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TMI Blog2016 (5) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, erred in treating business loss as deemed speculation loss and not allowing set off against the income from capital gain. - Decided in favour of assessee. - ITA No. 1089/Ahd/2012 - - - Dated:- 5-5-2016 - Shri Rajpal Yadav, JM And Shri Manish Borad, AM. For the Appellant : Shri Parin Shah, AR For the Respondent : Shri James Kurien, Sr. DR ORDER Per Manish Borad, Accountant Member This appeal of assessee is against the order of ld. CIT(A)-6, Ahmedabad, dated 2.4.2012. Assessment under section 143(3) of the IT Act, 1961 (in short the Act) was framed on 22/10/2010 for Asst. Year 2008-09 by ACIT, Circle-3, Ahmedabad. Assessee has raised following grounds of appeal :- 1) On the facts in the circumstances of the case it is most respectfully submitted that the Id. CIT(A) has erred in law and on facts by Confirming the non allowance of intra head adjustment of ₹ 618448/- in respect of business loss and Profit under the head Capital Gain by invoking provision of explanation to section 73 of the Income tax Act, 1961. 2) The appellant craves to add, to alter, to substitute, to amend any ground / grounds of appeal at any time or at the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business loss. However it is not in dispute that purchase and sale of shares resulted in profit of more than 11 lakhs which is substantially higher than any other activity and therefore the appellant's activity from shares trading is to be considered as speculative. Accordingly the loss claimed by the appellant has to be treated as speculative and the same cannot be adjusted against, other income. The decision relied upon by the appellant is not applicable to the facts of this case. Appellant's alternative argument that loss on futures and options transactions RS 161187 cannot be treated. as speculative is justified since derivatives are not shares and accordingly not hit by explanation to section 73. Assessing officer is therefore directed to treat loss in F O activities as business loss and allow the same to be set off against other income. As regards appellant's claim of treating short-term capital gain as business income, the same is not possible since appellant treated the purchases of shares as investment and the same cannot be treated as stock In trade. Accordingly this argument of the appellant is rejected. 4. Aggrieved, assessee is now in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of capital gains and therefore the provisions of explanation to section 73 are not applicable to the assessee company. In this connection, we rely on the decision of Banglore Bench of ITAT in the case of Asiatic Industrial Gases Ltd. Vs. DCIT(2006) (6 SOT 243] (Bang], wherein, on the similar facts it was held by the tribunal that explanation is not applicable. However the Id. Assessing officer has failed appreciate such fact and in observation it is stated that:- On verification of the P L account it can be seen that the profit on sale of investment is only ₹ 658227/- where as profit from share trading account is of ₹ 1146205/- therefore main source of income is business income and not investment income. However as per wordings of Explanation to section 73 of the Income Tax Act 1961 Components of various heads understatement of total income is required to be verified to decide whether which head has a higher income and not an individual items of Profit Loss Account for the purpose to determine whether proviso to section 73 is applicable or not. The Learned assessing officer has erred by looking at composition of Profit and Loss Account instead o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject to the other provisions of this Chapter, be carried forward to the following assessment year, and- (i) it shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year; and (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on. (3) In respect of allowance on account of depreciation or capital expenditure on scientific research, the provisions of sub-section (2) of section 72 shall apply in relation to speculation business as they apply in relation to any other business. (4) No loss shall be carried forward under this section for more than [four] assessment years immediately succeeding the assessment year for which the loss was first computed. [Explanation.-Where any part of the business of a company ( [other than 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 [the principal business of which is the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of shares. It will be relevant to reproduce the brief facts and the decision given by the co-ordinate bench which read as under :- FACTS The assessee-company derived income from business of trading in steel, yarn, fabrics as also from service charges, and it was also engaged in the business of buying and selling of shares and holding them as a stock-in-trade. It showed its gross total income consisting of income from business which was a loss and its income from other sources, i.e., the dividend income earned from shares held by the assessee as stock-in-trade. It worked out the net loss after setting off of the share trading loss against dividend income. The Assessing Officer, while holding that the said share trading loss was in the nature of speculation loss within the meaning of Explanation to section 73 and, therefore, it was not permissible to set off the same against other items of business income, disallowed the same and added back the said amount to the taxable income of the assessee. On appeal, the Commissioner (Appeals), while accepting the assessee's contention that the Assessing Officer could not invoke the provisions of section 73 and Explanation thereto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the nature of the principal business carried on by it In the first category, where the test is that of the character of gross total income, the other test relating to the nature of principal business carried on by it does not apply. Likewise in the second category of company where the test is the nature of the principal business carried on by it, the test of the gross total income does not apply. The two exceptions provided in Explanation to section 73 are governed by two di//erent tests laid down in the said Explanation itself. Therefore, the examination of the exceptions provided in Explanation to section 73 is to be done strictly in accordance with the tests laid down in the Explanation. [Para 24] The assessee-company was not carrying on, as its principal business, the business of banking or granting of loans and advances and did not come under the second category of exception. (Para 25j The assessee-company earned a profit from its business of trading in steel, yarn and fabrics and from service charges. The assessee-company also incurred a loss in the purchase and sale of shares. Altogether, the income from business was a loss. The assessee-company further earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of gross total income itself suggested thai the income composition alone is to be looked into as any other inquiry may lead to a case of generalization which is not contemplated in the context in which the deeming provision by way of Explanation is provided to section 73. The Explanation to section 73 is a deeming provision and has Io be strictly construed. [Para 46] There were no materials on record to show that the assessee-company did make loss in the share trading activities in order to reduce the tax incidence. In respect of the contention regarding 'gross total income', section 73 did not provide for any special treatment. The Supreme Court held in CIT v. Venkateswara Hatcheries (P.) Ltd. [1999] 237 ITR I74/ 103 Taxman 503 that the same word occurring more than once in the Act should generally be given the same meaning, but the context may indicate the contrary legislative intention. There is no such indication in section 73 and the Explanation thereto. Therefore, the meaning of the expression 'gross total income' has to be construed as given in section 80B(5). [Para 50] Therefore, the Commissioner (Appeals) was right in holding that provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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