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TMI Blog2005 (12) TMI 273X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in the Explanation to s. 73 of the Act. In reply thereto, the assessee submitted an explanation dt. 23rd Jan., 1998 before the AO stating that provisions of Explanation to s. 73 are not applicable to the investment company as defined in cl. (ii) of s. 109 of the Companies (sic-IT) Act. The assessee submitted before the AO that inasmuch as the assessee is an investment company, provisions of Explanation to s. 73 are not to be applied. The aforesaid explanation of the assessee has been carefully considered by the AO, who held that the term 'investment company' had already been omitted long before w.e.f. 1st April, 1988 from the Explanation to s. 73 of the Act, the decisions applicable to the investment company are not applicable to the assessee's case, inasmuch as the assessee's case is related to the period relevant to the asst. yr. 1996-97. The AO further stated that as per provisions of Explanation to s. 73, as stood in the asst. yr. 1996-97, Explanation to s. 73 is not applicable only to a company, the principal business of which is the business of banking or granting of loans and advances. He further stated that the assessee-company is not a company whose principal bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the course of hearing of this appeal before us, the learned counsel for the assessee has not been able to show any material or evidence supporting the assessee's case that the assessee is a company, principal business of which is of banking or of granting of loans and advances. It is also not the assessee's case that the assessee's gross total income consists mainly of income, which is chargeable under the heads 'Income on securities', 'Income from house property', 'Capital gains', and 'Income from other sources'. Considering the discussion above as well as the detailed reasons given by the AO as well as by the CIT(A) in their respective orders, we are of the considered view that the AO has rightly invoked the provisions of Explanation to s. 73 to the assessee's share trading activity, where the assessee had incurred a loss of Rs. 2,47,97,775. The ground raised by the assessee is, therefore, rejected. 6. Now, we shall take up the appeal filed by the Revenue. 7. The only issue involved in the grounds of appeal raised by the Revenue is with regard to the treatment of interest income of Rs. 26,27,472 earned on fully convertible debentures as a part of assessee's business activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hose shares would still form part of the income from business and carried forward business loss can well be set off against such dividend income [Western States Trading Co. (P) Ltd. vs. CIT (1971) 80 ITR 21 (SC), CIT vs. Shrikishan Chandmal (1966) 60 ITR 303 (MP), CIT vs. Bhavnagar Trust Corpn. (P) Ltd. (1968) 69 ITR 278 (Guj), CIT vs. R Dalmia (1974) 96 ITR 463 (Del)]. In Brooke Bond & Co. Ltd. vs. CIT (1986) 57 CTR (SC) 25 : (1986) 162 ITR 373 (SC), it has been held that carried forward business loss could not be set off against dividend income of the current accounting year unless such dividend income is of the nature of business income. In CIT vs. Cocanada Radhaswami Bank Ltd. (1965) 57 ITR 306 (SC), the assessee-company, which carried on banking business, held Government securities as part of its trading assets. It was held that its unabsorbed loss from banking business was to be carried and set off against the entire income of future years from banking business including interests on securities.' (vi) Our contention is also supported by the decision of Calcutta High Court in the case of CIT vs. Nirmal Kumar & Co. (1986) 53 CTR (Cal) 148 : (1986) 161 ITR 413 (Cal). In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares in respect of certain companies are to be treated as speculation losses. Such loss can be set off only against the profits arising from the speculation business. In the case of the assessee, there were losses on account of sale and purchase of shares amounting to Rs. 2,47,97,775. The assessee has also earned interest on fully convertible debentures amounting to Rs. 26,27,472. Legal Position: The income/loss arising from sale/purchase of shares can by no way treated at par with the interest income arising from fully convertible debentures. The learned CIT(A) has held that the interest income and trading loss on the securities are inseparable and, therefore, arising from same activity. Department's stand: The analysis of the learned CIT(A) is not correct in the facts and circumstances of the case as well as in the light of legal position. The interest income earned from fully convertible debenture is to be treated as income from other sources and cannot be treated at par with any other interest earning instruments such as FDRs/TDRs. The value of FDRs at the time of sale after grant of interest is not a mathematical result of the price before the interest and the amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT vs. Ramnath Goenka (2002) 178 CTR (Mad) 340 : (2003) 259 ITR 26 (Mad) 11. We have considered the rival contentions of both the parties and have gone through the orders of the authorities below. 12. On perusal of provisions of Explanation to s. 73 of the Act, it is seen that where any part of the business of a company other than excluded category of company consists in the purchase and sale of shares of other companies, such company shall, for the purposes of s. 73, 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. It is an admitted position that the business of purchase and sale of shares also consists of acquiring fully convertible debentures, which are ultimately converted into shares. It is also not in dispute that the fully convertible debentures were held by the present assessee as stock-in-trade. Therefore, the income by way of interest on fully convertible debentures is to be treated as income of business in nature as per principle laid down by the Hon'ble Supreme Court in the case of Western States Trading Co. (P) Ltd. vs. CIT, which was followed by the Hon'ble Madras High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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