2022 (6) TMI 650 - HC - Income Tax

Nature of loss from purchase and sale of share - speculation or non speculation loss - ITAT held that deployment of funds in the instant case is more in the business of money lending from where the interest was earned and further the income earned from sources other than share transactions and also in treating the loss so incurred by the assessee-company as non-Speculation Loss and Explanation to provision of Section 73 of the Income Tax Act, 1961 is not applicable in this case - HELD THAT - The Tribunal confirmed such finding of the CIT (Appeals) made on facts.In the circumstances, we find no substantial question of law arises on the said two questions. Disallowance u/s 14A r.w.r.8D - ITAT upholding the order of the CIT(Appeals) VIII, Kolkata in holding that the entire disallowance made by the Assessing Officer Rule 8D(2)(iii) of the Income Tax Act, 1961 is not applicable on this issue - HELD THAT - Reading of the above finding of the tribunal which had approved the finding of the Commissioner of Income Tax (Appeals), we find that the tribunal has rightly taken note of the factual position and rejected the appeal filed by the revenue. That apart, the law under issue has been well-settled and under what circumstances the provision available under Rule 8D(2) can be made applicable and mechanical exercise of such power was held to be bad in law. Therefore, we find that no question of law much less substantial question of law arises for consideration on the third issue as well.

Summary

Issues:
1. Interpretation of provisions of Section 73 of the Income Tax Act, 1961 regarding the treatment of the Assessee Company's loss from purchase and sale of shares.
2. Determination of whether the income earned from sources other than share transactions affects the classification of the loss as non-Speculation Loss under Section 73.
3. Applicability of Rule 8D(2)(iii) of the Income Tax Act, 1961 regarding disallowance without findings on the inapplicability of Section 14A.

Analysis:

Issue 1:
The first issue involved the interpretation of Section 73 of the Income Tax Act, 1961 concerning the treatment of the Assessee Company's loss from share transactions. The Assessing Officer determined that the Assessee's loss from share trading was not covered by the exceptions in the Explanation below Section 73, as the Assessee's principal business was not banking or granting loans. The CIT (Appeals) concurred, stating that the loss on share trading cannot be termed as speculation loss, as the gross total income mainly consisted of income chargeable under different heads, making the Explanation to Section 73 inapplicable. The Tribunal upheld this finding, leading to the rejection of the appeal on this issue.

Issue 2:
The second issue revolved around whether income earned from sources other than share transactions impacted the classification of the loss. The Tribunal found that the Assessee had not spent any amount on interest on borrowing for investments, and the income earned from derivative transactions was substantial. The Tribunal also noted that the Assessee's expenses were adequately attributed, and the provisions of Section 14A read with Rule 8D were correctly applied. As a result, the Tribunal dismissed the appeal filed by the revenue on this issue.

Issue 3:
The final issue concerned the applicability of Rule 8D(2)(iii) of the Income Tax Act, 1961 regarding disallowance without specific findings on the inapplicability of Section 14A. The Tribunal highlighted that Rule 8D(2)(iii) was not applicable in the case, as the interest payment was minimal and directly attributable to specific loans. The Tribunal affirmed the order of the CIT (Appeals) and rejected the appeal, emphasizing that the mechanical application of Rule 8D(2) without proper assessment was not valid. Consequently, the appeal was dismissed on this issue as well.

In conclusion, the High Court of Calcutta, in the judgment delivered by Hon'ble Justice T.S. Sivagnanam and Hon'ble Justice Hiranmay Bhattacharyya, addressed and resolved the issues raised by the revenue under Section 260A of the Income Tax Act, 1961. The Court upheld the decisions of the lower authorities regarding the treatment of the Assessee Company's loss from share transactions, the impact of income from other sources on classification, and the applicability of Rule 8D(2)(iii) without proper findings. The appeal was ultimately dismissed, and the connected application was closed.