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TMI Blog2005 (6) TMI 228X X X X Extracts X X X X X X X X Extracts X X X X ..... the other reasons given by the learned CIT(A) for deletion of the addition of Rs. 38.09 lakhs made by the AO after invoking the Explanation to s. 73 of the Act. It has been held that the loss arising on the holding of 30,000 shares pledged with NSCCL should have been charged against the brokerage amount. We find this contention to be entirely illogical. It is admitted fact that in the case of the assessee the loss has arisen on account of depreciation in the market value of shares vis-a-vis cost of acquisition even though the assessee continued to be the owner of the shares. The assessee has been able to work out loss for the reason only that those shares have been treated by the assessee as his stock-in-trade. If those shares are to be treated as an investment made by the assessee as part of its brokerage business, there is no loss incurred by the assessee in the first instance to be charged against the brokerage amount. We, therefore, do not see any force in that contention of the assessee. There is also the question of expenses to be allocated to the business of sale and purchase of shares, the dividend income and brokerage income. We find that this issue has not been addressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness thereby leading to the similar tax liability as had been computed by the assessee. 3. The learned AO held that during the year the assessee-company had carried out two distinct businesses, (i) purchase and sale of shares on behalf of the clients on brokerage; and (ii) purchase and sale of shares for self-trading. The first business was that of a share broker and the second business was that of share dealing. These two businesses had separate characteristics and, therefore, could not be treated as one and the same business. In support of this contention, the learned AO placed reliance on the judgment of Hon'ble Punjab High Court reported in Kanahaya Lal Puran Mal vs. CIT (1966) 60 ITR 354 (Punjab). The learned AO also did not find merit in the contention of the assessee that loss had arisen to it mainly on account of valuation of stock-in-trade. If the closing stock of shares were valued, but at the cost price instead of market price that would not make difference except in reduction of the amount of loss booked by the assessee. The learned AO referred to the judgment of Hon'ble (Calcutta) High Court in the case of CIT vs. Sun Distributors & Mining Co. Ltd. (1993) 68 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poration Ltd. as per requirements of National Stock Exchange. The major loss had arisen to the assessee on account of depreciation in the value of the shares of Flex Industries. The assessee not having entered into any tax avoidance device, the assessee's case was covered by the ratio of the judgment of Hon'ble Supreme Court in the case of Gwalior Rayon Silk Mfg. Co. Ltd. & Ors. The assessee also argued before the learned CIT(A) that if at all Explanation to s. 73 was to be applied, the same had to be applied to brokerage business also because that too consisted in sale and purchase of shares. Facts of the case of the assessee were distinct from Kanahaya Lal Puran Mal vs. CIT. In that case, the assessee had carried on speculative business on his own behalf and claimed the loss against share brokerage income. That was a case of s. 43(5) and not Explanation to s. 73. In respect of the Supreme Court judgment reported in (1969) 74 ITR 754 (SC) also, the assessee was a speculator without application of Explanation to s. 73. Thus, in both the judgments the business of the assessee was divided into two parts because one part consisted of speculative transactions within the meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allocated to the business of sale and purchase of shares; the dividend income of Rs. 1,54,070 and capital gain income also should be adjusted against the loss arising from the business of sale and purchase of shares. Aggrieved, the Revenue is in appeal before us. 7. Ground of appeal No. 1 in Revenue's appeal is omnibus ground that learned CIT(A) erred in deleting the addition of Rs. 38.09 lakhs made by the AO while invoking Explanation to s. 73 of the Act. Ground of appeal No. 2 is to the effect that the learned CIT(A) erred in not accepting that the assessee carried on two distinct businesses; one as a sharebroker and another as share trader. The ground of appeal No. 3 is directed against the CIT(A) not appreciating that the assessee did not have income under the head "Capital gain" (sic), "Income from house property", "Interest on securities" and "Income from other sources". Since the Revenue has taken the omnibus ground against the deletion of addition, of Rs. 38.09 lakhs, it is not necessary to deal with other grounds separately as the same are covered by this principal ground. 8. During the course of hearing before us, the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel pointed out the difference between the phrases "consist of" and "consist in". According to the Webster's Dictionary of the English Language, "consist of" meant "to be made up or composed", "the programme consists of three plays." As against that the phrase "consist in" meant "to reside or lie". The advantage "consists in" its simplicity. The learned counsel argued that if this distinction was kept in mind, it was apparent that assessee's business of share broker consisted in sale and purchase of shares in the same manner the assessee's business of share trading consisted in. Hence, either in the case of assessee Explanation to s. 73 did not apply at all and if it applied it applied both to share trading as well as share brokerage business of the assessee. The result was, therefore, the same. The loss incurred by the assessee in share trading had to be adjusted against the share brokerage income earned by the assessee. The learned counsel argued that the learned AO misdirected himself by relying on the judgment reported in (1966) 60 ITR 354 (Punjab) and (1969) 74 ITR 754 (SC) without re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unless there is any ambiguity it would not be open to the Court to depart from the normal rule of construction, i.e., the intention of the legislature should be primarily gathered from the words which are used. The same view has been reiterated by the Hon'ble Supreme Court in the case of Smt. Tarulata Shyam & Ors. vs. CIT 1977 CTR (SC) 275 : (1977) 108 ITR 345 (SC). Insofar as provisions of Explanation to s. 73 are concerned, the language is quite clear. It has to be applied to all cases, other than excluded category, where any part of the business of a company consists in the purchase and sale of shares of other companies. The categories of cases to be excluded have been specified by the statute itself and there is hardly any basis to add yet another category of exclusion, i.e., non-tax avoidance cases. That would amount to, in our humble opinion, rewriting the legislation which is not permissible. The learned counsel of the assessee has relied upon the decision of the Single Member reported in (2005) 92 TTJ (Del) 351. That decision is contrary to the Division Bench of the Delhi Tribunal in the case of SRJ Securities Ltd. vs. Asstt. CIT (2003) 81 TTJ (Del) 484. As a matter of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a well-settled principle or doctrine which applies only to the construction of ambiguous language in old statutes ........... It is not applicable to modern statutes." Further, a Division Bench of the Delhi Tribunal in the case of SRJ Securities Ltd. vs. Asstt. CIT (2003) 81 TTJ (Del) 484 after exhaustively considering the various aspects, has held in similar facts that loss suffered by assessee, a share broker-cum-dealer, on purchase and sale of shares on its own account was speculation loss within the meaning of s. 73 r/w Explanation and assessee's main income not being interest on securities, income from house property, capital gains or income from other sources and assessee not being in the business of banking or granting of loans and advances, and the business of share broker and share dealer being separate and distinct businesses, the loss could not be set off against commission earned from brokerage business. This decision is binding on the Single Member case; otherwise, the matter could have been referred to a larger Bench." 13. After consideration, we find ourselves in agreement with the observations of the learned Editor. 14. We now address ourselves to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are clearly against the claim of the assessee that its business of share trading and its business of share brokerage should be considered together for the purpose of Explanation to s. 73. 15. During the course of hearing before us, the learned counsel placed reliance on the decision of Tribunal, Bombay, in the case of Aakrosh Investment & Leasing (P) Ltd. We find that judgment to be against the contentions of the assessee and in favour of the Revenue. We are also at loss to understand as to how dividend earned on one's own stock-in-trade of shares can be treated at par with brokerage income earned on the business transactions of the third parties. The assessee also placed reliance on the decision of Tribunal, Mumbai, in the case of Samba Trading & Investment (P) Ltd. In that case the assessee disclosed profit in share business, but loss in speculation of shares. But there was no claim in that case that loss in share business should be set off against brokerage income. 16. We are now left with the other reasons given by the learned CIT(A) for deletion of the addition of Rs. 38.09 lakhs made by the AO after invoking the Explanation to s. 73 of the Act. It has been held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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