2013 (7) TMI 119 - HC - Income Tax

Allocation of business expenses - amongst the speculation and non-speculation activities - Held that - Authorities have not applied the provisions of section 73(1) to determine that the appellant was carrying on speculation business - It is only after having held that the appellant dealt with the speculative business, they proceeded to allocate the expenses incurred by the appellant in the ratio of its volume and activities and apportioned the expenses equitably - Administrative and other expenses incurred by the appellant are found to be common for both the speculative and non-speculative businesses, as these expenses related to both the streams, allocation of expenses was not only necessary but inevitable and moreover there had to be some rationale in bifurcating such expenses and when authorities have done it on the basis of profit and volume of the business in the ratio of 2 3 - No error is committed at all by the Tribunal warranting any interference - Decided in favour of Revenue. Case relied upon by the petitioner may not come to the rescue of the appellant in as much as there is no dispute to the fact that the appellant is dealing in the purchase and sale of the shares. It is not being disputed that the business of the appellant is both speculative and non-speculative - Commissioner of Income-Tax vs. Darshan Securities P.Ltd. 2012 (2) TMI 117 - BOMBAY HIGH COURT .

Summary

Issues involved:
Allocation of business expenses between speculation and non-speculation activities, Bifurcation of business expenses among different activities based on turnover.

Allocation of business expenses between speculation and non-speculation activities:
The appellant, engaged in trading shares, gold bullion, and commodities, declared a speculation loss for a particular assessment year. The Assessing Officer bifurcated expenses related to both speculative and non-speculative activities in a 2:3 ratio. The CIT(Appeals) upheld this allocation, emphasizing the necessity to determine correct speculative loss and the inability of the appellant to provide evidence against the allocation. The Tribunal also supported this decision, citing the Allahabad High Court's judgment in a similar case. The appellant argued against this allocation, claiming the business was indivisible, interconnected, and managed with common funds. However, the Tribunal justified the allocation based on the volume and turnover of different activities undertaken by the appellant, in line with the Allahabad High Court's precedent.

Bifurcation of business expenses among different activities based on turnover:
The Tribunal allocated expenses among three activities - purchase and sale of shares, speculative loans of commodity transactions, and income from derivation of shares - based on their respective turnovers. The appellant challenged this allocation, contending that the business was single and indivisible, and the expenses should not have been bifurcated. The appellant relied on a Bombay High Court judgment to argue against the application of section 73(1) of the Income Tax Act, emphasizing the deeming fiction's limited scope. However, the respondent department defended the allocation, stating that all revenue authorities had concurred on the decision based on volume and turnover considerations. Ultimately, the court dismissed the appeal, noting the commonality of administrative and other expenses for both speculative and non-speculative businesses, justifying the allocation based on profit and volume ratios without any error or perversity in the decision-making process.

This detailed analysis of the judgment highlights the issues of allocation of business expenses between speculation and non-speculation activities and the bifurcation of expenses among different activities based on turnover. The court's decision, supported by legal precedents and interpretations of relevant tax provisions, emphasizes the rationale behind the allocation and upholds the decisions of the revenue authorities, ultimately dismissing the appellant's appeal.