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TMI Blog2003 (1) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... any incorporated under the Companies Act. The appellant company claims to be the Member of the Delhi Stock Exchange as well as the National Stock Exchange. It is also the case of the appellant that they are engaged in the sale and purchase of shares on behalf of their clients on which they earn brokerage and also are engaged in the gale and purchase of shares for themselves. For the Assessment year 1997-98 for which the relevant accounting year is 1996-97, the assessee filed its return of income and in the return of income filed, the assessee claimed to have earned a gross commission from the activity of sale and purchase of shares on behalf of its clients amounting to Rs. 62,39,332.69. During the same year, the assessee claimed to have suffered a loss for a sum of Rs. 37,40,658. The said loss which was incurred by the assessee comprised of two amounts, namely, a sum of Rs. 2,40,957 which was suffered in purchase of those shares in which no delivery was taken while the balance amount of loss i.e., Rs. 34,99,611 was suffered in those scrips where the delivery was taken. The assessee while filing his return adjusted the loss suffered by him in the purchase of shares which amounted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see submitted that the appellant company is engaged in the sale and purchase of shares. It was stressed by the counsel for the assessee that in the process of sale and purchase of shares, certain clients do not honour their commitment and take deliveries as a result of which the assessee who is bound by the terms and conditions of the Stock Exchange and the rules framed by them has to take up the deliveries. According to the assessee, it is on account of the failure on the part of the clients, the assessee had to purchase the shares and arty loss incurred in the purchase of shares has to be taken as the business loss and the said loss is allowable to the Members of the Stock Exchange. 9. In the alternative, it was argued by the learned Counsel for the assessee that the business of the assessee being sale and purchase of shares, which includes the sale and purchase on behalf of the clients as well as the sale and purchase on his own behalf, the said business being a composite business, the loss, if any, occurred in one part of the business is allowable to be adjusted against the other part of the business. 10. Another argument that was raised during the course of hearing was tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Explanation and, therefore, the assessee is not protected by or excluded from the Explanation. 15. After having said so, the learned DR submitted that the business of the assessee has two facets and one cannot be equated with the other. The two facets of the business of the assessee, according to the learned DR were income from the share broking business and the income or loss on account of trading in the shares on his own account. The learned DR submitted that there is a distinction between the broker and the dealer. It was the case of the learned DR that the share broker is one who does sale and purchase on behalf of others. According to the learned DR it is the commandment of the others i.e., the clients on whose behalf the broker purchases the shares which prevails. The dictum of the client is to prevail when the assessee is working as a broker for his clients who says what to purchase, how many at what rate and of which company and sell what shares and at which rate. After having said so, the learned DR submitted that the broker cannot deviate from the dictum of the client and while in the case of own trading the person concerned which is the assessee in this case is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lanation to section 73, but also to section 43(5) of the IT Act as well as section 73 to explain as to what is the speculative business and the loss in speculative business can only be set off or carried forward for set off against another speculative business. 18. While advancing his arguments further, the learned DR submitted that the submissions made by the counsel for the assessee that he has suffered losses on account of the fact that certain clients backed out is unfounded. According to the learned DR, the admitted case of the assessee before the Assessing Officer was that the transactions in the sale and purchase of shares was made by the assessee in his own account and deliveries were taken in his own account and it was not the case of the assessee before the Assessing Officer that the clients refused to take delivery. In this regard, the learned DR drew our attention to the letter of the assessee dated13-3-2000placed at pages 62-63 of the paper book as well as18-3-2000at pages 54-55 of the paper book in substantiation of his submissions. 19. While replying to the arguments of the assessee's counsel that the identical claims were allowed in the earlier years, the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was no specific order to charge interest in the body of the order, interest under sections 234A, 234B and 234C could not be charged on the appellant company because as per the submissions of the counsel, it is incumbent upon the Assessing Officer to say so with regard to charging of the interest and under what provision in the body of the order. For this, the learned counsel for the assessee sought to draw strength from the judgment of the Apex Court in the case CIT v. Ranchi Club Ltd. [2001] 247 ITR 209 and also two decisions of the jurisdiction of the High Court in case CIT v. Inchcape (I) (P.) Ltd. [IT Appeal No. 46 of 2002] and also CIT v. Goldtex Furnishing Industries [IT Appeal No. 80 of 2002]. 24. To the said argument of the learned AR, the learned DR submitted that the Apex Court in the case of CIT v. Anjum MH Ghaswala [2001] 252 ITR 1 has held that there is no power to waive interest vested with the tax authorities and, therefore, even if it is not in the body of the order, the same cannot be deemed to have been waived. The reference by the learned DR was made to the orders of the authorities below in this regard. 25. We have heard the parties and taken ourselves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f shares and brokerage business. During the year under assessment, assessee company is holding opening stock of shares 11,26,714.27 and during the year purchase of shares for Rs. 1,28,39,747.60 and sale of shares is Rs. 1,70,03,024.79 as compared to last year opening stock Rs. 2,70,85,530.25. Purchase of shares Rs. 3,65,17,252.86 and sale of shares is Rs. 49,85,104.44. Purchase and sale of shares is regular business of assessee company since starting of business. We confirm that all the shares in opening stock are transferred in the name of Assessee Company and delivery of purchase of shares are taken during the course of business and sold during the year in the market on delivery basis partly in Delhi Stock Exchange and partly in National Stock Exchange. All the details of purchase and sale of shares along with copy of bills had already filed at the time of hearing in which Assessee-Company incurred major losses. Mostly shares are transferred in the name of the company being opening stock and sold during the year in the market on delivery basis. Details of purchase and sales of shares in 112 scrips i.e., ACC Ltd., Benzo Petro, Dewan Housing and Finance Ltd., GTC Ind. Ltd., Maral O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alf of the clients who had backed out and this resulted in the assessee to take the burden of those shares consequent thereto resulting in loss. Though the argument was raised before the CIT(A) with regard to the clients having backed out, but it appears that neither any evidence in support of the arguments raised was placed, nor any permission to place the same was sought so much so as to who were the persons who placed orders for purchase of shares, how much shares were bought, when were the contract note was signed, at what rate the share were bought was absolutely missing before the CIT(A). This evidence was also not placed before the Assessing Officer and to the contrary, we must say that before the Assessing Officer It was a clear admission made by the assessee all these shares belonging to them. Ample evidence was placed before Assessing Officer which demonstrated clearly that these shares formed part of his trading stock, the details of which were filed before Assessing Officer. 28. As the assessee had no evidence to substantiate the arguments made and that too for the first time before the CIT(A) with regard to purchase of shares on behalf of clients, who did not take th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to another argument of the assessee that it is a composite business and being a composite business the entire business has to be taken as a whole, be it a business of dealing on behalf of clients or be it a speculative business. We are afraid, we cannot persuade ourselves to this arguments despite best efforts made by the counsel for the assessee. We are unable to persuade ourselves in this regard because of the reason that there is a distinction between a dealer and a broker and the distinction is that a dealer sells his own goods whereas a broker sells or arranges sale of goods of others. It is not something new that a person may be performing both the functions as a dealer and as a broker, but under no circumstances can it be said that dealer and broker have the same business though in certain situation it may be the one individual who may be performing the same. Apart from this, we have very seriously considered the factual aspect of the matter and are persuaded to adopt the reason advanced by the learned DR during the course of hearing that the business of a dealer and a broker are different for the reason that in the case of a broker there cannot be any element of loss becaus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sted, against the profits of the speculative business and not against any other business. We, therefore, are of the opinion that the Assessing Officer was right and so was the CIT(A) when they disallowed the claim of the assessee on account of loss incurred by the purchase of shares. 33. This brings us to another argument raised at the bar by the learned Counsel for the assessee which has been reproduced above that as the main business of the assessee is the one of interest on securities, capital gain, etc., it is excluded by virtue of the provisions of the Explanation to Section 73. According to the assessee the main income of the assessee is from the interest and capital gains. When we examine the record, we find that the assessee though has earned some amount from the capital gains and interest the bifurcation or details of which are not there, but that is only very marginal than the income from the sale and purchase of shares. In this view of the matter, we have no hesitation in observing that the main income of the assessee is not from interest on securities, income from house property, capital gain and income from other sources and, therefore, the protection of Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid to be one composite business. This judgment does not advance the case of the appellant for the reason that in this case the issue before the Bombay High Court was as to whether the share broking business is a business or profession and it was in this context the Bombay High Court after drawing a distinction between a 'dealer' and a 'broker' held that share broker and share dealing is a business and not profession. Since the issue before the Bombay High Court was different, this judgment does not help the assessee. 37. Another judgment on which reliance was placed by the learned AR was the one in the case of Vadilal Lallubhai for the proposition that legal fictions are only for a definite purpose for which they are created and should not be extended beyond their legitimate field. We may observe that in this case in view of explanation attached to Section 73 wherein it has been mandated that where in part of a business of a company consists in the purchase and sale of shares of other companies, such company shall for the purposes of this Section be deemed to be carrying on the speculation business to the extent to which the business consists of purchase and sale of shares. All ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rward transactions entered into on behalf of his constituents as member of the foreign exchange: Held, that on a true interpretation of section 10 and section 24(1) and the first proviso thereto, of the Indian Income-tax Act, 1922, the assessee was not entitled to claim a set off of the loss suffered by him in his own speculative business against the profits earned by the assessee by way of commission in respect of transactions entered into on behalf of his constituents in the foreign exchange as the speculative business of the assessee and the commission agency were distinct businesses." 40. The High Court in the aforesaid report also referred to a Full Bench decision in the case of CIT v. Ram Sarup [1962] 45 ITR 248 (Punjab) wherein the Full Bench has held: "On a true interpretation of section 10 and sub-section (1) of Section 24 of the Income-tax Act and the first proviso thereto, an assessee is not entitled to claim a set off of the loss suffered by him in speculation business against the profits of the assessee in a business other than a business consisting of speculative transactions." 41. The aforesaid observations of the Full Bench find a place at page 356 of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support the stand of the assessee. 43. Reliance placed by the counsel for the assessee on the judgment of the Mumbai Bench reported in Rajan Enterprises (P.) Ltd.'s case is also unfounded for the reason that in this case it was held that the assessee was an investment company which is not the case here and, therefore, the provisions of Section 73 are clearly applicable in this case. 44. Likewise in the case of M. Gulab Singh Sons (P.) Ltd.; it has been held that the assessee was an investment company which is excluded from the application of the provisions of Section 73. 45. We, therefore, say that the judgments relied upon by the assessee do not advance the case further in his favour and have, therefore, no hesitation in saying that they are not applicable in the facts and circum stances of the present case. 46. Now, coming to the judgments relied upon by the learned DR, we may say that the observations of the Calcutta High Court in the case of Arvind Investments Ltd, relied upon by the Revenue during the course of hearing and also relied upon by the taxing authorities below with full force. The Calcutta High Court after discussing the Circular No. 204 has explained the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vations of the Calcutta High Court referred to above and in view of the discussion made above, we have no hesitation in holding that the authorities below were absolutely justified in disallowing the loss claimed by the assessee being speculative in nature and hit by Explanation to Section 73 of the IT Act. 48. This brings us to the issue of chargeability of the interest on which we have been addressed. Some judgments were also cited in support of the contention raised by the assessee but the moot question that arises in these proceedings is whether the assessee who has not raised the issue of chargeability of the interest by the Assessing Officer, before CIT(A), can he be permitted to raise, the ground before us. Before the CIT(A) the assessee had raised the following grounds:-- "1. In considering the loss of Rs. 37,40,568 on the sale and purchase of shares as speculative in nature and thereby and not setting it aside against the other income, is arbitrary, illegal, untenable and improper, and must be quashed. 2. In disallowing the office expenses in the sum of Rs. 49,818 is illegal, preposterous and unfair, and must be quashed. 3. In disallowing the interest paid to NSE i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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