliance with the MOU clauses for conducting business in Futures and Options was a critical aspect of the case. The introduction of clause 68 before the relevant assessment year allowed the respondent to engage in business activities related to Futures and Options. Both the CIT(A) and the Tribunal found that the respondent's losses incurred in Futures and Options were valid business losses, in line with the MOU provisions.

7. The judgment concluded that the question proposed did not give rise to any substantial question of law, leading to the dismissal of the appeal. The view taken by the CIT(A) and the Tribunal was deemed appropriate, considering the existence of clause 68 in the MOU, which authorized the respondent to conduct business in Futures and Options. The appeal was ultimately dismissed, with no order as to costs.

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