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TMI Blog2006 (7) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... arious shares). It is this loss incurred by the assessee which was claimed as set off against the profit earned by them from their other activities, i.e., other business. The Assessing Officer was of the view that the assessee is not entitled to claim the set off of the loss suffered by them in share business by virtue of the Explanation appended to section 73 of the Act. The Assessing Officer was of the view that since the loss incurred by the assessee was in speculative business, i.e., sale and purchase of shares, and hence, it can be set off only against the profit earned by the assessee from similar kind of speculative business but not against the profit earned by them from non-speculative business. The assessee was, therefore, asked to show cause, as to why the claim of loss amounting to Rs. 34,52,514 sustained by the assessee be not disallowed by the Assessing Officer by taking recourse to the provisions of section 73 read with its Explanation. The contention of the assessee to this show cause was that neither section 73, nor its Explanation applies to them. It was their case that their case falls in the excepted category of companies defined in the Explanation and hence, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own positive income clearly establishes that the main activity is that of metal trading activities hence the provisions of section 73 gets clearly attracted and the assessee shall be allowed set-off of such loss of Rs. 34,52,514 against other income. The same shall however be allowed to be carried forward as speculation loss to be adjusted against future speculation profit as and when they arrive in accordance with the provisions of law." The assessee felt aggrieved by the aforesaid order, filed an appeal to the Commissioner of Income-tax (Appeals). By order, dated November 31, 2000, the Commissioner of Income-tax (Appeals) upheld this part of the order passed by the Assessing Officer by holding as under: "So far as the appellant company is concerned as discussed earlier it is neither an investment company nor a banking company but a trading company. The assessee-company dealt in shares besides having other business. Thus the loss suffered in purchase and sale of shares is to be treated as speculation loss under the Explanation to section 73. The Mumbai Bench of the Income-tax Appellate Tribunal in the case of Rajan Enterprises P. Ltd. v. ITO reported in [1992] 41 ITD 469 has hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and set aside the orders passed by the Assessing Officer and the Commissioner of Income-tax (Appeals). This is how the Tribunal concluded while allowing the appeal filed by the assessee and setting aside the orders passed by the Assessing Officer and the Commissioner of Income-tax (Appeals): "In other words, an investment company dealing in shares shall be considered to be trading in shares and not doing speculation business. In that view of the matter, the losses suffered by an investment company on the purchase and sale of shares have to be adjusted against other income. In view of these ratios and the facts of the case, we hold that the Explanation to section 73 is not applicable to the appellant and the loss from share has to be adjusted against other income during the year. Thus, we set aside the order of the Commissioner of the Income-tax (Appeals) and direct the Assessing Officer to allow loss from purchase and sale of shares against other income of the assessee." It is against this order the Commissioner of Income-tax has felt aggrieved and filed this appeal which as stated supra, was admitted for final hearing on the aforementioned substantial question of law. Heard S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied 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 eight 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 banking or the granting of loans and advances consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, 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. Section 43.(5) 'speculative transaction' means a transaction in which a contract for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains of business or profession" is a loss and such loss cannot be or is not wholly set off against the income under any other head of income in accordance with the provisions of section 71, then the amount of loss which has not been set off can be carried forward to the following assessment year. Such losses carried forward from the previous year can be set off against the profits and gains of business in the subsequent assessment year. This rule is subject to the provisions that the business or profession in which the loss was originally incurred will have to continue to be carried on by the assessee in the previous year in which the loss is sought to be adjusted. In other words, if an assessee suffers loss in any business and closes down that business, then such loss cannot be carried forward and adjusted against profits of some other business in the subsequent assessment year. Section 72 specifically excludes loss sustained in speculation business from its ambit. That means that, when a loss is sustained in a speculation business, that cannot be carried forward to be adjusted against any other business loss. Section 73 specifically deals with losses in speculation business. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce". In order to come out of the clutches of section 73, it is necessary for the assessee to show that, they satisfy the requirement of excepted categories because of their main business activity. The emphasis on the word "mainly" and/or "principal business" used in section 73 ibid is significant. It cannot be lost sight of or ignored while deciding the applicability of section 73 ibid. A particular company may have income from any of these specified sources but, that is not enough. In order to exclude the applicability of section 73, it must be further proved that the gross total income of the company is mainly from these or any of these sources. It is only on proof of this fact that the assessee can come out of the rigour of section 73 ibid. We do not agree with the submission of learned counsel for the assessee when he urged that the main business of the company is that of sale and purchase of shares and granting of loans and advances and therefore, the case of the assessee falls in the excepted category of the company defined in the Explanation. In the first place, the main business of the assessee/company is that of trading in metals and shares. It is clear from clauses 10, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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