2018 (1) TMI 943 - HC - Income Tax

Section 73 applicability - assessee deemed to be carrying on speculation business - Held that - The deeming provision is that any part of the business of a company consisting in the purchase and sale of shares of other companies, for the purposes of that section, the company would be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares, exceptions provided. The Assessing Officer has applied one of the exceptions, as covering the assessee. The CIT(A) and Tribunal have concurrently found the assessee to be accordingly excepted out of the application of the explanation. The assessee thus not deemed to be carrying on speculation business, loss incurred by it would be a business loss and the assessee entitled to set off the same against its income from other sources under section 71. That being our view, we accept the submissions of Mr. Khaitan in distinguishing the cases cited on behalf of the Revenue as not applicable to this case. Calculation of interest under section 234B - direction by CIT-A to give credit for tax from 6th August, 2008 being the 120th day from the date of last authorization for search as provided in the second proviso in subsection (1) of section 132B. The Tribunal upheld such findings and direction and we have no reason to interfere. No substantial question of law.

Summary

Issues:
1. Interpretation of Explanation to section 73 of the Income Tax Act, 1961.
2. Treatment of seized cash under section 140A and interest calculation under section 234B.

Analysis:
1. The first issue revolves around the interpretation of the Explanation to section 73 of the Income Tax Act, 1961. The Revenue contended that the assessee's disclosed additional income should be treated as income from other sources, making it fall within the exception provided in the Explanation to section 73. This would imply that the assessee could not set off its speculation loss against this income. The Revenue also raised concerns about the true nature of the assessee's activity and the principle business. The Revenue argued that the disclosed income should be considered under the head "income from other sources," thus disallowing the set off of speculation loss. The Revenue relied on various decisions to support its stance, emphasizing that the additional income disclosed must be treated as the main income of the assessee, falling within the exception under the Explanation to section 73.

2. The second issue pertains to the treatment of seized cash under section 140A and the calculation of interest under section 234B. The Revenue argued that the Assessing Officer correctly charged interest before the assessee's tax liability crystallized post-return filing. The assessee, on the other hand, contended that once excepted from the Explanation under section 73, its business loss could not be deemed speculative, and thus, should be allowed to set off against income from other sources. The assessee referred to section 43(5) to support its argument that the share trading business did not qualify as speculative transactions. The assessee further highlighted that the deeming provision under the Explanation to section 73 should not be applied to its income or loss. Regarding the seized cash, the CIT(A) directed the Assessing Officer to calculate interest under section 234B from the 120th day of seizure, as per the provisions of section 132B. The Tribunal upheld this direction, emphasizing compliance with the statutory timeline.

In conclusion, the High Court dismissed the appeal, stating that the questions raised did not constitute substantial questions of law. The court upheld the findings of the CIT(A) and Tribunal regarding the interpretation of the Explanation to section 73 and the treatment of seized cash under section 140A and interest calculation under section 234B. The court found in favor of the assessee, ruling that the assessee was excepted from the Explanation under section 73, allowing for the set off of business loss against income from other sources.