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TMI Blog2006 (3) TMI 550X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was arrived at after netting off against loss on sale of investment at Rs. 80,95,183. The Assessing Officer noted that the assessee had incurred loss in multiple share transactions wherein the shares were held for a very brief period. The Assessing Officer was of the opinion that the assessee was engaged in the sale and purchase of shares and showed the share purchase in the earlier years under the head investment only with the purpose of to avoid the application of Explanation to section 73 of the Act. The Assessing Officer relying on various decisions, was of the opinion that section 73 would be invoked only when the conditions specified therein are satisfied as there were purchase and sale of shares of companies during the year under consideration were of the nature of regular business. The Assessing Officer was further of the opinion that the nomenclature adopted for that transactions was not important rather it was sum and substance of the transactions which had to be considered. The Assessing Officer finally held that Explanation to section 73 was applicable to such transactions on the given set of facts and accordingly loss in trading in shares amounting to Rs. 53,83,53 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not accept the contention of the appellant that no part of its business consists of purchase and sale. It is clear from the facts that no investor in shares will indulge in purchase and sale of shares over a period of five years. The appellant has failed to substantiate that it was acquiring shares only by way of investment. In support of its contention the appellant has inter alia relied upon the order of ITAT, Delhi in the case of M/s. VIP Growth Fund Ltd. v. ACIT, 95 Taxman 313. In that case there was only a solitary transaction in regard to sale of shares. On the other hand, as mentioned earlier, the appellant has sold shares in as many as 34 companies in this year. On the facts of the case of the appellant, the observations made by the ITAT in the case of Laxmi Feeds & Exports Pvt. Ltd. which has been relied upon by the Assessing Officer are squarely applicable. In this case it was inter alia observed that plurality of transaction and plurality of companies is a pre-condition for attracting the provisions of Explanation to section 75. In the case of the appellant also, there is plurality of transaction and companies and the conduct of the appellant over preceding two years a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit. The learned counsel further placed reliance on the un-reported decision of the Hon'ble jurisdictional High Court in the case of CIT v. Ceramics & Electrical India (P.) Ltd. [IT Appeal No. 335 of 1991 (Bom.) dated 18-1-1982] wherein the Hon'ble Court in similar circumstances agreeing with the findings of the Tribunal that the assessee-company was not a dealer in shares, rejected the Reference Application filed by the revenue against the aforesaid decision of the Tribunal. 6. The learned Departmental Representative, on the other hand, contended that the nature of business as such was not material for the application of Explanation to section 73 of the Income-tax Act, 1961 in a sense if the impugned transactions met the requirement of that section and the assessee was not falling under the exceptions made therein, then, the transactions of sale and purchase of shares and resultant gain/loss thereon would attract the provisions of Explanation to section 73 of the Act. The learned D.R. also contended that during the year under consideration, the assessee sold two properties whereon a profit of Approx. Rs. 83,66,672 was earned which was liable to be taxed on capital gain. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax proceedings and every year was a separate year, therefore, the Assessing Officer was not prohibited from taking a different view in the year under consideration. The learned D.R., further referred to the decision of the Special Bench of the Tribunal in the case of Concord Commercial to contend that to arrive at the composition of income, loss under the head 'Business' was to be considered and in the present case loss from business was much more than the loss arising under the heads 'Capital gains' and 'income from other sources', therefore, the case of the assessee squarely fell within the ambit of Explanation to section 73 of the Act and consequently loss arising out of dealing in shares as computed by the Assessing Officer of Rs. 53,83,538 was in the nature of speculation loss which could not be set off against the capital gain arising on sale of other properties. It was also pointed out that the borrowed funds had been utilized to purchase shares and it was held that if the borrowed funds were utilized for purchase of shares, the same would constitute as business activity and not investment activity. With regard to reliance placed by the A.R. on the decision of Hon'ble Bombay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are to the tune of Rs. 1.65 crores comprising of quoted shares, units, mutual, funds, debentures, un-quoted shares, Government securities and bonds etc. as compared to investment of Rs. 3,04 crores as on 31-3-1996, thus there has been a substantial reduction in the holdings of quoted shares. It is also observed from the assessment order that in addition to aforesaid holdings, the assessee-company also purchased and sold shares of 34 companies in the year under consideration. It is also a settled principle that entries in the books of account per se cannot be binding as regards to the determination of correct nature of transactions. It is also a settled principle that res judicata is not applicable to the income-tax proceedings, therefore, revenue is not barred from taking different stand as compared to earlier year when the circumstances warrant such different stand or in the situations where stand taken in earlier year is not correct in law. It is also a settled principle that certain transactions can be treated as trade transactions or investment in different years or even in the same year, some share transactions can be treated as investment and some share transactions can be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness is of manufacturing but subsidiary or other business is of dealing in purchase and sale of shares, even though such holdings have been classified as investments in the books of account. We are of the view that there is some merit in the contention of assessee that MOA/AOA provide only legal competence to the company, however, when the company is not legally competent to invest surplus funds in shares/stock of other company as investment by virtue of sub-clause 32 of Part B Clause III of MOA and sub-clause 36 of Part-C of Clause III of MOA permits the carrying of business of investment, therefore, only conclusion which can be drawn is that the company is carrying on business of dealing in purchase and sale of shares, which attracts the Explanation to section 73 as the same is "part of business carried on by the company". 7A. In the case of M. Manifold (P.) Ltd. (supra) the relevant findings of the Tribunal are cited below : "The assessee does not carry on the business of purchase and sale of shares of other companies. It held shares of its subsidiary company, which were sold. The object clause contained in the Articles of Association of the assessee permits it to invest in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds "income" or "profits and gain" should be understood as including loss also, because in one sense "profits and gain" represent "a positive income" whereas losses represent "negative income". In other words, "loss" is a negative profit. Both positive and negative profits are of revenue character. Both must enter into computation, where it becomes material in the taxable income of the assessee. It was further held that since business loss exceed income computed under the head "Income from other sources" therefore, Explanation to section 73 was clearly applicable and the loss suffered by the assessee-company in its share trading transactions inclusive of interest paid on borrowed money attributable to that business was rightly treated by the Tribunal as loss on speculation business. As held by the Hon'ble High Court income includes losses and, based upon the test of composition of income, the assessee does not fall into the exception as provided in Explanation to section 73 of the Act. It is further noted that during the period starting from assessment year 1994-95 to assessment year 1998-99 in majority of years the income from business is more than other incomes, therefore, even o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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