Tushti Securities Pvt. Ltd, Ahmedabad V. The ACIT, Circle -3, Ahmedabad

ITA 1089/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1701 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-05-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 17-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAMES KURIEN
• Keywords: Business income; Depreciation; Earning of tax free income; Speculation loss; Unabsorbed depreciation; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMEDABAD BEFORE SHRI RAJPAL YADAV, JM, & SHRI MANISH BORAD , AM. ITA NO.1089/AHD/2012 ASST. YEAR:2008-09 TUSHTI SECURITIES PVT. LTD., A- 35, PANSEEMSA COMPLEX, C.G. ROAD, NAVRANGPURA, AHMEDABAD. VS. ACIT, CIRCLE-3, AHMEDABAD. APPELLANT RESPONDENT PAN AAACT 7451R APPELLANT BY SHRI PARIN SHAH, AR RESPONDENT BY SHRI JAMES KURIEN, SR. DR DATE OF HEARING: 3/5/2016 DATE OF PRONOUNCEMENT: 05/5/2016 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . THIS APPEAL OF ASSESSEE IS AGAINST THE ORDER OF LD . CIT(A)-6, AHMEDABAD, DATED 2.4.2012. ASSESSMENT UNDER SECTION 143(3) OF THE IT ACT, 1961 (IN SHORT THE ACT) WAS FRAMED ON 22/10 /2010 FOR ASST. YEAR 2008-09 BY ACIT, CIRCLE-3, AHMEDABAD. ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL :- 1) ON THE FACTS & IN THE CIRCUMSTANCES OF THE C ASE IT IS MOST RESPECTFULLY SUBMITTED THAT THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS BY CONFIRMING THE NON ALLOWANCE OF INTRA HEAD ADJUSTMENT OF RS.61 8448/- IN RESPECT OF BUSINESS LOSS AND PROFIT UNDER THE HEAD CAPITAL GAI N BY INVOKING PROVISION OF EXPLANATION TO SECTION 73 OF THE INCOME TAX ACT, 1961. ITA NO. 1089/AHD/2012 ASST. YEAR 2008-09 2 2) THE APPELLANT CRAVES TO ADD, TO ALTER, TO SUBSTITUTE, TO AMEND ANY GROUND / GROUNDS OF APPEAL AT ANY TIME OR AT THE TIME OF HEA RING OF THE APPEAL IF OCCASION ARISES. 3) IT IS, THEREFORE, PRAYED THAT THE : (A) APPEAL BE ACCEPTED, (B) SET OFF OF RS.618448/- SHOULD BE ALLOWED I N RESPECT OF BUSINESS LOSS AND PROFIT UNDER THE HEAD CAPITAL GAIN. (C) PENALTY PROCEEDINGS INITIATED U/S 271(1)(C ) OF THE IT ACT BE CANCELLED . (D) INTEREST CHARGED UNDER SECTION 234 B/C BE CANCELLED 2. BRIEFLY STATED FACTS AS CULLED OUT FROM THE RECO RDS ARE THAT ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN TH E BUSINESS OF SHARE BROKING AND TRADING IN SHARES AND SECURITIES, WHICH FILED ITS RETURN OF INCOME ON 27.9.2008 DECLARING TOTAL INCOM E OF RS.NIL. THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT. NOTICE U /S 143(2) WAS ISSUED ON 19.8.2009 AND DULY SERVED UPON THE ASSESS EE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS LD. ASSESSING OFFI CER OBSERVED THAT ASSESSEE HAS CLAIMED SET OFF OF BUSINESS LOSS OF RS.6,18,448/- AGAINST SHORT TERM CAPITAL GAIN OF RS.6,58,227/-. H OWEVER ON THE BASIS OF EXAMINATION OF FINANCIAL STATEMENT OF THE ASSESSEE LD. ASSESSING OFFICER WAS OF THE VIEW THAT EXPLANATION TO PROVISIONS OF SECTION 73 OF THE ACT ARE CLEARLY APPLICABLE TO THE ASSESSEE AS THE MAIN SOURCE OF INCOME OF THE ASSESSEE IS FROM SHARE TRADING AND, THEREFORE, LOSS IS DEEMED TO BE SPECULATION LOSS AN D THE SAME CANNOT BE SET OFF FROM CAPITAL GAINS. ACCORDINGLY WHILE AS SESSING THE INCOME OF THE ASSESSEE LD. ASSESSING OFFICER DID NOT ALLOW SET OFF OF DEEMED SPECULATION LOSS AND ASSESSED THE INCOME AT RS.6,58 ,790/-. ITA NO. 1089/AHD/2012 ASST. YEAR 2008-09 3 3. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE LD. CI T(A) WHO CONFIRMED THE ADDITION BY OBSERVING AS UNDER :- 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSES SMENT ORDER AND APPELLANTS WRITTEN SUBMISSION. APPELLANT CLAIMED BUSINESS LOSS AND THE SAME WERE ADJUSTED AGAINST SHORT TERM CAPITAL GAIN. THE SAID BUSINESS LOSS WAS ON ACCOUNT OF SHARES TRADING AND APPELLANT BEING COMPANY, PROVISIONS OF EXPLANATION TO SECTION 73 ARE APPLICABLE. LOSS ON TRADING OF SHARES IS TO BE TREA TED AS SPECULATIVE IF ANY PART OF THE BUSINESS OF THE APPELLANT CONSISTED OF PURCHASE AND SALE OF SHARES. IT IS NOT IN DISPUTE THAT SUBSTANTIAL ACTIVITY OF THE APPELLA NT WAS TRADING IN SHARES. THE PROFIT FROM SHARE TRADING WAS MORE THAN RS 11 LAKHS AS AGAINST PROFIT ON SALE OF INVESTMENT RS 6.58 LACS. AFTER REDUCING ADMINISTRAT IVE EXPENSES, APPELLANT CLAIMED THE NET FIGURE OF BUSINESS LOSS. HOWEVER IT IS NOT IN DISPUTE THAT PURCHASE AND SALE OF SHARES RESULTED IN PROFIT OF MORE THAN 11 LAKHS WHICH IS SUBSTANTIALLY HIGHER THAN ANY OTHER ACTIVITY AND THEREFORE THE AP PELLANT'S ACTIVITY FROM SHARES TRADING IS TO BE CONSIDERED AS SPECULATIVE. ACCORDI NGLY THE LOSS CLAIMED BY THE APPELLANT HAS TO BE TREATED AS SPECULATIVE AND THE SAME CANNOT BE ADJUSTED AGAINST, OTHER INCOME. THE DECISION RELIED UPON BY THE APPELLANT IS NOT APPLICABLE TO THE FACTS OF THIS CASE. APPELLANT'S ALTERNATIVE ARGUMENT THAT LOSS ON FUTUR ES AND OPTIONS TRANSACTIONS RS 161187 CANNOT BE TREATED. AS SPECUL ATIVE IS JUSTIFIED SINCE DERIVATIVES ARE NOT SHARES AND ACCORDINGLY NOT HIT BY EXPLANATION TO SECTION 73. ASSESSING OFFICER IS THEREFORE DIRECTED TO TREAT LO SS IN F & O ACTIVITIES AS BUSINESS LOSS AND ALLOW THE SAME TO BE SET OFF AGAINST OTHER INCOME. AS REGARDS APPELLANT'S CLAIM OF TREATING SHORT-TERM CAPITAL GAIN AS BUSINESS INCOME, THE SAME IS NOT POSSIBLE SINCE APPELLANT TR EATED THE PURCHASES OF SHARES AS INVESTMENT AND THE SAME CANNOT BE TREATED AS STO CK IN TRADE. ACCORDINGLY THIS ARGUMENT OF THE APPELLANT IS REJECTED. 4. AGGRIEVED, ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 5. LD. AR SUBMITTED THAT THE APPELLANT COMPANY IS E NGAGED IN THE BUSINESS OF SHARE BROKING AND TRADING IN SECURITIES & SHARES. DURING THE YEAR UNDER REVIEW APPELLANT COMPANY HAS INCURRE D LOSS OF RS.618448/- UNDER THE HEAD BUSINESS & PROFESSION AN D INCOME OF ITA NO. 1089/AHD/2012 ASST. YEAR 2008-09 4 RS.658227/- UNDER THE HEAD CAPITAL GAIN AND MADE IN TRA HEAD ADJUSTMENT AT THE TIME OF CALCULATING ITS TOTAL INC OME. THE LD. ASSESSING OFFICER WHILE PASSING THE ORDER U/S 143(3 ), TREATED THE BUSINESS LOSS OF RS. 618448/- AS SPECULATION LOSS B Y INVOKING THE PROVISIONS OF EXPLANATION TO SECTION 73. IN THIS CONNECTION WE WOULD LIKE TO FIRST OF ALL BR ING TO YOUR NOTICE THE EXACT WORDINGS OF EXPLANATION TO SECTION 73 OF THE INCOME TAX ACT, 1961. THE SAME IS REPRODUCED HEREUNDER FOR YOUR KIN D PERUSAL: '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 HEAD 'INTEREST ON SECURITY', ' INCOME FROM HOUSE PROPERTY', 'CAPITAL GAIN' AND 'INCOME FROM OT HER SOURCES', OR A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE BU SINESS OF BANKING OR THE GRANTING OF LOANS, AND ADVANCES) CONSISTS IN .THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANIES S HALL FOR THE PURPOSES OF THIS SECTION .BE DEEMED TO BE CARRYING ON A SPECULATIVE- BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSIS TS OF THE PURCHASE AND SALE OF SUCH SHARES.' AS CAN BE SEEN FROM THE PLAIN READING OF THE PROVIS IONS OF THE SECTION, THE PROVISIONS OF THIS MISCHIEVOUS EXPLANA TION ARE NOT APPLICABLE TO THE COMPANY WHOSE TOTAL INCOME MAINLY CONSISTS OF INCOME FROM OTHER SOURCES, INCOME FROM HOUSE PROPER TY OR INCOME UNDER THE HEAD CAPITAL GAINS. ITA NO. 1089/AHD/2012 ASST. YEAR 2008-09 5 IN LIGHT OF THIS, LET US NOW LOOK AT THE COMPONENTS OF THE GROSS TOTAL INCOME OF THE ASSESSEE COMPANY: INCOME FROM BUSINESS & PROFESSION RS.(-) 6,18,448/- INCOME UNDER THE HEAD CAPITAL GAIN RS + 6,58,227/ TOTAL INCOME BEFORE SET OFF CARRY FORWARD DEPRECIAT ION RS + 39779 LESS: UNABSORBED DEPRECIATION OF EARLIER YEAR RS (-) 39779 GROSS TOTAL INCOME NILL AS CAN BE SEEN FROM THE ABOVE TABLE, THE GROSS TOTA L INCOME CONSISTS OF TWO ITEMS, I.E. BUSINESS INCOME OF RS.(-) 6,18,4 48/- AND CAPITAL GAINS OF RS.6,58,227/-. SINCE THE AMOUNT OF CAPITAL GAINS EVEN IN ABSOLUTE TERMS ARE MORE THAN BUSINESS INCOME, IT IS VERY CLEAR THAT THE INCOME MAINLY CONSISTS OF CAPITAL GAINS AND TH EREFORE THE PROVISIONS OF EXPLANATION TO SECTION 73 ARE NOT APP LICABLE TO THE ASSESSEE COMPANY. IN THIS CONNECTION, WE RELY ON THE DECISION OF BANG LORE BENCH OF ITAT IN THE CASE OF ASIATIC INDUSTRIAL GASES LTD. VS. DC IT(2006) (6 SOT 243] (BANG], WHEREIN, ON THE SIMILAR FACTS IT WAS H ELD BY THE TRIBUNAL THAT EXPLANATION IS NOT APPLICABLE. HOWEVER THE ID. ASSESSING OFFICER HAS FAILED APPREC IATE SUCH FACT AND IN OBSERVATION IT IS STATED THAT:- 'ON VERIFICATION OF THE P & L ACCOUNT IT CAN BE SEE N THAT THE PROFIT ON SALE OF INVESTMENT IS ONLY RS.658227/- WHERE AS PRO FIT FROM SHARE ITA NO. 1089/AHD/2012 ASST. YEAR 2008-09 6 TRADING ACCOUNT IS OF RS.1146205/- THEREFORE MAIN S OURCE OF INCOME IS BUSINESS INCOME AND NOT INVESTMENT INCOME.' HOWEVER AS PER WORDINGS OF EXPLANATION TO SECTION 7 3 OF THE INCOME TAX ACT 1961 COMPONENTS OF VARIOUS HEADS UNDERSTATE MENT OF TOTAL INCOME IS REQUIRED TO BE VERIFIED TO DECIDE WHETHER WHICH HEAD HAS A HIGHER INCOME AND NOT AN INDIVIDUAL ITEMS OF PROFIT & LOSS ACCOUNT FOR THE PURPOSE TO DETERMINE WHETHER PROVISO TO SECTION 73 IS APPLICABLE OR NOT. THE LEARNED ASSESSING OFFICER HAS ERRED BY LOOKING AT COMPOSITION OF PROFIT AND LOSS ACCOUNT INSTEAD OF COMPONENTS OF GR OSS TOTAL INCOME. HENCE ADDITION MADE BY THE LD. ASSESSING OFFICE SHO ULD BE DELETED AS THE ID. ASSESSING OFFICER HAS ERRED IN INTERPRET ING THE LAW AND FAILED TO APPRECIATE THE FACTS OF THE CASE. 6. LD. AR FURTHER REFERRED AND RELIED ON THE JUDGME NT OF HON. BOMBAY HIGH COURT IN THE CASE OF CIT VS. HSBC SECUR ITIES & CAPITAL MARKETS INDIA P. LTD. (2012) 23 TAXMANN.COM 377 (BO M) AND ALSO RELIED ON THE DECISION OF THE ITAT MUMBAI (SPECIAL BENCH) IN THE CASE OF ACIT, SPL.CIRCLE 18(1) VS. CONCORD COMMERCI ALS (P) LTD. IN ITA NO.5220(BOM) OF 1994. 7. ON THE OTHER HAND LD. DR SUPPORTED THE ORDERS OF LOWER AUTHORITIES. ITA NO. 1089/AHD/2012 ASST. YEAR 2008-09 7 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD AND GONE THROUGH THE JUDGMENT OF HON. BOM BAY HIGH COURT AND THE DECISION OF THE TRIBUNAL (SPECIAL BEN CH). SOLITARY GRIEVANCE OF THE ASSESSEE IS AGAINST THE ORDER OF L D. CIT(A) IN CONFIRMING THE ADDITION MADE BY LD. ASSESSING OFFIC ER BY WAY OF NOT ALLOWING THE CLAIM OF SET OFF OF BUSINESS LOSS OF R S.6,18,448/- AGAINST THE SHORT TERM CAPITAL GAINS OF RS.6,58,227/- BY WA Y OF APPLYING EXPLANATION TO SECTION 73 OF THE ACT TO ASSESSEES CASE THEREBY TREATING THE BUSINESS LOSS OF RS.6,18,448/- AS DEEM ED SPECULATION LOSS. FROM GOING THROUGH THE COMPUTATION OF INCOME WE OBSERVE THAT DURING THE YEAR ASSESSEE HAS SUFFERED BUSINESS LOSS OF RS.6,18,448/- AND HAS EARNED SHORT TERM CAPITAL GAIN FROM SALE OF SHARES AT RS.6,58,227/- AND EXEMPT INCOME IN THE FORM OF DIVI DEND AT RS.57,171/- THERE IS NO DISPUTE TO THE CALCULATION OF INCOME UNDER THE HEAD BUSINESS OR PROFESSION AT RS.6,18,448/- AND THE ONLY DISPUTE WHETHER THIS LOSS OF RS.6,18,448/- CAN BE TERMED AS BUSINESS LOSS OR TO BE TAKEN AS DEEMED SPECULATION LOSS AS PER EXPLA NATION TO PROVISIONS OF SEC.73 OF THE ACT. IT WILL BE NOTE WO RTHY TO GO THROUGH THE PROVISIONS OF SECTION 73 WHICH READS AS UNDER :- SEC.73. (1) ANY LOSS, COMPUTED IN RESPECT OF A SPECULATION BUSINESS CARRIED ON BY THE ASSESSEE, SHALL NOT BE SET OFF EXCEPT AGAINST PROFI TS 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 CHAP TER, 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 YE AR; AND ITA NO. 1089/AHD/2012 ASST. YEAR 2008-09 8 ( II ) IF THE LOSS CANNOT BE WHOLLY SO SET OFF, THE AMOU NT OF LOSS NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR AN D SO ON. (3) IN RESPECT OF ALLOWANCE ON ACCOUNT OF DEPRECIAT ION 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 RELATION TO A NY OTHER BUSINESS. (4) NO LOSS SHALL BE CARRIED FORWARD UNDER THIS SEC TION FOR MORE THAN [FOUR] ASSESSMENT YEARS IMMEDIATELY SUCCEEDING THE ASSESSMENT YEAR FO R WHICH THE LOSS WAS FIRST COMPUTED. [ EXPLANATION. WHERE ANY PART OF THE BUSINESS OF A COMPANY ( [OTH ER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTEREST ON SECURITIES, INCOME FROM HOUSE PROPER TY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES ], 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 AND SALE OF SUCH SHARES.] 9. WE FURTHER OBSERVE THAT THERE HAS BEEN AN AMENDM ENT WITH EFFECT FROM 1.4.2015 BROUGHT IN BY FINANCE (NO.2) A CT 2014 BY WAY OF WHICH THE LINE THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF TRADING IN SHARES AND BANKING HAS BEEN INSERTED AT THE PLACE OF THE PRINCIPAL BUSINESS IS A BUSINESS OF BANKING WHICH IN OUR VIEW MEANS THAT BEFORE THIS AMENDMENT THE ONLY CATCH POINT OF BRINGING INTO A COMPANY UNDER THE CLUTCHES OF EXPLANATION TO SECTIO N 73 OF THE ACT WAS TO ANALYZE THE COMPOSITION OF GROSS TOTAL INCOM E BY WAY OF WHICH, IF THE GROSS TOTAL INCOME CONSISTS MAINLY AN INCOME CHARGEABLE UNDER THE HEAD OF INTEREST ON SECURITY, INCOME F ROM HOUSE PROPERTY CAPITAL GAIN AND INCOME FROM OTHER SOURCES THEN SUCH COMPANIES WILL BE OUT OF THE PURVIEW OF EXPLANATION TO SEC.73 OF THE ACT. 10. WE FURTHER OBSERVE THAT HON. BOMBAY HIGH COURT IN THE CASE OF CIT VS. HSBC SECURITIES & CAPITAL MARKETS INDIA P. LTD. (SUPRA) DEALT WITH SIMILAR ISSUE WHEREIN ASSESSEE COMPANY SHOWED LOSS OF RS.1.72 ITA NO. 1089/AHD/2012 ASST. YEAR 2008-09 9 CRORES AS BUSINESS LOSS AND HAD INCOME FROM OTHER S OURCES AT RS.7 LACS AND LD. ASSESSING OFFICER BY INVOKING THE PROV ISIONS OF SECTION 73 OF THE ACT HELD BUSINESS LOSS OF RS.1.72 CRORES AS DEEMED SPECULATION LOSS. HON. HIGH COURT ADJUDICATED THESE FACTS AND HELD THAT EXPLANATION TO SECTION 73 DOES NOT OPERATE IN RESPECT OF A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS OF 'INTEREST ON SECUR ITIES', 'INCOME FROM HOUSE PROPERTY', 'CAPITAL GAINS' AND 'INCOME FROM O THER SOURCES'. IN THE INSTANT CASE, THE INCOME FROM OTHER SOURCES WAS THE ONLY CHARGEABLE INCOME, AS THE ASSESSEE HAD SUFFERED A B USINESS LOSS OTHERWISE. THEREFORE, EXPLANATION TO SECTION 73 WOULD NOT APPLY IN THE INSTANT CASE. FURTHER THE JUDGMENT OF THE BOMBAY HI GH COURT IN THE CASE OF CIT V. DARSHAN SECURITIES (P.) LTD. [2012] 206 TAXMAN SUPPORTS THE ASSESSEE'S CASE. [PARA 8] 11. WE FURTHER OBSERVE THAT THE TRIBUNAL (SPECIAL B ENCH) MUMBAI ALSO DEALT WITH THE ISSUE OF TRANSACTIONS OF PURCHA SE AND SALE OF SHARES. IT WILL BE RELEVANT TO REPRODUCE THE BRIEF FACTS AND THE DECISION GIVEN BY THE CO-ORDINATE BENCH WHICH READ AS UNDER :- FACTS THE ASSESSEE-COMPANY DERIVED INCOME FROM BUSINESS O F TRADING IN STEEL, YARN, FABRICS AS ALSO FROM SERVICE CHARGES, AND IT WAS ALSO ENGAGED IN THE BUSINESS OF BUYING AND SELLING OF SHARES AND HOLDING THEM AS A STOCK-IN-TRADE. IT SHOWED ITS GROSS TOTAL INCOME CONSISTING OF INCOME FROM BUSINESS WHICH WAS A LOSS AND ITS IN COME FROM OTHER SOURCES, I.E., THE DIVIDEND INCOME EARNED FROM SHARES HELD BY THE ASSE SSEE AS STOCK-IN-TRADE. IT WORKED OUT THE NET LOSS AFTER SETTING OFF OF THE SHARE TRADING LOSS AGAINST DIVIDEND INCOME. THE ASSESSING OFFICER, WHILE HOLDING THAT THE SAID SHAR E TRADING LOSS WAS IN THE NATURE OF SPECULATION LOSS WITHIN THE MEANING OF EXPLANATION TO SECTION 73 AND, THEREFORE, IT WAS ITA NO. 1089/AHD/2012 ASST. YEAR 2008-09 10 NOT PERMISSIBLE TO SET OFF THE SAME AGAINST OTHER I TEMS OF BUSINESS INCOME, DISALLOWED THE SAME AND ADDED BACK THE SAID AMOUNT TO THE TAXABLE INCOME OF THE ASSESSEE. ON APPEAL, THE COMMISSIONER (APPEALS), WHILE ACCEPT ING THE ASSESSEE'S CONTENTION THAT THE ASSESSING OFFICER COULD NOT INVOKE THE PROVISIO NS OF SECTION 73 AND EXPLANATION THERETO WITHOUT ADJUSTING THE LOSSES AND GAINS FROM VARIOUS SOURCES UNDER THE HEAD 'BUSINESS' AS PERMITTED BY SECTIONS 70 AND 71, DIRE CTED THE ASSESSING OFFICER TO ALLOW THE SAME. ON REVENUE'S APPEAL: HELD THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES WOU LD BE HELD AS SPECULATION BUSINESS ONLY IF THE COMPANY WAS HIT BY THE EXPLANATION TO SECTION 73. THE IMPLICATION OF THE EXPLANATION IS THAT IF A COMPANY INCURS A SPECULATION LOSS IN A MANNER DEEMED IN THE EXPLANATION, SUCH LOSS SHALL NOT BE SET OFF EXCEPT AGAINST PROFI TS AND GAINS, IF ANY, OF ANOTHER SPECULATION BUSINESS. [PARA 20] BUT. THE EXPLANATION HAS PROVIDED TWO EXCEPTIONS. THE FIRST EXCEPTION IS AVAILABLE IN THE CASE OF A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS 'INTEREST ON SECURITIES' , 'INCOME FROM HOUSE PROPERTY', 'CAPITAL GAINS' AND 'INCOME FROM OTHER SOURCES'. TH E SECOND EXCEPTION IS IN THE CASE OF A COMPANY WHOSE PRINCIPAL BUSINESS IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES, I PARA 2! / THE FIRST CATEGORY OF EXCEPTION IS IDENTIFIED BY TH E COMPOSITION OF ITS GROSS TOTAL INCOME. THE WORDS USED IN THE STATUTE PROVIDE THRUST ON THE COMPOSITION OF THE GROSS TOTAL INCOME OF THAT COMPANY, IF THE GROSS TOTAL INCOME O( THE C OMPANY MAINLY CONSISTS OF INCOME FALLING UNDER THE ABOVE MENTIONED HEADS, EXPLANATION TO SECTION 73 DOES NOT APPLY. IF THE GROSS TOTAL INCOME OF THE COMPANY IS MAINLY MADE UP OF INCOME U NDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR POFCSSION \ IT IS CAUGHT BY THE MISCHIEF OF EXPLANATION TO SECTION 73. [PARA 22] AS FAR AS THE SECOND CATEGORY OF EXCEPTION IS CONCERNED, THE THRUST IS ON THE NATURE OF BUSINESS CARRIED ON BY THE COMPANY. IF THE COMPANY IS CARRYING AS ITS PRINCIPAL BUSINES S, THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AN D ADVANCES, EXPLANATION TO SECTION 73 DOES NOT APPLY. THE COMPANY IS EXCLUDED FROM THE AM BIT OF EXPLANATION ON THE BASIS OF THE NATURE OF THE PRINCIPAL BUSINESS CARRIED ON BY IT. [PARA 23] THE TWO KINDS OF EXCEPTIONS PROVIDED IN EXPLANATION TO SECTION 73 ARE BASED ON TWO INDEPENDENT TESTS LAID DOWN IN THE EXPLANATION ITSELF. THE TEST TO BE APPLIED ON THE FIRST CATEGORY OF COMPANY IS THE CHARACTER OF ITS GROSS T OTAL INCOME. THE TEST LAID DOWN IN THE CASE OF THE SECOND CATEGORY OF COMPANY IS THE NATUR E OF THE PRINCIPAL BUSINESS CARRIED ON BY IT IN THE FIRST CATEGORY, WHERE THE TEST IS THAT OF THE CHARACTER OF GROSS TOTAL INCOME, THE OTHER TEST RELATING TO THE NATURE OF PRINCIPAL BUSI NESS CARRIED ON BY IT DOES NOT APPLY. LIKEWISE IN THE SECOND CATEGORY OF COMPANY WHERE TH E TEST IS THE NATURE OF THE PRINCIPAL ITA NO. 1089/AHD/2012 ASST. YEAR 2008-09 11 BUSINESS CARRIED ON BY IT, THE TEST OF THE GROSS TO TAL INCOME DOES NOT APPLY. THE TWO EXCEPTIONS PROVIDED IN EXPLANATION TO SECTION 73 ARE GOVERNED BY TWO DI//ERENT TESTS L AID DOWN IN THE SAID EXPLANATION ITSELF. THEREFORE, THE EXAMINATION OF THE EXCEPTION S PROVIDED IN EXPLANATION TO SECTION 73 IS TO BE DONE STRICTLY IN ACCORDANCE WITH THE TESTS LAID DOWN IN THE EXPLANATION. [PARA 24] THE ASSESSEE-COMPANY WAS NOT CARRYING ON, AS ITS PR INCIPAL BUSINESS, THE BUSINESS OF BANKING OR GRANTING OF LOANS AND ADVANCES AND DID N OT COME UNDER THE SECOND CATEGORY OF EXCEPTION. (PARA 25J THE ASSESSEE-COMPANY EARNED A PROFIT FROM ITS BUSIN ESS OF TRADING IN STEEL, YARN AND FABRICS AND FROM SERVICE CHARGES. THE ASSESSEE-COMP ANY ALSO INCURRED A LOSS IN THE PURCHASE AND SALE OF SHARES. ALTOGETHER, THE INCOME FROM BUSINESS WAS A LOSS. THE ASSESSEE-COMPANY FURTHER EARNED DIVIDEND INCOME FRO M SHARES HELD AS ITS STOCK-IN-TRADE. THE LOSS HAD BEEN COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. THE DIVIDEND INCOME HAD BEEN COMPUTED UNDER THE HEA D 'INCOME FROM OTHER SOURCES'. AFTER THE SET OFF OF THE DIVIDEND INCOME AND THE BU SINESS LOSS, THE GROSS TOTAL INCOME HAD BEEN WORKED OUT WHICH WAS ENTIRELY MADE UP OF DIVID END INCOME COMPUTED UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. [PARA 31] THE CHARACTER OF GROSS TOTAL INCOME FOR THE PURPOSE OF EXPLANATION TO SECTION 73 IS TO BE EXAMINED IN THE LIGHT OF THE 'CHARGEABILITY' TO TAX , OF VARIOUS COMPONENTS OF THE GROSS TOTAL INCOME UNDER THE SPECIFIED HEADS OF INCOME. THE 'CH ARGEABILITY' IS TO BE LOOKED INTO WITH REFERENCE TO THE HEADS OF INCOME. THE EMPHASIS GIVE N TO 'CHARGEABILITY' ON THE BASIS OF THE HEADS OF INCOME IS APPARENT FROM THE RELEVANT TEXT OF LAW GIVEN IN EXPLANATION TO SECTION 73. [PARA 32] THE CHARGEABILILV OF INCOME UNDER A SPECIFIED HEAD IS THE PRIME CONSIDERATION IN VERIFYING THE COMPOSITION OF GROSS TOTAL INCOME FOR THE PURPOSE OF EXPLANATION IO SECTION 73. AS THE QUESTION WHETHER AN INCOME IS CHARGEABLE UNDER ANY OF THE SPECIFIED HEADS OF INCOME OR NOT IS TO BE LOOKED INTO, IT IS EQUALLY I MPORTANT TO FOLLOW THE PRINCIPLES GOVERNING THE CLASSIFICATION OF INCOME. THE CLASSIF ICATION OF INCOME UNDER DIFFERENT HEADS IS IMPORT IN THE CONTEXT OF 'CHARGE' OF INCOME-TAX. THE CHARGE IS ON TOTAL INCOME. THE TOTAL INCOME IS THE AGGREGATE OF INCOMES 'CHARGEABLE' UND ER DIFFERENT HEADS SPECIFIED IN SECTION 14. INCOME, WHICH IS NOT CHARGEABLE UNDER A NY OF THE SPECIFIED HEAD OF INCOME, CANNOT BE BROUGHT TO LAX AT ALL. [PARA 33] SECTION 56(2)(I) MANDATES THAT 'DIVIDENDS' SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. THE NATURE AND CO MPOSITION OF GROSS TOTAL INCOME FOR THE PURPOSE OF EXPLANATION TO SECTION 73 NEED TO BE EXAMINED ON THE BASIS WHET HER THE MAIN CHUNK OF THE GROSS TOTAL INCOME IS MADE UP OF INCOME 'CHARGEABLE' UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. THE GROSS TOTAL INCOME IN THE INSTANT CASE WAS MADE UP OF DIVIDEND FROM SHARES HELD AS STOCK-IN-TRADE. THEREF ORE, THE GROSS TOTAL INCOME IN THE INSTANT CASE WAS CHARGEABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. [PARA 37] ITA NO. 1089/AHD/2012 ASST. YEAR 2008-09 12 FURTHER, THE LEST OF GROSS TOTAL INCOME ITSELF SUGG ESTED THAI THE INCOME COMPOSITION ALONE IS TO BE LOOKED INTO AS ANY OTHER INQUIRY MAY LEAD TO A CASE OF GENERALIZATION WHICH IS NOT CONTEMPLATED IN THE CONTEXT IN WHICH THE DEEMING PR OVISION BY WAY OF EXPLANATION IS PROVIDED TO SECTION 73. THE EXPLANATION TO SECTION 73 IS A DEEMING PROVISION AND HAS IO BE STRICTLY CONSTRUED. [PARA 46] THERE WERE NO MATERIALS ON RECORD TO SHOW THAT THE ASSESSEE-COMPANY DID MAKE LOSS IN THE SHARE TRADING ACTIVITIES IN ORDER TO REDUCE THE TAX INCIDENCE. IN RESPECT OF THE CONTENTION REGARDING 'GROSS TOTAL INCOME', SECTION 73 DID NOT PROVIDE FOR ANY SPECIAL TREATMENT. THE SUPREME COURT HELD IN CIT V. VENKATESWARA HATCHERIES (P.) LTD. [1999] 237 ITR I74/ 103 TAXMAN 503 THAT THE SAME WORD OCCURRING MORE THAN ONCE IN THE ACT SHOULD GENERALLY BE GIVEN THE SAME MEANING, BUT THE CONTEXT MAY INDICATE THE CONTRARY LEGISLATIVE INTENTION. THERE IS NO SUCH INDICATION IN SECTION 73 AND THE EXPLANATION THERETO. THEREFORE, THE MEANING OF THE EXPRESSION ' GROSS TOTAL INCOME' HAS TO BE CONSTRUED AS GIVEN IN SECTION 80B(5). [PARA 50] THEREFORE, THE COMMISSIONER (APPEALS) WAS RIGHT IN HOLDING THAT PROVISIONS OF SECTION 73, READ WITH EXPLANATION THERETO, WERE NOT APPLICABLE TO THE ASSESSEE-COMPAN V. THE COMMISSIONER (APPEALS) WAS JUSTIFIED IN DIRECTING T O ALLOW THE SET OFF OF LOSSES INCURRED IN THE BUSINESS OF PURCHASE AND SALE OF SHARES AGAI NST THE OTHER INCOME. [PARA 52] 12. RESPECTFULLY FOLLOWING THE JUDGMENT OF HON. BOM BAY HIGH COURT IN THE CASE OF CIT VS. HSBC SECURITIES & CAPITAL MARKETS INDIA P. LTD. (SUPRA) AND THE DECISION OF THE TRIBUNAL (SPEC IAL BENCH) IN THE CASE OF ACIT, SPL.CIRCLE 18(1) VS. CONCORD COMMERCIALS (P) LTD.(SUPRA), WE ARE OF THE VIEW THAT DURING THE YEA R UNDER APPEAL ASSESSEES INCOME MAINLY INCLUDES INCOME FROM CAPIT AL GAIN AT RS. 6,58,227/- AND EXEMPT INCOME IN THE FORM OF DIVIDEN D AT RS.57,171/- UNDER THE HEAD BUSINESS ASSESSEE HAS SUFFERED A LOS S OF RS.6,18,448/- AND FURTHER OBSERVING THE FACT THAT S PECIFIC AMENDMENT HAS BEEN INSERTED IN THE STATUTE BY WAY OF INCLUDIN G COMPANIES ENGAGED IN THE BUSINESS OF TRADING OF SHARES IN THE EXPLANATION TO SECTION 73 OF THE ACT W.E.F.1.4.15 CLEARLY GIVES IN DICATION THAT FOR THE YEAR UNDER APPEAL LD. ASSESSING OFFICER WAS NOT COR RECT IN INVOKING THE EXPLANATION TO SECTION 73 OF THE ACT ON THE ASS ESSEES CASE AND ITA NO. 1089/AHD/2012 ASST. YEAR 2008-09 13 THEREFORE, ERRED IN TREATING BUSINESS LOSS AS DEEME D SPECULATION LOSS AND NOT ALLOWING SET OFF AGAINST THE INCOME FROM CA PITAL GAIN. WE ACCORDINGLY ALLOW THE GROUND OF ASSESSEE. 11. GROUND NO.3 (C) IS PREMATURE. 12. GROUND NO.3(D) IS CONSEQUENTIAL. 13. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH MAY, 2016 SD/- SD/- (RAJPAL YADAV) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 5/5/2016 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD ITA NO. 1089/AHD/2012 ASST. YEAR 2008-09 14 1. DATE OF DICTATION: 03/05/2016 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 04/05/2016 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 5/5/2016 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: