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TMI Blog2022 (9) TMI 700X X X X Extracts X X X X X X X X Extracts X X X X ..... ion clause provided in Explanation to Section 73 of the Act. Also the issue is also squarely covered in favour of the assessee by the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Darshan Securities (P) Ltd. [ 2012 (2) TMI 117 - BOMBAY HIGH COURT] . Accordingly, we hold that the loss incurred on shares and derivatives cannot be treated as speculation loss in the instant case. Consequently, there is no need to apportion any expenses to the speculation activity - Appeal of the revenue is dismissed. - ITA No. 7756/Mum/2019 - - - Dated:- 2-9-2022 - SHRI AMIT SHUKLA , JUDICIAL MEMBER And SHRI M. BALAGANESH , ACCOUNTANT MEMBER Assessee by : Shri Jitendra Sanghvi Shri Amit Khatiwala Revenue by : Smt. Mahita Nair ORDER Per M. Balaganesh , AM This appeal in ITA No. 7756/Mum/2019 for A.Y. 2014-15 arises out of the order by the Ld. Commissioner of Income Tax (Appeals)-9, Mumbai in appeal No. CIT(A)-9/Cir-4/349/2016-17 dated 31/10/2019 (Ld. CIT(A) in short) against the order of assessment passed u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 26/12/2016 by the Ld. Asst. Commissioner of Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions would come to the assessee. 3.2. The Ld. AO observed that transactions carried out in the capacity of share broker would also fall within the purview of provisions of Explanation to Section 73 of the Act. The Ld. AO in this regard placed reliance on the decision of Hon'ble Supreme Court in the case of CIT vs. Pangal Vittal Nair Co reported in 74 ITR 754 (SC); decisions of Hon'ble Calcutta High Court in the case of Park View Properties P. Ltd. reported in 261 ITR 473 (Cal) and Eastern Aviation Industries Ltd. reported in 208 ITR 1023 (Cal). Accordingly, the Ld. AO concluded that the assessee transactions would be hit by the provisions of Explanation to Section 73 of the Act and hence he treated the loss on trading of shares (both cash and derivative segments) as speculation loss in the sum of Rs. 1,13,24,176/- in the assessment. Having done so, the Ld. AO resorted to apportion the expenses attributable to speculation activity in the turnover ratio as under:- Total expenses debited to P L account - Rs. 4,25,97,495/- Total Turnover in share transactions - Rs. 62799,99,62,022/- Assessee's Turnover in share transactions - Rs. 38650,86,84,641/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely falls under the exception clause provided in Explanation to Section 73 of the Act. We further find that the issue is also squarely covered in favour of the assessee by the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Darshan Securities (P) Ltd. reported in 18 taxmann.com 142 (Bom HC) wherein it was held as under:- 6. The explanation to Section 73 introduces a deeming fiction. The deeming fiction stipulates that where any part of the business of a company consists in the purchase and sale of shares of other companies, such company shall, for the purposes of the section be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sales of such shares. The deeming fiction applies only to a company and the provision makes it clear that the deeming fixation extends only for the purposes of the section. The bracketed portion of the explanation, however carves out an exception. The exception is that the provision of the explanation shall not apply to a company whose gross total income consists mainly of income which is chargeable under the heads Interest on securities , Income from house prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n our view not be permissible as a matter of statutory interpretation, because the explanation is designed to define a situation where a company is deemed to carry on speculation business. It is only thereafter that sub-section (1) of section 73 can apply. Applying the provisions of Section 73(1) to determine whether a company is carrying on speculation business would reverse the order of application. That would be impermissible, nor, is it contemplated by Parliament. For, the ambit of Sub-Section (1) of Section 73 is only to prohibit the setting off of a loss which has resulted from a speculation business, save and accept against the profits and gains of another speculation business. In order to determine whether the exception that is carved out by the explanation applies, the legislature has first mandated a computation of the gross total income of the Company. The words consists mainly are indicative of the fact that the legislature had in its contemplation that the gross total income consists predominantly of income from the four heads that are referred to therein. Obviously, in computing the gross total income the normal provisions of the Act must be applied and it is only t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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