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TMI Blog2018 (3) TMI 1513X X X X Extracts X X X X X X X X Extracts X X X X ..... COURT], the issue stands covered in favour of the assessee.This ground of appeal of the assessee is partly allowed for statistical purposes. Disallowance made u/s. 14A - Held that:- Rule 8D was inserted in Income Tax Rules with effect from 24/03/2008 by Income Tax (5th Amendment) Rules, 2008. Being so, Rule 8D cannot be applied for the assessment year 2007-08. However, there is every chance to incur certain administrative expenditure. Accordingly, we direct the AO to disallow 2% of the exempt income as expenditure incurred for the purpose of earning exempt income. This ground of appeal of the assessee is partly allowed Treatment of income as income from other sources OR busniss income - interest received on cancellation of the plots - Held that:- the plot allotted to the assessee is the business asset of the assessee. However, interest received on cancellation of the plots is a step removed from the business activities of the assessee. The derivation of interest from GIDA cannot be said that it is emanating from the business activities carried out by the assessee. On the other hand, it was emanating from the amount paid by the assessee and not directly from the business acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the business income of the assessee. 5. Against this, the assessee carried the matter in appeal before the CIT(A). The CIT(A) confirmed the order of the Assessing Officer. 6. Aggrieved by the order of the CIT(A), the assessee is in appeal before us. The ld. AR submitted that the sum of ₹ 8,03,03,000/- consists of loss from futures and options amounting to ₹ 519.82 lakhs and loss from cash market transaction amounting to ₹ 283.21 lakhs. The Ld. AR submitted that the break up of the transaction showed that the loss from dealing in derivatives amounting to ₹ 592.82 is not speculative loss in view of the Special Provision contained in Section 43(5)(d) of the Act. Section 43(5) defines speculative transaction as a transaction in which a contract for the purchase and 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. According to the Ld. AR for the purpose of the above clause as per clause (d) of the proviso, an eligible transaction in respect of trade in derivatives referred to in clause (ac) of section 2 of the Securities Contracts ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. 73 cannot apply to derivatives but only to purchase and sale of simplicitor. Moreover, a speculative transaction as per sec. 43(5) means a transaction in which the contract for the purchase and sale of any commodity, including stocks, shares is periodically or ultimately settled., otherwise than by way of actual delivery of transfer of commodity or scrips. The Tribunal also relied on the following decisions to hold that the transactions in derivatives are treated as regular business transactions and not speculative transactions: ( i) M/s. Shree Capital Services Ltd. vs. ACIT (124 TTJ 740) (Ko.) (SB) ( ii) DCIT vs. Madanlal Ltd. (51 SOT 188 (Kol.) (URO). ( iii) DCIT vs. M/s. Paterson Securities (P) Ltd. (127 ITD 386)(Che.) (iv) DCIT vs. M/s. SSKI Investors Services (P) Ltd. (113 TTJ 511) (Mum.) ( v) M/s. RBK Securities (P) Ltd. vs. ITO (118 TTJ 465)(Mum). 6.4 The Ld. AR submitted that the Tribunal also held that where two views are possible on a point of decision, the one in favour of the assessee should be followed. For this proposition the Ld. AR relied on the judgment of the Apex Court in the case of CIT vs. M/s. Vegetable Products Ltd. (88 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. The Ld. AR further relied on the Hon'ble Supreme Court in Appllo Tyres Ltd. vs. CIT (2002) 255 ITR 273 wherein it was held that units of UTI are not shares as contemplated in Explanation to Section 73. According to the Apex Court if the legislative had contemplated making the units also a deemed share then it could have stated so. In the absence of any such specific deeming provisions in regard to the units as share it would be erroneous to extend the provision of Section 32(3) of the UTI Act to the units of UTI for the purpose of holding that the unit is a share . By the same analogy, derivatives are different from shares since they have been so expressedly defined by the Securities Contract (Regulation )Act 1956: Thus out of the total loss of ₹ 803.03 lakhs, the loss pertaining to derivatives ₹ 519.82 is to be treated as 'non-speculative' and the same can be set off against other income. 6.7 The Ld. AR submitted that out of total loss of ₹ 8.03 crores, loss from dealing in derivatives was ₹ 5.91 crores and loss from cash marketing transactions was to the tune of ₹ 2.83 crores. The Ld. AR submitted that it is covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in its application to working out the mandate of Sections 28 to 41 of the Act. In terms of the Explanation to Section 73 of the Act, in case of a company, business of purchase and sale of shares is deemed to be speculation business. The taxpayer's contention that the Parliament intended that such transactions are also excluded from the mischief of Explanation to Section 73 of the Act, is not substantiated. Though the expression 'derivatives' is defined only in Section 43(5) of the Act and it excludes such transactions from the scope of speculative transactions, derivative has not been excluded from Section 73 of the Act since a definition enacted for only a restricted purpose or objective should not be applied to achieve other ends or purposes. Contextual application of a definition or term is stressed wherever the context and setting of a provision indicates an intention that an expression defined in some other place in the enactment cannot be applied. Also the intent prevails regardless whether standard exclusionary terms (such as unless the context otherwise reuires) are used. 7.3 Thus according to the Ld. DR, the explanation to Section 73 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is not done by taking delivery does not come into the purview of speculative transactions. Similarly, as per clause (d) of sec. 43(5), derivative transaction in shares is not a speculative transaction as defined in the said section. Therefore, both the profit and loss from share delivery transactions and derivative transactions are having the same meaning, as far as section 43(5) of the Act is concerned. In view of the fact that both delivery transactions and derivative transactions are non speculative as far as section 43(5) is concerned, it follows that both will have same treatment as per application of Explanation to section 73 of the Act. Therefore, aggregation of the share trading profit and loss from derivative transaction should be done before Explanation to section 73 is applied. The above view has been taken by the Special Bench of the ITAT, Mumbai in the case of Concorde Commercial Pvt. Ltd. (2005) (95 ITD 117). The Special Bench held as under: Before considering whether the assessee s case is hit by the deeming provision of Explanation to sec. 73 of the Act, the aggregate of the business profit/loss has to be worked out based on the non-speculative profits; ei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l buying and selling of shares. An answer to this question is to be found in the explanation appended to Section 73 which reads as follows: 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 , 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. In order to resolve the issue before us, the section has to be read in the manner as follows: Explanation : Where any part of the business of a company ( . . . .. .. .. .. .. .. .. . .. .. . ) consist 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer made an addition of ₹ 4,04,11,610/- as this amount was received as interest from Goshree Island Development Authority (GIDA) on cancellation of auctioned plots to the assessee under the direction of Supreme Court. The Assessing Officer treated the interest paid by the GIDA on cancelled plots apart from the value of land as income from other sources. 10.2 On appeal, the CIT(A) confirmed the addition made by the Assessing Officer by observing that the provisions of the I.T Act are very clear. The CIT(A) observed that there are specific heads for charging various kinds of income and the income from other source is actually residual head where income from bank interest, dividends etc. are charged to tax. The CIT(A) relied on the judgments of the Supreme Court in the case of Cambay Electric Supply Ind Co. vs. CIT, 113 ITR 84 and Sterling Foods vs. CIT 237 ITR 579 wherein the Apex Court held that there are specific heads of income and given the major source of income, if a particular income falls under the head income from other sources, the same should be treated as interest income chargeable under income from other sources and not as business income, unless the same c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the plots allotted to the assessee. According to the ld. AR the interest received by the assessee on cancellation of plots allotted is to be treated as business income of the assessee as the purchase of plots is the business activity of the assessee and the income derived from the said transaction is also business income of the assessee. In our opinion, the plot allotted to the assessee is the business asset of the assessee. However, interest received on cancellation of the plots is a step removed from the business activities of the assessee. The derivation of interest from GIDA cannot be said that it is emanating from the business activities carried out by the assessee. On the other hand, it was emanating from the amount paid by the assessee and not directly from the business activities of the assessee. Therefore, in our opinion, that interest cannot be considered as business income of the assessee. In other words, it should be treated as income from other sources. Hence, this ground of appeal is rejected. The appeal in ITA No. 151/Coch/2014 is dismissed. 11. In the Revenue s appeal in ITA No. 219/Coch/2014, the Revenue s grievance is with regard to treatment of interest income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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