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2022 (9) TMI 700 - AT - Income TaxApplicability of section 73 - share trading loss treated as non-speculative loss - assessee is engaged in the business of share broking as well as share trading - Whether loss incurred on shares and derivatives cannot be treated as speculation loss? - as per AO as a share broker, the assessee is not liable for any profit earned or loss incurred out of the transactions in purchase and sale of shares on behalf of the clients and only benefit which accrues to the assessee company from such transactions is the brokerage income earned by it from its clients for executing the transactions on behalf of them - CIT(A) had granted relief to the assessee as assessee's case falls under the exception clause provided in Explanation to Section 73 HELD THAT - One of the exception provided therein is if the composition of gross total income comprises mainly of income other than the business income. In the instant case, it is not in dispute that the income from other sources which is much more than income from business. Hence the assessee's case squarely falls under the exception clause provided in Explanation to Section 73 of the Act. Also the issue is also squarely covered in favour of the assessee by the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Darshan Securities (P) Ltd. 2012 (2) TMI 117 - BOMBAY HIGH COURT . Accordingly, we hold that the loss incurred on shares and derivatives cannot be treated as speculation loss in the instant case. Consequently, there is no need to apportion any expenses to the speculation activity - Appeal of the revenue is dismissed.
Issues:
1. Whether the share trading loss should be treated as speculative loss under the provisions of Explanation to Section 73 of the Income Tax Act, 1961. Analysis: Issue 1: Share Trading Loss as Speculative Loss The appeal in question arose from the Ld. Commissioner of Income Tax (Appeals)'s order against the assessment order passed by the Ld. Asst. Commissioner of Income Tax-4(2)(1). The main issue was whether the share trading loss should be considered speculative under the Explanation to Section 73 of the Act. The Ld. AO treated the loss as speculation loss, relying on the company's activities as a share broker and trader. The Ld. CIT(A) granted relief to the assessee, considering the composition of gross total income, mainly comprising income from other sources. The Revenue challenged this decision. The Ld. AO observed that the assessee, engaged in share broking and trading, should be subject to the provisions of Explanation to Section 73. However, the Ld. CIT(A) appreciated that the exception clause in the Explanation applied in this case due to the composition of the gross total income. The Hon'ble Jurisdictional High Court's decision in CIT vs. Darshan Securities (P) Ltd. supported the assessee's position, emphasizing the application of the deeming fiction and the exception carved out in the explanation to Section 73. The court clarified that the gross total income computation should include all sources under the same head, leading to the conclusion that the assessee did not fall under speculation business for Section 73(1) purposes. The Tribunal's decision aligned with previous judgments and upheld the relief granted by the Ld. CIT(A). The Hon'ble Jurisdictional High Court's decisions in CIT vs. Madona Commercial (P) Ltd. and CIT vs. HSBC Securities & Capital Markets India (P) Ltd. further supported the assessee's position. Consequently, the loss on shares and derivatives was not treated as speculation loss, and no expenses were apportioned to speculation activity. The appeal of the revenue was dismissed, affirming the order of the Ld. CIT(A). In conclusion, the judgment clarified the application of the Explanation to Section 73 regarding share trading losses, emphasizing the exception clause and the computation of gross total income to determine speculative business status.
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