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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 ..... JUDGMENT The judgment of the court was delivered by A.M. Sapre J.-This is an appeal filed by the Commissioner of Income-tax, under section 260A of the Income-tax Act, 1961 against an order dated November 15, 2002, passed by the Income-tax Appellate Tribunal, Indore Bench, Indore, in I.T.A. No. 32/Ind/2001,. The appeal was admitted for final hearing on the following substantial question of law: "Whether, the Income-tax Appellate Tribunal was justified in holding that the Explanation to section 73 of the Income-tax Act is not applicable to the case of the appellant?" The respondent (assessee) is a limited company registered under the provisions of the Companies Act. It is engaged in the business of trading in metal and shares. The assessee for the assessment year 1997-98, inter alia, claimed that they suffered a loss of Rs. 34,52,514 in their share business (i.e., sale and purchase of various 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not furnished any evidence in respect of from whom the shares were purchased and to whom they were sold and has not furnished proof in respect of delivery of the shares. It is also difficult to believe that how the assessee was able to get physical delivery of shares in such a short time. But, even if such shares loss was occasioned on shares for which physical delivery was taken. Under the provisions of section 73 the assessee cannot claim set off of the shares as against profit from other activities. The assessee's contention, that because of large volume of share trading the same constituted its main activity and hence share trading loss cannot be disallowed by invoking the provisions of section 73. This contention has absolutely no merit as the major income during the year was received from metal trading as the very fact that despite adjustment of actual loss on shares the assessee has shown 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This view is affirmed by the volume of business in terms of turnover, gross profit and investment patterns, etc. In the backdrop of the aforesaid discussion I arrive at the inescapable conclusion that the Explanation to section 73 is clearly attracted and the loss suffered in purchase and sale of shares of Rs. 34,52,514 during the year is to be treated as speculative loss which cannot be set off against income from other business activity or income shown under other heads of income. I approve of the Assessing Officer's action in applying the Explanation to section 73 and the loss suffered in share dealings has rightly been treated as speculative loss. This ground of appeal thus stands rejected." The assessee felt aggrieved by the aforesaid order of the Commissioner of Income-tax (Appeals) and pursued the issue by filing appeal to the Tribunal. By the impugned order, the Tribunal allowed the appeal 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 (Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich alone are relevant for disposal of this appeal read as under: "73. Losses in speculation business.-(1) 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. (2) Where for any assessment year any loss computed in respect of a speculation business has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business, shall, 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 relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares by certain companies to be speculative for the purpose of section 73 only. For the purpose of setting off and carrying forward of loss, buying and selling of shares of certain companies is regarded by the statute as speculation business, even though the transaction of purchase and sale was followed by deliver of scrips and as such cannot be treated as "speculative transaction" as defined in section 43(5) of the Income-tax Act. The rules relating to set off and carry forward of losses are contained in sections 70 to 79 of the Income-tax Act. Section 70 provides for set off of loss from one source against the profit from another source under the same head of income. Section 71 permits setting off of loss under one head of income against the income under any other head. Section 72 lays down the rules for carry forward and set off of business losses. If the net result of the computation under the head "Profits and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business for the purpose of section 73 to the extent to which the business consists of the purchase and sale of such shares. In other words, only those companies whose gross total income consists mainly of income which is chargeable under the heads "Interest on securities", "Income from house properties", "Capital gains" and "Income from other sources", or companies whose principle business is of "banking or granting of loans and advances" are exempt from the applicability of section 73. In our considered opinion, the respondent/assessee does not fall in any of the excepted categories of companies specified in the Explanation to section 73 ibid. Firstly, it is not a company whose main source of income is from "interest on securities" or "income from house property", or from "capital gains", or "other sources". Secondly, it is also not a company whose principal business is that of "banking or granting of loan and advance". 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" use ..... X X X X Extracts X X X X X X X X Extracts X X X X
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