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TMI Blog2016 (3) TMI 490X X X X Extracts X X X X X X X X Extracts X X X X ..... to treat the assessee as a trader in respect of the scripts which had been kept in the investment portfolio, especially when the assessee has clearly bifurcated the investment portfolio and trading portfolio and has consistently maintained the same. In view of the above, the profit on share transactions relating to investment portfolio of the assessee is ordered to be treated as capital gains and not as business income of the assessee. Appeal of the assessee is therefore allowed. - Decided in favour of assessee Applacablity of provision of section 73 - whether assessee would deemed to be carrying on a speculation business for the purpose of Sec. 73(1)? - Held that:- In order to determine whether the exception that is carved out by the explanation applies, the legislature has first mandated a computation of the gross total income of the Company. The words "consists mainly" are indicative of the fact that the legislature had in its contemplation that the gross total income consists predominantly of income from the four heads that are referred to therein. Obviously, in computing the gross total income the normal provisions of the Act must be applied and it is only thereafter, that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in all the scripts, holding period was not substantial and further that the assessee had taken huge borrowings for making investment in shares. He therefore observed that the objective of the assessee was to carry out trading in shares. He therefore treated the income of the assessee from share transactions as business income of the assessee. Being aggrieved by the order of the AO, the assessee preferred appeal before the Ld. CIT(A). 4. The Ld. CIT(A) confirmed the above findings of the AO. Being aggrieved, the assessee has come in appeal before us. 5. We have heard the rival contentions and have also gone through the records. The Ld. A.R. of the assessee has brought our attention to page 3 of the paper book which is scheduled forming the part of the balance sheet wherein the assessee has shown the shares of the above stated companies as investments. The Ld. A.R. of the assessee has further brought our attention to pages 4 to 9 of the paper book to show that the assessee has been maintaining two separate portfolios i.e. investment portfolio and trading portfolio. He has further stated that from the very beginning, the intention of the assessee was to hold the shares of the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained the same. 7. In view of the above, the profit on share transactions relating to investment portfolio of the assessee is ordered to be treated as capital gains and not as business income of the assessee. Appeal of the assessee is therefore allowed. 8. Now coming to the appeal of the Revenue i.e. ITA No.3680/M/2012. ITA No.3680/M/2012 (Revenue's Appeal) 9. The Revenue in its appeal has agitated the action of the Ld. CIT(A) in holding that the explanation to section 73 of the Act would not be attracted in the case of the assessee in relation to the share transactions which were treated by the AO as speculative in nature. The AO noted that the assessee had credited its profit & loss account by profit on dealing in shares, securities and derivatives at ₹ 9,28,34,535/-. The assessee during the year had shown loss on shares at ₹ 221,38,13,206/-, which had been set off against future and options income. He observed that since the assessee was a company, hence as per the provisions of explanation to section 73 of the Act, any loss incurred in share trading was required to be treated as speculation loss and therefore could not be set off against any other income. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of the assessee without applying the provisions of Explanation to Sec.73. Gross Total Income of the Appellant which is ₹ 8,46,42,309/- as discussed aforesaid mainly comprises of Income from Other sources. Loss on purchase/sale of shares therefore cannot be treated as Speculation Loss as the Appellant's case falls in the exceptional clause to the Explanation to Sec.73 i.e. being a Company whose Gross total Income mainly consists of income chargeable under the head "Income on Securities, Capital Gains and Income from Other Sources." • As such, provisions to Explanation to Sec.73 does not apply to the Appellant's case. • Loss of ₹ 22 1.38 crores in the purchase and sale of shares is therefore not a speculation loss under Explanation to Sec.73 for detailed reasons and case laws cited above. 4.4 This ground of appeal is therefore allowed." 11. The Ld. CIT(A) thereafter held that since the loss in share trading had been treated by him as regular business loss and not speculation loss, he therefore treated the amount of expenditure of ₹ 10 crores as normal business expenditure as against the treatment given by the AO as incurred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 2.33 crores in the share trading and had dividend income of about ₹ 4.80 lacs. The Division Bench held in paragraphs 6, 7, 8 and 9 as under :- "6. The explanation to Section 73 introduces a deeming fiction. The deeming fiction stipulates that where any part of the business of a company consists in the purchase and sale of shares of other companies, such company shall, for the purposes of the section be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sales of such shares. The deeming fiction applies only to a company and the provision makes it clear that the deeming fixation (sic) extends only for the purposes of the section. The bracketed portion of the explanation, however carves out an exception. The exception is that the provision of the explanation shall not apply to a company whose gross total income consists mainly of income which is chargeable under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources" or a company whose principal business is of banking or the granting of loans and advances. 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat is carved out by the explanation applies, the legislature has first mandated a computation of the gross total income of the Company. The words "consists mainly" are indicative of the fact that the legislature had in its contemplation that the gross total income consists predominantly of income from the four heads that are referred to therein. Obviously, in computing the gross total income the normal provisions of the Act must be applied and it is only thereafter, that it has to be determined as to whether the gross total income so computed consists mainly of income which is chargeable under the heads referred to in the explanation. 9. Consequently, in the present case the gross total income of the assessee was required to be computed inter alia by computing the income under the head of profits and gains of business or profession as well. Both the income from service charges in the amount of ₹ 2.25 crores and the loss in share trading of ₹ 2.23 crores, would have to be taken into account in computing the income under that head, both being sources under the same head. The assessee had a dividend income of ₹ 4.7 lacs (income from other sources).The Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X
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