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TMI Blog2019 (7) TMI 1037X X X X Extracts X X X X X X X X Extracts X X X X ..... first appellate authority. 2. The assessee is a non-banking financial company engaged in the business of sale and purchase of shares. The assessee filed original return of income for the assessment year 2003-04 on 31.10.2003 declaring a loss of Rs. 5,39,19,380/-. On the return being processed under Section 143(1) of the Income Tax Act, 1961 [for brevity "the Act"], the assessee's case was selected for scrutiny and notice under Section 143(2) was issued to the assessee on 04.10.2004. A revised return was filed on 31.03.2005 by the assessee re-computing the loss at Rs. 3,11,43,326/- and claiming a refund of Rs. 1,72,011/-. 3. While completing the assessment, the A.O. resorting to the Explanation to Section 73 of the Act, treated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al have restored the order of the assessing officer ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and in fact in holding that "the Assessee Company is covered in the first exception provided in the explanation, as its gross total income mainly consists of income under the head Interest on Securities, Income from House Property, Income from Capital Gain and Income from Other Source" ? 3. Whether, on the facts and in the circumstances of the case is the explanation to section 73 of Income tax Act applicable in this case ?" 6. We heard the learned Standing Counsel, Government of India (Taxes) appearing for the Revenue and the learned Counsel appearing for the assessee. 7. Section 73 wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business consists of the purchase and sale of such shares." 8. The argument of the learned Counsel for the Revenue is that by virtue of the afore-cited Explanation, which is in the nature of a deeming provision, the loss of the assessee company having been occasioned in the business of buying and selling shares of other companies, it has to be treated as a speculation loss in view of the Explanation to Section 73. On the other hand, the argument of the learned Counsel for the assessee is that the assessee-company is a non-banking financial company, engaged mainly in the trading of shares. The purpose of the Explanation was to curb the device resorted to by business houses controlling a group of companies to manipulate and reduce the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [(2003) 261 ITR 473 (Cal.)]. 11. The facts in Aryasthan Corporation Ltd. were that the gross total income as computed by the A.O.; for AY 1982-83 comprised of speculation loss from share dealing of Rs. 4,50,779/- and income from other sources was at Rs. 24,000/-. The Calcutta High Court with regard to the applicability of Explanation to Section 73, took the view that the case is fully covered by the decision in the case of Eastern Aviation and Industries Ltd. v. CIT [(1994) 208 ITR 1023 (Cal)] and held that the assessee cannot be said to be a company whose gross total income consists mainly of income chargeable under the heads "Interest on securities", "Income from house property", "capital gains" or "Income from other sources"; since th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cisions of the Hon'ble Supreme Court in CIT v. Harprasad and Co. P. Ltd. [(1975) 99 ITR 118 (SC)] and CIT v. J.H.Gotla [(1985) 156 ITR 232 (SC)]. 14. The learned Counsel for the assessee, however, contends that there is an alternate argument, which has not been considered by the Calcutta High Court in any of the decisions. The Explanation specifically deals with a company whose gross total income consists mainly of income which is chargeable under other heads, ie: heads other than "income from profits and gains of business or profession". Hence, what assumes significance is the chargeability to income. There is no charge created on the loss and there could only be charge on the income from other sources in the subject assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There is no doubt that the assessee-Company is engaged in a speculative business. Hence its losses can only be set off against speculative business income unless the gross total income of the assessee is under heads of income, other than "income from profits and gains of business or profession". 16. In the present case for the subject assessment year the assessee had an income from other sources, which was a refund of income tax. It is against this refund of income tax that the assessee claims set off of business loss. If we accept the contention raised by the learned Counsel for the assessee, then the exception as provided in the Explanation in Section 73 has to be understood as being applied to each of the assessment years where there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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