9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2005 (1) TMI 314 - AT - Income TaxApplicability of Explanation to section 73 - Speculation Business - set off of losses incurred in the business of purchase and sale of shares against the other income - Chargeability of dividend income under different heads of income - HELD THAT - Explanation to section 73 provides two types of tests in itself for the purpose of exceptions thereto and those tests are provided for the limited purpose of the deeming provision contained in the Explanation. As already stated, one test is with reference to the nature of gross total income and the other test is with reference to the business carried on by the assessee-company. In the present case, the only test to be carried out is regarding the composition of gross total income. Once we have held that the rule to be followed in the present case is the test of gross total income , we have to examine how the gross total income of the assessee in this case, is made up of. The assessee-company has earned a profit of Rs. 2,83,29,053 from its business of trading in steel, yarn and fabrics and from service charges. The assessee-company has also incurred a loss of Rs. 2,84,26,411 in the purchase and sale of shares. Altogether, the income from business is a loss of Rs. 97,358. The assessee-company has further earned dividend income of Rs. 10,18,914 from shares held as its stock-in-trade. The loss of Rs. 97,358 has been computed under the head profits and gains of business or profession . The dividend income of Rs. 10,18,914 has been computed under the head income from other sources . After the set off of the dividend income and the business loss, the gross total income has been worked out to Rs. 9,21,556 which is entirely made up of dividend income computed under the head income from other sources . Section 56(2)(i) mandates that dividends shall be chargeable to income-tax under the head income from other sources . The nature and composition of gross total income for the purpose of Explanation to section 73 need to be examined on the basis whether the main chunk of the gross total income is made up of income chargeable under the head income from other sources . The provisions of section 56(2)(i) provides that dividend shall be chargeable under the head income from other sources . The gross total income in the present case is made up of dividend from shares held as stock-in-trade. Therefore, it is to be seen that the gross total income in the present case is chargeable under the head income from other sources . There are no materials on record to show that the assessee-company did make loss in the share trading activities in order to reduce the tax incidence. In respect of the contention regarding gross total income , section 73 does not provide for any special treatment. The Supreme Court has held in CIT v. Venkateswara Hatcheries (P.) Ltd. 1999 (3) TMI 12 - SUPREME COURT that the same word occurring more than once in the Act should generally be given the same meaning, but the context may indicate the contrary legislative intention. There is no such indication in section 73 and the Explanation thereto. Therefore, the meaning of the Expression gross total income has to be construed as given in section 80B(5). Thus, we hold that in the present case, the CIT(A) was right in holding that provisions of section 73 read with Explanation thereto, are not applicable to the assessee-company. The CIT(A) is justified in directing to allow the set off of losses incurred in the business of purchase and sale of shares against the other income. The decision of the Calcutta High Court in Eastern Aviation Industries Ltd. v. CIT 1993 (7) TMI 41 - CALCUTTA HIGH COURT is not applicable to assessee's case as the facts relating to the composition of the gross total income are different. The case is sent back to the regular Bench to decide the appeal in the light of the above findings. The other ground raised in the appeal shall be decided by the said Bench.
Issues Involved:
1. Applicability of Explanation to Section 73 of the Income-tax Act, 1961. 2. Set off of share trading loss against other business income. Summary: 1. Applicability of Explanation to Section 73 of the Income-tax Act, 1961: - The Special Bench was constituted u/s 255(3) to decide whether the CIT(A) erred in holding that the provision of section 73 read with explanation thereto are not applicable to the assessee company and thereby further erred in directing to allow the set off of losses incurred in the business of purchase and sale of shares against the other income. - The Assessing Officer classified the share trading loss as speculation loss u/s 73, disallowing its set off against other business income. - The assessee contended that its gross total income mainly consisted of income from other sources, thus falling under the exclusion provided in the Explanation to section 73. - The CIT(A) accepted the assessee's contention, directing the set off of the share trading loss against other business income. - The Revenue challenged this finding, arguing that the principal business activity should be considered, not the composition of gross total income. - The Special Bench held that the test for the first category of exception in Explanation to section 73 is based solely on the composition of gross total income and not the nature of the principal business. - The gross total income of the assessee mainly consisted of income chargeable under the head "income from other sources" (dividends), thus falling under the exclusion in Explanation to section 73. 2. Set off of Share Trading Loss Against Other Business Income: - The assessee-company's gross total income was Rs. 9,21,556, consisting mainly of dividend income (Rs. 10,18,914) and a business loss of Rs. 97,358. - The CIT(A) directed the set off of the share trading loss against other business income, which was contested by the Revenue. - The Special Bench upheld the CIT(A)'s decision, allowing the set off of the share trading loss against other business income. - The Special Bench emphasized that the Explanation to section 73 is a deeming provision and must be strictly construed based on the composition of gross total income. - The decisions of the Calcutta High Court in Eastern Aviation & Industries Ltd. v. CIT and Aryasthan Corpn. Ltd. v. CIT were distinguished as the facts relating to the composition of the gross total income were different in the present case. Conclusion: The Special Bench concluded that the provisions of section 73 read with Explanation thereto are not applicable to the assessee-company, and the set off of losses incurred in the business of purchase and sale of shares against the other income is justified. The case was sent back to the regular Bench to decide the appeal in light of these findings.
|
