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TMI Blog1992 (2) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... e Textile Industries Limited amounting to Rs. 1,55,100. The profit on Reliance Textile Industry shares was on the sale for Rs. 29,34,050. The net loss on the sale of shares was thus Rs. 2,53,017. From the profit and loss account of the assessee, it is noticed that the sale in the year under consideration was Rs. 1,52,03,754 including the sale of shares of Rs. 30,55,217 aforesaid and the balance sale of Rs. 1,21,48,537 was for the sale of stainless steel strips. The purchase cost of the strips was Rs. 1,20,36,073 and, thus, the assessee had made profit of Rs. 1,12,464 in this trading. Besides the above, the assessee had income by way of dividend of Rs. 16,200 ; from interest of Rs. 1,88,093 ; and miscellaneous income of Rs. 904. On these facts, the ITO was of the opinion that Explanation to section 73 was applicable to assessee's case and asked the assessee to show cause as to why the share business should not be treated as speculation business. The assessee claimed that it was an investment company and also that it was having principal business on granting loans and advances and, therefore, the provisions of Explanation to section 73 were not applicable. The ITO did not agree with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e head of income. Section 71 permits setting off of loss under one head of income against the income under any other head. Section 72, on the other hand, provides for the 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 to the assessee, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71. Such losses, under this section, can be carried forward from the previous year to be set off against the profits and gains of the business in the subsequent years. These sections specifically exclude the losses sustained from speculation business in its ambit for which the provisions are made in section 73. Sub-section (1) of section 73, provides that any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against the profits and gains, if any, of another business. Sub-section (2) thereof provides that where for any assessment year any loss computed in respect of a speculation business has not been wholl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The dividend income was thus not an insignificant part of assessee's gross total income as held by the CIT(Appeals). To determine whether the loss incurred by the assessee was speculative loss or not, one has to compute the gross total income, without looking to the provisions of Explanation to section 73. In other words, as the assessee was dealing in shares, its loss was to be set off first under section 70 against the other business income of the assessee and, thereafter under section 71 against income under other heads. Proceedings on this basis, the gross total income, according to him, would be Rs. 9,176 which consisted wholly of dividend being income chargeable under the head "income from other sources" and, therefore, the assessee would be an investment company. 7. The learned Departmental Representative, Sri R.K. Aggarwal, on the other hand, submitted that the gross total income of an assessee has to be the total income before Chapter VIA deductions ; computed as per the provisions of the Income-tax Act including the provisions of Explanation to section 73. When one has to consider the treatment to be given to a transaction with reference to the gross total income of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to section 73 was applicable or not as the provisions come into play when the gross total income is computed first. Both the situations are plausible. However, looking to the Scheme of the Act, we find that whenever such a situation arises, the Act has provided specific exclusion of that item from the gross total income. One of such cases, we find in section 32A(3) in connection with the deduction of investment allowance. It provides that "where the total income of the assessee assessable for the assessment year relevant to the previous year in which the ship or aircraft was acquired or the machinery or plant was installed, or, as the case may be, the immediately succeeding previous year (the total income for this purpose being computed after deduction of the allowances under section 33 and section 33A, but without making any deduction under sub-section (1) of this section or any deduction under Chapter VIA) is nil or is less than the full amount of the investment allowance. The sum to be allowed by way of investment allowance for that assessment year under sub-section (1) shall be only such amount as if sufficient to reduce the said total income to nil....". Similar is the positio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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