2014 (2) TMI 793 - HC - Income Tax

Speculative loss - Deletion made under Explanation to section 73 of the Act Nature of Loss - Whether the Tribunal is right in deleting the addition made on account of treating the share trading loss as speculative loss Held that - The assessee pointed out that it earned interest income and the Revenue held that such income must be considered to be a business income of the assesse thus, the exclusion clause in the explanation would not apply - the Tribunal has correctly appreciated the facts - it could not be concluded that the assessee was in business of advancing loans and earning interest - Tribunal held that giving loans and advances cannot be termed as the business of the assessee - The Tribunal s conclusion that the gross total income of the assessee consisted mainly of income chargeable under the heads of interest on security, house property, capital gains or income from other sources calls for no interference thus, the assessee would not be governed by the explanation to section 73 - the deeming fiction would not apply - Loss could not treated as speculative loss Decided against Revenue.

Summary

Issues:
1. Deletion of share trading loss treated as speculative loss
2. Deletion of enhancement on account of accrued interest on loans

Analysis:
1. The first issue pertains to the deletion of Rs.10.35 lakhs share trading loss treated as speculative loss. The assessee, engaged in share trading, claimed the loss to be set off against other incomes. The Assessing Officer disallowed the claim under section 73 of the Income Tax Act, considering the loss speculative. The Tribunal, however, observed that the gross total income mainly consisted of income chargeable under other sources and capital gain, not falling under the purview of the explanation to section 73. The Tribunal concluded that the assessee was not engaged in the business of advancing loans, and hence, the loss was not speculative. The High Court upheld the Tribunal's decision, emphasizing that the assessee's income sources did not attract the provision of explanation to section 73, thereby allowing the appeal.

2. The second issue involves the deletion of enhancement on account of accrued interest on loans. The Tribunal noted that the interest income earned by the assessee was from advancing a loan to a single party, which did not signify a business activity of advancing loans. The Tribunal reasoned that such income could not be considered as business income. Consequently, the Tribunal held that the gross total income of the assessee was mainly from sources other than business income, thereby excluding the application of the explanation to section 73. The High Court concurred with the Tribunal's findings, stating that the assessee was not in the business of advancing loans, and hence, the enhancement on accrued interest was deleted. The Court dismissed the Tax Appeal, upholding the Tribunal's decision on both issues.