1992 (2) TMI 126 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Explanation to section 73 of the Income-tax Act, 1961.
2. Determination of the assessee as an investment company u/s 109(ii).
3. Computation of gross total income for determining the nature of transactions.

Summary:

1. Applicability of Explanation to section 73 of the Income-tax Act, 1961:
The primary issue in this appeal is whether the provisions of Explanation to section 73 of the Income-tax Act, 1961, apply to the assessee's case. The ITO held that the assessee's share business should be treated as speculation business, resulting in a speculation loss of Rs. 2,53,017. The CIT (Appeals) upheld this view, stating that the assessee's principal business was trading in shares and stainless steel strips, not granting loans and advances.

2. Determination of the assessee as an investment company u/s 109(ii):
The assessee contended that it was an investment company as its gross total income consisted wholly of dividend income chargeable under the head "income from other sources." The CIT (Appeals) disagreed, noting that the gross dividend of Rs. 16,200 was an insignificant part of the gross total income, and the assessee was not engaged in the business of banking. The Tribunal found that the gross total income should be computed without applying the provisions of Explanation to section 73, resulting in a gross total income of Rs. 9,176, which consisted wholly of dividend income. Therefore, the assessee qualifies as an investment company.

3. Computation of gross total income for determining the nature of transactions:
The Tribunal discussed the computation of gross total income, emphasizing that it should be determined without considering the loss incurred on share transactions. The Tribunal referenced various sections of the Income-tax Act, such as sections 32A(3), 33(2), 33A(2), 36(1)(viia), 36(1)(viiia), 37(2A), 44C, and 80J(3), which provide specific exclusions for certain items from gross total income. Since there is no specific exclusion for the loss on share transactions in sections 73 or 109, the Tribunal accepted the assessee's contention that the gross total income should be computed without applying the provisions of Explanation to section 73.

Conclusion:
The Tribunal concluded that the assessee's gross total income of Rs. 9,176, consisting wholly of dividend income, qualifies it as an investment company. Consequently, the loss incurred on the purchase and sale of shares is not speculative in nature within the meaning of Explanation to section 73 of the Act. The appeal was allowed.