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TMI Blog2015 (10) TMI 2373X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee claimed the same as business loss. During the course of scrutiny assessment, the Assessing Officer held that in view of Explanation to section 73, the loss suffered by the assessee in share trading business is speculative loss and hence, the same cannot be allowed against business income from other trading activities. The Assessing Officer further disallowed interest on account of diversion of borrowed funds for nonbusiness purposes, disallowance u/s. 14A r.w. Rule 8D, disallowance of payment of commission to M/s. Eagle King Investments Development Ltd., Singapore for non-deduction of TDS, etc. Aggrieved by the assessment order dated 10-12-2010, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) vide impugned order upheld the findings of Assessing Officer and dismissed the appeal of the assessee. Against the order of Commissioner of Income Tax (Appeals), the assessee is in second appeal before the Tribunal. 3. Shri K.S. Mehta appearing on behalf of the assessee submitted that the authorities below have erred in coming to the conclusion that the loss suffered by assessee in share trading business is specul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The said amount was received as interest from M/s. Yash Developers. On the interest amount received from M/s. Yash Developers had deducted tax in the assessment year 2009-10. The assessee accordingly offered the income for tax in the assessment year 2009-10. However, the Assessing Officer insisted that the amount should be assessed to tax in the impugned assessment year. The ld. AR contended that if the interest amount is taxed in assessment year 2008-09, there will be mismatch of TDS in assessment year 2009-10. Moreover, the amount has already been offered to tax in assessment year 2009-10. The same amount cannot be taxed twice i.e. in assessment years 2008-09 as well as, in assessment year 2009-10. 3.3 The ld. AR further argued that the Commissioner of Income Tax (Appeals) has erred in confirming disallowance of Rs. 3,41,955/- in respect of interest paid on borrowed funds and diverted for non-business purposes. The ld. AR submitted that the assessee had sufficient own funds. However, the ld. AR conceded that the proportionate relief may be granted to the assessee to the extent of availability of own funds of the assessee. 3.4 In respect of payments made to M/s. Eagle King Inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contentions of the assessee. The ld. DR prayed for dismissing the appeal of the assessee. 5. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. The assessee has raised six grounds in its appeal. The same are summarized as under: i. Loss in share business claimed as business loss, treated as speculative loss in terms of Explanation to section 73 of the Act by the Revenue. ii. Interest of Rs. 3,81,863/- held to be taxable in impugned assessment year. Whereas, the assessee has claimed the same in assessment year 2009-10 and the TDS certificate have also been issued in the assessment year 2009-10. iii. The interest of Rs. 3,41,955/- on borrowed funds allegedly diverted by the assessee for non-business purposes disallowed u/s. 36(1)(iii). iv. The commission paid to M/s. Eagle King Investments Development Ltd., Singapore disallowed, as no TDS was deducted thereon. v. Disallowance made u/s. 14A r.w. Rule 8D on shares held as stock-intrade. vi. The ground no. 6 is general in nature. 6. The ground no. 1 raised by the assessee in appeal is with respect to treating of loss from share trading as 'speculative'. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in his holdings of stocks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; (d) an eligible transaction in respect of trading in derivatives referred to in clause[(ac)] of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognized stock exchange. Shall not be deemed to be a speculative transaction." 6.2 A series of systematic transactions for gain culminates into a business. In the present case, it has not been alleged by the Revenue that the assessee is engaged in speculative transactions. The authorities below have merely invoked the Explanation to section 73 to hold that the assessee's income from share trading activity is speculative income. Explanation to section 73 creates a deeming fiction. The deeming provisions have to be construed strictly. The Hon'ble Bombay High Court in the case of CIT Vs. HSBC Securities & Capital Markets India (P.) Ltd. (supra) has held that Explanation to section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of business or profession defines the expression "speculative transaction" in sub section (5). That expression is defined to mean a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled, otherwise than by the actual delivery or transfer of the commodity or scrips. Consequently, where a contract for purchase or sale of shares is settled by actual delivery, it does not fall within the definition of the expression. Section 70(1) provides for a setting off of loss from one source against income from another source under the same head. Section 72 makes provision for carry forward and set off of business losses, under the head of profits and gains of business or profession other than a loss sustained in a speculation business. Sub Section (1) of Section 73 provides that any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business. As a result of the provision of Sub Section (1) of Section 73, a bar is introduced against the setting off of a loss which has arisen in respect of specula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving aside for a moment, the exception, which is carved out by the explanation to Section 73, the explanation creates a deeming fiction by which a company is deemed to be carrying on a speculation business where any part of its business consists in the purchase and sale of shares of other companies. Now, the exception which is carved out applies to a situation where the gross total income of a company consists mainly of income which is chargeable under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources". Now, ordinarily income which arises from one source which falls under the head of profits and gains of business or profession can be set off against the loss which arises from another source under the same head. Sub Section (1) of Section 73 however sets up a bar to the setting off of a loss which arises in respect of speculation business against the profits and gains of any other business. Consequently, a loss which has arisen on account of speculation business can be set off only against the profits and gains of another speculation business. However, for Sub Section (1) of Section 73 to apply the loss must arise in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in coming to the conclusion that the assessee fell within the purview of the exception carved out in the explanation to Section 73 and that consequently the assessee would not be deemed to be carrying on a speculation business for the purpose of Sec. 73(1). 10. The view, which we have taken, also accords with the judgments of this Court in C.I.T. V/s. M/s. Hero Textiles and Trading Ltd. (Income Tax Appeal No. 296 of 2001 decided on 29 January, 2008) and in C.I.T. V/s. Maansi Trading Pvt. Ltd. (Income Tax Appeal No.47 of 2001, decided on 29 January, 2008). The Tribunal has relied upon its earlier decision in the case of Concord Commercial Pvt. Ltd. of 18 March 2008. A Division Bench of this Court had dismissed Notice of Motion no. 1921 of 2007 in Income Tax Appeal (Lodging) No.852 of 2007 for condonation of delay against the decision of Concord Commercial Pvt. Ltd. holding that even otherwise on merits, the issue was covered by the decision rendered by the Division Bench in Hero Textiles and Trading Ltd. 11. For the aforesaid reasons, we answer the question of law in the affirmative. The Appeal is accordingly disposed of. There shall be no orders as to costs. 6.4 Thus, from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that proportionate disallowance can be made by considering the availability of own funds. We remit, this issue back to the file of the Assessing Officer to decide this ground afresh after taking into consideration the availability of own funds and the use of same for advancing loans for non-business purposes. 9. The fourth ground raised in the appeal by the assessee is with regard to disallowance of commission of Rs. 6,95,691/-. The case of the assessee is that the amount has been paid by the assessee to M/s. Eagle King Investments Development Ltd., Singapore as commission in respect of services rendered abroad. However, nothing has been brought on record to show the nature of services provided by the overseas concern. It is a well settled law that if the payment made is commission simpliciter, for the services rendered abroad to an overseas concern having no PE in India, such payment is not taxable. Since, the income accrued to the overseas non-resident concern is not taxable, there is no question of deduction of tax at source on the said payments. Our view is supported by the judgment of the Hon'ble Madras High Court in the case of CIT Vs. Faizan Shoes Pvt. Ltd. reported a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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