FIDUCIARY EUROMAX GLOBAL MARKETS LTD, MUMBAI V. DCIT 8(1), MUMBAI

ITA 1349/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2962 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 09-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 28-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S SENT H IL KUMARAN
• Assessee Lawyers: V C SHAH
• Keywords: Business income; Earning of tax free income; Retrospective amendment; Wholly owned subsidiary; Speculation loss
• Section: 43B; 14A; 43(5); 68; 28; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NOS.1349/M/2012 & 955/M/2014 ASSESSMENT YEARS: 2009-10 & 2010-11 M/S. FIDUCIARY EUROMAX GLOBAL MARKETS LTD., UNIT NO.T7B, 5 TH FLOOR, PHOENIX HOUSE, BLOCK NO.2, PHOENIX MILLS COMPOUND, 462, SENAPATI BAPAT MARG, MUMBAI 400 013 PAN: AAACF 1326P VS. DCIT 8(1), AAYAKAR BHAVAN, MUMBAI - 400020 (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI V.C. SHAH, A.R. REVENUE BY : SHRI S. SENTHIL KUMARAN, D.R. DATE OF HEARING : 09.06.2016 DATE OF PRONOUNCEMENT : 29.06.2016 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE ABOVE TITLED APPEALS BY THE ASSESSEE RELEVANT TO A.Y. 2009-10 AND 2010-11 HAVE BEEN PREFERRED AGAINST THE ORDERS OF T HE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A )] DATED 19.12.2011 AND 14.10.2013 RESPECTIVELY. SINCE BOTH THE APPEALS AR E RELATING TO THE SAME ASSESSEE, HENCE THESE WERE HEARD TOGETHER AND ARE B EING DISPOSED OF BY THIS COMMON ORDER. FIRST WE TAKE APPEAL OF THE ASSESSEE FOR A.Y. 2009-10. ITA NO.1349/M/2012 FOR A.Y 2009-10 2. THE ASSESSEE IN THIS APPEAL HAS TAKEN THE FOLLOW ING GROUNDS OF APPEAL. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THAT DISALLOWANCE U/S 14 A READ WITH RULE 8D MADE BY ASSESSING OFFICER AMOUNTING TO RS.43,39,842/- BY IG NORING THE FACT THAT THERE WERE NO BORROWINGS MADE FOR THE PURPOSE OF IN VESTMENT AS INVESTMENTS WERE MADE OUT OF NET WORTH OF THE COMPANY AND THERE BEING NO BORROWINGS RELATING TO OR FOR THE PURPOSE OF MAKING INVESTMENT S AND HENCE NO ITA NOS.1349/M/2012 & 955/M/2014 M/S. FIDUCIARY EUROMAX GLOBAL MARKETS LTD. 2 DISALLOWANCE U/S 14A WERE ATTRACTED AS NO EXPENDITU RE HAS BEEN INCURRED BY YOUR APPELLANT IN RELATION TO ITS ACTIV ITY OF INVESTMENT THOUGH HE HAS ISSUED DIRECTIONS TO RECOMPUTE THE QUANTUM O F DISALLOWANCE BY APPLYING RULE 8D BY IGNORING THE CLAIM OF YOUR APPE LLANT. 2. THE LEARNED CIT(A) ERRED IN NOT GIVING SPECIFIC APPROPRIATE DIRECTIONS IN REPORT OF DISALLOWANCE U/S 14A WHICH WAS DONE BY AD OPTING INCORRECT AMOUNT OF QUANTUM OF INTEREST TO BE CONSIDERED FOR DISALLO WANCE U/S 14A. 3. THE LEARNED CIT(A) ERRED IN NOT DECIDING ON THE ISSUE OF TREATMENT OF LOSS OF RS.30,48,919/- AS TO WHETHER IT IS SPECU LATION LOSS OR BUSINESS LOSS BASED ON FACTS AND DECISIONS BY CONSIDERING IT AS AFTERTHOUGHT. 4. YOUR APPELLANT CRAVES LEAVE TO ADD, TO AMEND, AL TER OR DELETE ANY OF THE ABOVE GROUNDS. 5. YOUR APPELLANT PRAYS THAT JUSTICE HE GIVEN. GROUNDS NO. 1 & 2: 3. THE BRIEF FACTS RELATING TO ABOVE REFERRED TO GR OUNDS ARE THAT THE ASSESSEE IS A COMPANY CARRYING ON BUSINESS AS TRADING IN DEB T AND GOVERNMENT SECURITIES, COMMODITIES AND SHARES AT THE RECOGNIZE D STOCK EXCHANGE. THE ASSESSEE HAD FILED ITS RETURN OF INCOME FOR THE YEA R UNDER CONSIDERATION DECLARING TOTAL INCOME OF RS.2,74, 67,743/-. THE AS SESSEE DURING THE YEAR EARNED CONSULTANCY AND ADVISORY FEES INCOME IN RELA TION TO ITS FINANCIAL SERVICES ACTIVITY OF RS.12,48,50,000. THE ASSESSEE CLAIMED LOSS ON ACCOUNT OF ITS SHARE TRADING ACTIVITY AS DEDUCTION AGAINST THE SAID INCOME. THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) HOWEVER MADE THE DISALLOWANCE OF RS.1,16,65,581/- ON ACCOUNT OF LOSS IN SHARE TRADIN G ACTIVITY BY TREATING THE SAME AS SPECULATION LOSS AS PER THE EXPLANATION TO SECTION 73 OF THE ACT AND THEREBY REJECTED THE SET OFF OF THE SAID LOSS AGAIN ST BUSINESS INCOME OF THE ASSESSEE. THE AO FURTHER DISALLOWED THE SET OFF OF EXPENDITURE OF RS. 2 LAKHS HOLDING THE SAME AS RELATING TO THE ABOVE STATED SH ARE TRADING ACTIVITY. 4. BEING AGGRIEVED BY THE ORDER OF ASSESSMENT FOR A .Y. 2009-10 DATED 30.06.2011, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) MUMBAI AGITATING THE ABOVE DISALLOWANCES. THE LEARNED CIT( A), HOWEVER, DISMISSED ITA NOS.1349/M/2012 & 955/M/2014 M/S. FIDUCIARY EUROMAX GLOBAL MARKETS LTD. 3 THE APPEAL VIDE THE IMPUGNED ORDER DATED 19.12.2011 UPHOLDING THIS DISALLOWANCE MADE BY THE AO BY INVOKING THE PROVISI ONS OF EXPLANATION TO SECTION 73 OF THE ACT. THE ASSESSEE HAS THUS COME I N APPEAL BEFORE US. 5. THE LEARNED A.R. FOR THE ASSESSEE, BEFORE US, H AS SUBMITTED THAT THE AO INVOKED THE PROVISIONS OF EXPLANATION TO SECTION 73 OF THE ACT FOR DISALLOWING THE ASSESSEE'S CLAIM FOR SETTING OFF THE LOSS ON TR ADING OF SHARES AGAINST OTHER BUSINESS INCOME. HE, AT THE OUTSET, WHILE PLACING R ELIANCE ON A RECENT DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CA SE OF ITS WHOLLY OWNED SUBSIDIARY STYLED AS FIDUCIARY SHARES & STOCK P. L TD. VS. ACIT (ITA NO.321/MUM/2013 VIDE ORDER DATED 13.05.2016) HAS S UBMITTED THAT THE EXPLANATION TO SECTION 73 OF THE ACT WAS INSERTED B Y THE TAXATION LAWS (AMENDMENT) ACT, 1975 W.E.F. 01.04.1977 ON THE RECO MMENDATIONS OF WANCHOO COMMITTEE REPORT OF DECEMBER, 1971. THE REL EVANT PORTION OF WHICH HAS BEEN CONSIDERED BY THE CO- ORDINATE BENCH IN TH E CASE OF FIDUCIARY SHARES & STOCK P. LTD. (SUPRA), WHICH FOR THE SAKE OF CON VENIENCE IS REPRODUCED AS UNDER: 'A TAX AVOIDANCE DEVICE OFTEN RESORTED TO BY BUSINE SS HOUSES CONTROLLING GROUPS OF COMPANIES IS MANIPULATION OF RESULTS FROM DEALINGS IN SHARES OF THE COMPANIES CONTROLLED BY THEM. IN OUR OPINION, SUCH MANIPULATI ON IN SHARE DEALINGS FOR THE PURPOSE OF TAX AVOIDANCE CAN BE CHECKED EFFECTIVELY IF THE RESULTS OF DEALINGS IN SHARES BY SUCH COMPANIES ARE TREATED FOR TAX PURPOS ES IN A MANNER ANALOGOUS TO SPECULATION. NO DOUBT, COMPANIES WHOSE MAIN BUSINES S ACTIVITIES CENTRE AROUND INVESTMENT IN SHARES WILL HAVE TO BE LEFT OUT. ACCO RDINGLY, WE RECOMMEND THAT THE RESULTS OF DEALINGS IN SHARES BY COMPANIES, OTHER T HAN INVESTMENT, BANKING AND FINANCE COMPANIES, SHOULD BE TREATED IN A MANNER AN ALOGOUS TO SPECULATION BUSINESS.' 6. THE LD. AR HAS FURTHER REFERRED TO THE CBDT CIR CULAR NO. 204 DATED 27.07.1976 CONTENDING THAT THE OBJECT OF THE SAID PROVISION WAS TO CURB THE DEVICE SOMETIMES RESORTED TO BY BUSINESS HOUSES CON TROLLING GROUPS OF COMPANIES TO MANIPULATE AND REDUCE THE TAXABLE INCO ME OF COMPANIES UNDER THEIR CONTROL. THUS THE SCOPE AND EFFECT OF THE EXP LANATION TO SECTION 73 OF THE ACT WAS TO PROVIDE THAT THE BUSINESS OF PURCHASE AN D SALE OF SHARES BY COMPANIES WHICH WERE NOT INVESTMENT OR BANKING COMP ANIES OR COMPANIES ITA NOS.1349/M/2012 & 955/M/2014 M/S. FIDUCIARY EUROMAX GLOBAL MARKETS LTD. 4 CARRYING ON BUSINESS OF GRANTING LOANS OR ADVANCES WOULD BE TREATED ON THE SAME FOOTING AS A SPECULATION BUSINESS. THUS, IN TH E CASE OF AFORESAID COMPANIES, THE LOSSES FROM SHARE DEALINGS WOULD BE SET OFF ONLY AGAINST PROFITS OR GAINS OF A SPECULATION BUSINESS. WHERE ANY SUCH LOSS FOR AN ASSESSMENT YEAR IS NOT WHOLLY SET OFF AGAINST PROFITS FROM A SPECUL ATION BUSINESS, THE EXCESS WOULD BE CARRIED FORWARD TO THE FOLLOWING ASSESSMEN T YEAR AND SET OFF AGAINST PROFITS, IF ANY, FROM ANY SPECULATION BUSINESS. HE THEREFORE HAS SUBMITTED THAT THE EXPLANATION TO SECTION 73 OF THE ACT WAS INSERT ED TO CURB THE METHODS SOMETIMES RESORTED TO BY BUSINESS HOUSES CONTROLLIN G A GROUP OF COMPANIES TO MANIPULATE AND REDUCE THE TAXABLE INCOME OF COMPANI ES UNDER THEIR CONTROL BY SHOWING LOSSES INCURRED ON PURCHASE AND SALE OF SHA RES OF GROUP COMPANIES. HOWEVER AN EXCEPTION WAS CARVED OUT OF THE EXPLANAT ION BY PROVIDING THAT THE PROVISIONS OF SECTION 73 OF THE ACT WOULD BE APPLIC ABLE TO BUSINESS OF PURCHASE AND SALE OF SHARES BY COMPANIES OTHER THAN INVESTME NT COMPANIES, BANKING COMPANIES OR FINANCE COMPANIES AS SPECULATION BUSIN ESS. THE LEARNED A.R. FOR THE ASSESSEE HAS FURTHER CONTENDED THAT EXPLANATION TO SECTION 73 OF THE ACT CREATED A FICTION TO THE EFFECT THAT WHERE ANY PART OF THE BUSINESS OF A COMPANY CONSISTS OF PURCHASE AND OF SHARE OF OTHER COMPANIE S, SUCH COMPANY SHALL BE DEEMED TO BE CARRYING ON SPECULATION BUSINESS TO TH E EXTENT TO WHICH BUSINESS CONSISTS OF PURCHASE AND SALE OF SUCH SHARES. HE HA S SUBMITTED THAT THIS FICTION HAD OVERLOOKED THE PURPOSE FOR WHICH IT WAS INSERTE D, NAMELY TO CURB TAX AVOIDANCE DEVICES/METHODS RESORTED TO BY BUSINESS H OUSES CONTROLLING A GROUP OF COMPANIES MANIPULATE THE PURCHASE AND SALE OF SH ARES OF GROUP COMPANIES AND DECLARE LOSS WHICH WAS BEING ADJUSTED AGAINST O THER INCOME OF THE GROUP COMPANIES. IT HAS BEEN FURTHER CONTENDED BY THE LEA RNED A.R. FOR THE ASSESSEE THAT IN ORDER TO ACHIEVE THE REAL OBJECTIVE OF CURB ING TAX AVOIDANCE METHODS RESORTED TO BY BUSINESS HOUSES CONTROLLING THEIR GR OUP COMPANIES, THE LEGISLATURE BY INSERTING AN AMENDMENT TO EXPLANATIO N TO SECTION 73 OF THE ACT BY FINANCE (NO. 2) ACT, 2014, HAS EXTENDED THE EXCE PTION CARVED OUT IN THE EXPLANATION BY PUTTING ALL THE COMPANIES, THE PRINC IPAL BUSINESS OF WHICH IS THE ITA NOS.1349/M/2012 & 955/M/2014 M/S. FIDUCIARY EUROMAX GLOBAL MARKETS LTD. 5 BUSINESS OF TRADING IN SHARES INTO THE EXCEPTION. T HUS, IT IS SUBMITTED BY THE LEARNED A.R. FOR THE ASSESSEE THAT THE COMPANIES WH OSE PRINCIPAL BUSINESS IS NOT THE BUSINESS OF TRADING IN SHARES AND THEY HAVE PURCHASED AND SOLD SHARES AND INCURRED LOSSES, ONLY SUCH COMPANIES FALL IN TH E AMBIT OF THE EXPLANATION TO SECTION 73 OF THE ACT SO THAT THEIR LOSSES ARE T REATED AS SPECULATION LOSS, WHICH WAS THE OBJECT TO BE ACHIEVED BY THE INSERTIO N OF THE EXPLANATION TO SECTION 73 OF THE ACT. HE HAS THUS CONTENDED THAT I NSERTION OF AMENDMENT BY FINANCE (NO. 2) ACT, 2014 IN THE EXPLANATION TO SEC TION 73 OF THE ACT IS CLARIFICATORY IN NATURE AND THEREFORE SUCH AMENDMEN T WILL HAVE TO BE GIVEN RETROSPECTIVE EFFECT, I.E. FROM THE YEAR IN WHICH T HE EXPLANATION WAS INSERTED. THE LEARNED A.R. THUS, HAS STRESSED THAT IN VIEW OF THE AMENDMENT MADE TO EXPLANATION TO SECTION 73 OF THE ACT, THE LOSS INCU RRED BY THE ASSESSEE ON ACCOUNT OF TRADING IN SHARES IS NOT A SPECULATIVE L OSS AND HENCE THE SAME CAN BE ADJUSTED AGAINST OTHER BUSINESS INCOME LIKE BROKERA GE AND COMMISSION. HE HAS STRONGLY RELIED UPON THE OBSERVATIONS MADE BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ITS ORDER DATED 13.05.2016 IN THE CASE OF FIDUCIARY SHARES & STOCK P. LTD. (SUPRA). 7. ON THE OTHER HAND, THE LEARNED D.R. FOR REVENUE HAS STRONGLY SUPPORTED THE DECISION OF THE LEARNED CIT(A) ON THIS ISSUE AN D PLACED RELIANCE ON THE DECISIONS IN THE CASE OF CIT VS. INTERMETAL TRADE LTD. [2006] 285 ITR 536 (MP) AND OIN THE CASE OF R.P.G. INDUSTRIES LTD. VS CIT & ANOTHER [2011] 338 ITR 313 (CAL) TO CONTEND THAT THE AUTHORITIES BELOW HAD CORRECTLY NOT ALLOWED THE ASSESSEE TO CLAIM ADJUSTMENT OF LOSS FROM SHARE TRADING AGAINST OTHER BUSINESS INCOME OF THE ASSESSEE-COMPANY. 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. WE F IND THAT THE ISSUE IS NOW SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF FIDUCIARY SH ARES & STOCK P. LTD. (SUPRA). THE CO-ORDINATE BENCH AFTER DETAILED DISCU SSION OF THE ISSUE HAS FINALLY CONCLUDED THAT THAT THE AMENDMENT INSERTED IN EXPLA NATION TO SECTION 73 OF THE ITA NOS.1349/M/2012 & 955/M/2014 M/S. FIDUCIARY EUROMAX GLOBAL MARKETS LTD. 6 ACT BY FINANCE (NO. 2) ACT, 2014 W.E.F. 01.04.2015 IS CLARIFICATORY IN NATURE AND WOULD THEREFORE OPERATE RETROSPECTIVELY FROM 01 .04.1977 FROM WHICH DATE THE EXPLANATION TO SECTION 73 WAS PLACED ON THE STA TUTE. ACCORDINGLY, A COMPANY, THE PRINCIPAL BUSINESS OF WHICH IS THE BUS INESS OF TRADING IN SHARES, WOULD FALL UNDER THE EXCEPTION TO THE EXPLANATION T O SECTION 73 OF THE ACT. THEREFORE, THE LOSS INCURRED IN SHARE TRADING BUSIN ESS BY SUCH COMPANIES, I.E. LIKE THE ASSESSEE, WILL NOT BE TREATED AS SPECULATI ON BUSINESS LOSS BUT NORMAL BUSINESS LOSS, AND HENCE THE SAME LOSS CAN BE ADJUS TED AGAINST OTHER BUSINESS INCOME OR INCOME FROM ANY OTHER SOURCES OF THE YEAR UNDER CONSIDERATION. THE RELEVANT PART OF THE OBSERVATION MADE BY THE CO-ORD INATE BENCH OF THIS TRIBUNAL IN ITS ORDER DATED 13.05.2016 IN THE CASE OF FIDUC IARY SHARES & STOCK P. LTD. (SUPRA) IS REPRODUCED AS UNDER: 5.6.1. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUD ING THE JUDICIAL PRONOUNCEMENTS CITED. SECTION 73 OF THE ACT STIPULATES THAT ANY LO SS COMPUTED IN RESPECT OF SPECULATION BUSINESS SHALL NOT BE SET OFF EXCEPT AG AINST PROFITS AND GAINS OF SPECULATION BUSINESS. SECTION 43(5) OF THE ACT CLAR IFIES 'SPECULATIVE TRANSACTION' TO MEAN A TRANSACTION IN WHICH A CONTRACT FOR PURCHASE OR SALE OF ANY COMMODITY INCLUDING STOCK AND SHARES IS PERIODICALLY OR ULTIM ATELY SETTLED OTHERWISE THAN BY ACTUAL DELIVERY. EXPLANATION 2 TO SECTION 28 OF THE ACT STIPULATES THAT WHERE SPECULATIVE TRANSACTIONS CARRIED ON BY AN ASSESSEE ARE OF SUCH A NATURE SO AS TO CONSTITUTE A BUSINESS, THE SPECULATION BUSINESS SHA LL BE DEEMED TO BE DISTINCT AND SEPARATE FROM OTHER BUSINESS. THE SECTIONS 73, 43(5 ) AND EXPLANATION 2 TO SECTION 28 OF THE ACT ARE ON THE STATUTE SINCE 01.04.1962. 5.6.2 PURSUANT TO THE WANCHOO COMMITTEE REPORT OF D ECEMBER, 1971, EXPLANATION TO SECTION 73 OF THE ACT WAS INSERTED BY THE TAXATI ON LAWS (AMENDMENT) ACT, 1975 W.E.F. 01.04.1977. THEREFORE, PRIOR TO 01.04.1977, IF ANY ASSESSEE WAS CARRYING ON ANY SPECULATIVE TRANSACTIONS, I.E. A CONTRACT ULTIM ATELY SETTLED OTHERWISE THAN BY ACTUAL DELIVERY; WHICH ARE OF SUCH A NATURE TO CONS TITUTE A BUSINESS, THEN SUCH SPECULATIVE TRANSACTIONS ARE CONSIDERED AS SPECULAT ION BUSINESS. IF THE ASSESSEE INCURS A LOSS IN SUCH SPECULATION BUSINESS, THEN TH E LOSS FROM SUCH SPECULATION BUSINESS CAN BE ADJUSTED ONLY AGAINST PROFITS OF AN OTHER SPECULATION BUSINESS AS PROVIDED UNDER SECTION 73 OF THE ACT. IN OTHER WORD S, TRANSACTIONS PRIOR TO 01.04.1977, WHICH WERE DELIVERY BASED, WERE NOT TRE ATED AS SPECULATIVE TRANSACTIONS AND HENCE THE LOSS ARISING FROM SUCH T RANSACTIONS WAS ALLOWED TO BE ADJUSTED AGAINST THE INCOME OF THE YEAR UNDER CONSI DERATION. AFTER THE INSERTION OF EXPLANATION TO SECTION 73 OF THE ACT, COMPANIES OTH ER THAN INVESTMENT COMPANIES OR FINANCE COMPANIES CARRYING ON BUSINESS OF PURCHA SE AND SALE OF SHARES, THEN THE LOSS FROM SUCH BUSINESS WOULD BE TREATED AS SPECULA TION BUSINESS LOSS. THEREFORE, ITA NOS.1349/M/2012 & 955/M/2014 M/S. FIDUCIARY EUROMAX GLOBAL MARKETS LTD. 7 BY VIRTUE OF THE INSERTION OF EXPLANATION TO SECTIO N 73 OF THE ACT, IF COMPANIES WHOSE PRINCIPAL BUSINESS IS OF PURCHASE AND SALE OF SHARES SUFFER LOSSES FROM SHARE TRADING, THEN SUCH LOSS FROM SHARE TRADING IS TO BE TREATED AS SPECULATIVE BUSINESS LOSS. THE INTENTION BEHIND THE INSERTION OF EXPLANA TION TO SECTION 73 OF THE ACT HAS BEEN EXPLAINED BY THE CBDT, CIRCULAR NO. 204 DATED 24.07.1976 (EXTRACTED SUPRA) WAS TO CURB THE METHODS/DEVICES SOMETIMES RESORTED TO BY BUSINESS HOUSE CONTROLLING GROUPS OF COMPANIES TO MANIPULATE AND R EDUCE THE TAXABLE INCOME OF COMPANIES UNDER THEIR CONTROL BY SHOWING LOSS ON PU RCHASE AND SALE OF SHARES OF GROUP COMPANIES. IT APPEARS THAT THE INTENTION OF T HE LEGISLATURE, FROM A PERUSAL OF THE WANCHOO COMMITTEE REPORT AND CBDT CIRCULAR NO. 204 DATED 24.07.1976, WAS NOT TO TREAT PURCHASE AND SALE OF S HARES BY COMPANIES WHOSE MAIN BUSINESS IS TRADING IN SHARES AS SPECULATIVE BUSINE SS AND THEREFORE THE EXPLANATION TO SECTION 73 OF THE ACT SHOULD BE READ ONLY TO THE EXTENT OF THE PURPOSE FOR WHICH IT WAS INSERTED. THE SUBSEQUENT AMENDMENT MADE BY F INANCE (NO.2) ACT, 2014 IN THE EXPLANATION TO SECTION 73 OF THE ACT APPEARS TO BE MADE IN ORDER TO CLARIFY THE REAL INTENTION BEHIND THE INSERTION THEREOF, BY REM OVING THE OBVIOUS HARDSHIP CAUSED TO VARIOUS ASSESSEES WHOSE MAIN BUSINESS IS TRADING IN SHARES. THE AMENDMENT HAS REMOVED THE ANOMALY AND BROUGHT THE A MBIT OF THE EXPLANATION TO SECTION 73 OF THE ACT IN LINE WITH THE INTENTION OF THE LEGISLATURE BY PLACING THE COMPANIES WHOSE PRINCIPAL BUSINESS IS TRADING IN SH ARES AS PART OF THE EXCEPTION TO EXPLANATION TO SECTION 73 OF THE ACT, BECAUSE SUCH COMPANIES WERE NOT THE COMPANIES FOR WHOM THE EXPLANATION WAS INSERTED. 5.6.3 THE INSERTION OF THE AMENDMENT IN THE EXPLANA TION TO SECTION 73 OF THE ACT BY THE FINANCE (NO. 2) ACT, 2014, IN OUR VIEW, IS CURA TIVE AND CLASSIFICATORY IN NATURE. IF THE AMENDMENT IS APPLIED PROSPECTIVELY FROM A.Y. 20 15-16, A PIQUANT SITUATION WOULD ARISE THAT AN ASSESSEE WHO HAS EARNED PROFIT FROM PURCHASE AND SALE OF SHARES IN A.Y. 2015-16 WOULD BE TREATED AS NORMAL B USINESS PROFIT AND NOT SPECULATION BUSINESS PROFIT IN VIEW OF THE EXCEPTIO N CARRIED OUT BY THE AMENDMENT IN EXPLANATION TO SECTION 73 OF THE ACT. IN THESE C IRCUMSTANCES, SPECULATION BUSINESS LOSS INCURRED BY TRADING IN SHARES IN EARLIER YEARS WILL NOT BE ALLOWED TO BE SET OFF AGAINST SUCH PROFIT FROM PURCHASE AND SALE OF SHARE S TO SUCH COMPANIES IN A.Y. 2015-16. FOR THIS REASON ALSO, THE AMENDMENT INSERT ED TO EXPLANATION TO SECTION 73 OF THE ACT BY FINANCE (NO. 2) ACT, 2014 IS TO BE AP PLIED RETROSPECTIVELY FROM THE DATE OF THE INSERTION TO EXPLANATION TO SECTION 73 OF THE ACT. IN COMING TO THIS VIEW, WE DRAW SUPPORT FROM THE DECISION OF THE HON'BLE AP EX COURT IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD. (319 ITR 306) WHEREIN THEIR LO RDSHIPS WERE CONSIDERING THE AMENDMENT MADE BY FINANCE ACT, 2003 BY OMITTING THE SECOND PROVISO TO SECTION 43B OF THE ACT W.E.F. 01.04.2004 AND BRINGING ABOUT UNIFORMITY IN THE FIRST PROVISO BY EQUATING TAX, DUTY, CESS AND FEES WITH CONTRIBUT ION TO WELFARE FUNDS (VIZ. PROVIDENT FUND, ETC.). THE HON'BLE APEX COURT HELD THAT THE AFORESAID AMENDMENT IN SECTION 43B OF THE ACT BY FINANCE ACT, 2003 IS C URATIVE IN NATURE AND WOULD THEREFORE APPLY RETROSPECTIVELY W.E.F. 01.04.1988. 5.6.3 IN THE CASE OF ALLIED MOTORS PVT. LTD. VS. CI T (224 ITR 677), THE QUESTION BEFORE THE HON'BLE APEX COURT WAS WHETHER SALES TAX COLLEC TED BY THE ASSESSEE AND PAID AFTER THE END OF THE RELEVANT PREVIOUS YEAR BUT WIT HIN THE TIME ALLOWED UNDER THE RELEVANT SALES TAX LAW SHOULD BE DISALLOWED UNDER S ECTION 43B OF THE ACT. THE INCOME TAX OFFICER DISALLOWED THE DEDUCTION OF SALE S TAX COLLECTED BY THE ASSESSEE ITA NOS.1349/M/2012 & 955/M/2014 M/S. FIDUCIARY EUROMAX GLOBAL MARKETS LTD. 8 FOR THE LAST QUARTER OF THE ACCOUNTING YEAR AS THE SAME WAS PAID IN THE SUBSEQUENT YEAR. THE AFORESAID DIFFICULTY WAS CURED BY THE INS ERTION OF THE FIRST PROVISO W.E.F. 01.04.1988. THE HON'BLE APEX COURT HELD THAT WHEN A PROVISO IS INSERTED TO REMEDY UNINTENDED CONSEQUENCES AND TO MAKE THE PROVISION W ORKABLE, THE PROVISO WHICH SUPPLIES AN OBVIOUS OMISSION IN THE SECTION AND WHI CH IS TO BE READ INTO THE SECTION TO GIVE IT A REASONABLE INTERPRETATION, IT COULD BE READ AS RETROSPECTIVE IN OPERATION TO GIVE EFFECT TO THE SECTION AS A WHOLE. THE HON'B LE APEX COURT HELD THAT THE FIRST PROVISO TO SECTION 43B OF THE ACT WAS CURATIVE IN N ATURE AND HENCE RETROSPECTIVE IN OPERATION, I.E. W.E.F. 01.04.1984 FROM WHEN THE SEC TION WAS BROUGHT ON THE STATUE. 5.6.4 THE HON'BLE APEX COURT IN THE CASE OF CIT VS. J.H. GOTLA (156 ITR 323) AT PAGE 339 AND 340 THEREOF HAS OBSERVED AS UNDER: - 'IN THE CASE OF VARGHESE V. ITO [1981]131 ITR 597, THIS COURT EMPHASISED THAT A STATUTORY PROVISION MUST BE SO CONSTRUED, IF POSSIBLE, THAT ABSURDITY AND MISCHIEF MAY BE AVOIDED. 'WHERE THE PLAIN LITER AL INTERPRETATION OF A STATUTORY PROVISION PRODUCES A MANIFESTLY UNJUST RE SULT WHICH COULD NEVER HAVE BEEN INTENDED BY THE LEGISLATURE, THE COURT MI GHT MODIFY THE LANGUAGE USED BY THE LEGISLATURE SO AS TO ACHIEVE THE INTENT ION OF THE LEGISLATURE AND PRODUCE A RATIONAL CONSTRUCTION. THE TASK OF INTERP RETATION OF A STATUTORY PROVISION IS AN ATTEMPT TO DISCOVER THE INTENTION O F THE LEGISLATURE FROM THE LANGUAGE USED. IT IS NECESSARY TO REMEMBER THAT LAN GUAGE IS AT BEST AN IMPERFECT INSTRUMENT FOR THE EXPRESSION OF HUMAN IN TENTION. IT IS WELL TO REMEMBER THE WARNING ADMINISTERED BY JUDGE LEARNED HAND THAT ONE SHOULD NOT MAKE A FORTRESS OUT OF THE DICTIONARY BU T REMEMBER THAT STATUTES ALWAYS HAVE SOME PURPOSE OR OBJECT TO ACCOMPLISH AND SYMPATHETI C AND IMAGINATIVE DISCOVERY IS THE SUREST GUIDE TO THEIR MEANING. 'WE HAVE NOTED THE OBJECT OF S. 16(3) OF THE ACT WH ICH HAS TO BE READ IN CONJUNCTION WITH S. 24(2) IN THIS CASE FOR THE PRES ENT PURPOSE. IF THE PURPOSE OF A PARTICULAR PROVISION IS EASILY DISCERNIBLE FRO M THE WHOLE SCHEME OF THE ACT, WHICH IN THIS CASE IS TO COUNTERACT THE EFFECT OF THE TRANSFER OF ASSETS SO FAR AS COMPUTATION OF INCOME OF THE ASSESSEE IS CON CERNED, THEN BEARING THAT PURPOSE IN MIND, WE SHOULD FIND OUT THE INTENT ION FROM THE LANGUAGE USED BY THE LEGISLATURE AND IF STRICT LITERAL CONST RUCTION LEADS TO AN ABSURD RESULT, I.E., A RESULT NOT INTENDED TO BE SUB SERVE D BY THE OBJECT OF THE LEGISLATION FOUND IN THE MANNER INDICATED BEFORE, T HEN IF ANOTHER CONSTRUCTION IS POSSIBLE APART FROM STRICT LITERAL CONSTRUCTION, THEN THAT CONSTRUCTION SHOULD BE PREFERRED TO THE STRICT LITE RAL CONSTRUCTION. THOUGH EQUITY AND TAXATION ARE OFTEN STRANGERS, ATTEMPTS S HOULD BE MADE THAT THESE DO NOT REMAIN ALWAYS SO AND IF A CONSTRUCTION RESULTS IN EQUITY RATHER THAN IN INJUSTICE, THEN SUCH CONSTRUCTION SHOULD BE PREFERRED TO THE LITERAL CONSTRUCTION. FURTHERMORE, IN THE INSTANT CASE, WE ARE DEALING WITH AN ARTIFICIAL LIABILITY CREATED FOR COUNTERACTING THE EFFECT ONLY OF ATTEMPTS BY THE ASSESSEE TO REDUCE TAX LIABILITY BY TRANSFER. IT HA S ALSO BEEN NOTED HOW FOR VARIOUS PURPOSES THE BUSINESS FROM WHICH PROFIT IS INCLUDED OR LOSS IS SET OFF IS TREATED IN VARIOUS SITUATIONS AS THE ASSESSEE'S INCOME. THE SCHEME OF THE ACT AS WORKED OUT HAS BEEN NOTED BEFORE.' ITA NOS.1349/M/2012 & 955/M/2014 M/S. FIDUCIARY EUROMAX GLOBAL MARKETS LTD. 9 5.6.5 THE HON'BLE APEX COURT IN THE CASE OF CIT VS. GOLD COIN HEALTH FOODS PVT. LTD. (304 ITR 308) WHILE REVERSING THE DECISION OF THE D IVISION BENCH OF THE APEX COURT IN THE CASE OF VIRTUAL SOFT LTD. VS. CIT (289 ITR 8 3) OBSERVED THAT 'A COMBINED READING OF THE RECOMMENDATIONS OF THE WANCHOO COMMI TTEE AND CIRCULAR NO. 204 DATED JULY 24, 1976, MAKES THE POSITION CLEAR THAT EXPLANATION 4(A) TO SECTION 271(1)(C)(III) INTENDED TO LEVY PENALTY NOT ONLY IN THE CASE WHERE AFTER ADDITION OF CONCEALED INCOME, A LOSS RETURNED AFTER ASSESSMENT BECOMES POSITIVE INCOME, BUT ALSO IN A CASE WHERE ADDITION OF CONCEALED INCOME R EDUCES THE RETURNED LOSS AND FINALLY THE ASSESSED INCOME IS ALSO A LOSS OR A MIN US FIGURE. THEREFORE, EVEN DURING THE PERIOD BETWEEN APRIL 1, 1976 AND APRIL 1, 2003, THE POSITION WAS THAT PENALTY WAS LEVIABLE EVEN IN A CASE WHERE ADDITION OF CONCE ALED INCOME REDUCES THE RETURNED LOSS.' 5.6.6 THE HON'BLE APEX COURT IN THE CASE OF CIT VS. PODAR CEMENT P. LTD. (226 ITR 625) HAS HELD THAT THE CIRCUMSTANCES UNDER WHICH TH E AMENDMENT WAS BROUGHT IN AND THE CONSEQUENCES OF THE AMENDMENT WILL HAVE TO BE TAKEN CARE OF WHILE DECIDING THE ISSUE AS TO WHETHER THE AMENDMENT WAS CLARIFICATORY OR SUBSTANTIVE IN NATURE AND WHETHER IT WILL HAVE RETROSPECTIVE OR PR OSPECTIVE EFFECT. 5.6.7 IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. L TD. (117 ITD 169) THE TRIBUNAL BY MAJORITY VIEW HELD THAT THE ULTIMATE TEST FOR CO NSIDERING THE RETROSPECTIVE OR PROSPECTIVE OPERATION OF AN AMENDMENT IS TO CONSIDE R ITS NATURE RATHER THAN GOING BY THE DATE ON WHICH IT IS STATED TO BE APPLICABLE FROM. 5.6.8 IN THE CASE OF RAJEEV KUMAR AGARWAL VS. ADDL. CIT ([(2014) 45 TAXMANN.COM 555 (AGRA-TRIB.)], THE ASSESSEE HAD MADE INTEREST P AYMENTS WITHOUT DISCHARGING HIS OBLIGATION TO WITHHOLD TAX UNDER SECTION 194A AND T HE AO THEREFORE DISALLOWED THE INTEREST PAYMENTS UNDER SECTION 40(A)(IA) OF THE AC T. ON APPEAL, THE ASSESSEE CONTENDED THAT IN VIEW OF THE INSERTION OF SECOND P ROVISO TO SECTION 40(A)(IA) BY FINANCE ACT, 2012 AND IN VIEW OF THE FACT THAT THE RECIPIENTS OF THE INTEREST HAD INCLUDED THE INCOME EMBEDDED IN THESE PAYMENTS IN T HEIR TAX RETURNS FILED UNDER SECTION 139 OF THE ACT, THE DISALLOWANCE UNDER SECT ION 40(A)(IA) OF THE ACT COULD NOT BE INVOKED. IT WAS ALSO CONTENDED THAT EVEN THOUGH THIS SECOND PROVISO IS STATED TO BE W.E.F. 01.04.2013, SINCE THE AMENDMENT IS DECLAR ATORY AND CURATIVE IN NATURE, IT SHOULD BE GIVEN RETROSPECTIVE EFFECT FROM 01.04.200 5, I.E. THE DATE FROM WHICH SUB- CLAUSE (IA) OF 40(A) WAS INSERTED IN THE STATUTE BY WAY OF FINANCE (NO.2) ACT, 2004. AT PARA 7 THEREOF THE TRIBUNAL HELD AS UNDER: - '7. WHEN WE LOOK AT THE OVERALL SCHEME OF THE SECTI ON AS IT EXISTS NOW AND THE BIGGER PICTURE AS IT EMERGES AFTER INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA), IT IS BEYOND DOUBT THAT THE UNDERLYING O BJECTIVE OF SECTION 40(A)(IA) WAS TO DISALLOW DEDUCTION IN RESPECT OF EXPENDITURE IN A SITUATION IN WHICH THE INCOME EMBEDDED IN RELATED PAYMENTS REMAINS UNT AXED DUE TO NON DEDUCTION OF TAX AT SOURCE BY THE ASSESSEE. IN OTHE R WORDS, DEDUCTIBILITY OF EXPENDITURE IS MADE CONTINGENT UPON THE INCOME, IF ANY, EMBEDDED IN SUCH EXPENDITURE BEING BROUGHT TO TAX, IF APPLICABLE. IN EFFECT, THUS, A DEDUCTION FOR EXPENDITURE IS NOT ALLOWED TO THE ASSESSEES, IN CASES WHERE ASSESSEES HAD TAX WITHHOLDING OBLIGATIONS FROM THE RELATED PA YMENTS, WITHOUT ITA NOS.1349/M/2012 & 955/M/2014 M/S. FIDUCIARY EUROMAX GLOBAL MARKETS LTD. 10 CORRESPONDING INCOME INCLUSION BY THE RECIPIENT. TH AT IS THE CLEARLY DISCERNABLE BIGGER PICTURE, AND, UNMISTAKABLY, A VE RY PRAGMATIC AND FAIR POLICY APPROACH TO THE ISSUE - HOWSOEVER BELATED TH E REALIZATION OF UNINTENDED AND UNDUE HARDSHIPS TO THE TAXPAYERS MAY HAVE BEEN. IT SEEMS TO PROCEED ON THE BASIS, AND RIGHTLY SO, THAT SEEKI NG TAX DEDUCTION AT SOURCE COMPLIANCE IS NOT AN END IN ITSELF, SO FAR AS THE S CHEME OF THIS LEGAL PROVISION IS CONCERNED, BUT IS ONLY A MEAN OF RECOVERING DUE TAXES ON INCOME EMBEDDED IN THE PAYMENTS MADE BY THE ASSESSEE.' 5.6.9 IN THE CASE OF SUBHALAKSHMI VANIJYA PVT. LTD. VS. CIT [(2015) 60 TAXMANN.COM 60 (CAL-TRIB.)] AN ISSUE BEFORE THE BENCH WAS WHETH ER INSERTION OF PROVISO TO SECTION 68 OF THE ACT BY FINANCE ACT, 2012 W.E.F. 0 1.04.2013 EMPOWERING THE AO TO EXAMINE THE GENUINENESS OF THE SHARE CAPITAL IN THE CASE OF A COMPANY IN WHICH THE PUBLIC ARE NOT SUBSTANTIALLY INTERESTED IS PROSPECT IVE OR IS CLARIFICATORY AND THEREFORE APPLICABLE WITH RETROSPECTIVE EFFECT. THE TRIBUNAL ANSWERED THE QUESTION IN PARA 13.AA THEREOF HOLDING THAT THE AMENDMENT TO SECTION 68 OF THE ACT BY INSERTION OF PROVISO IS CLARIFICATORY AND HENCE RET ROSPECTIVE. 5.6.10 WE HAVE CAREFULLY PERUSED THE DECISION OF TH E HON'BLE BOMBAY HIGH COURT IN THE CASE OF PRASAD AGENTS (P) LTD. IN 333 ITR 275 ( BOM) AND ARE OF THE HUMBLE OPINION THAT THE DECISION/FINDING RENDERED THEREIN WOULD NOT APPLY TO THE ISSUE IN THE CASE ON HAND SINCE THE ISSUE RAISED BEFORE THE HON'BLE HIGH COURT WAS WHETHER THE LOSS DUE TO VALUATION OF STOCK IS COVERED BY EX PLANATION TO SECTION 73 OF THE ACT AS IT STOOD IN 2009 AND NOT IN RESPECT TO THE EFFEC T OF THE AMENDMENT BY WAY OF THE INSERTION OF EXCEPTION IN EXPLANATION TO SECTION 73 OF THE ACT BY FINANCE ACT (NO. 2) ACT, 2014 WHICH IS BEFORE US. THE HON'BLE HIGH COUR T IN THE CITED CASE (SUPRA) HELD THAT THERE CANNOT BE DIFFERENCE IN THE TREATMENT BE TWEEN LOSSES SUFFERED IN THE COURSE OF TRADING IN SHARES AND LOSSES IN TERMS OF BOOK VALUE OF STOCK-IN-TRADE, EVEN IF THERE WAS NO TRADING IN THE COURSE OF FINANCIAL YEAR AS THE EXPLANATION TO SECTION 73 OF THE ACT WOULD COVER BOTH SHARES WHICH ARE STO CK-IN-TRADE AND SHARES WHICH ARE TRADED FOR THE PURPOSE OF CONSIDERING THE PROFI T AND LOSS FOR THE YEAR. 5.6.11 IN OUR HUMBLE VIEW, DRAWING SUPPORT FROM THE JUDICIAL PRONOUNCEMENTS CITED AT PARAS 5.6.3 TO 5.6.9 OF THIS ORDER (SUPRA) WE AR E OF THE CONSIDERED OPINION AND HOLD THAT THE AMENDMENT INSERTED IN EXPLANATION TO SECTION 73 OF THE ACT BY FINANCE (NO. 2) ACT, 2014 W.E.F. 01.04.2015 IS CLAR IFICATORY IN NATURE AND WOULD THEREFORE OPERATE RETROSPECTIVELY FROM 01.04.1977 F ROM WHICH DATE THE EXPLANATION TO SECTION 73 WAS PLACED ON THE STATUTE SINCE THIS AMENDMENT TO SECTION 73 OF THE ACT '.... OR A COMPANY THE PRINCI PAL BUSINESS OF WHICH IS THE BUSINESS OF TRADING IN SHARES .....' BRINGS IN THE ASSESSEE WHOSE PRINCIPAL BUSINESS IS TRADING OF SHARES. THEREFORE, THE LOSS INCURRED IN SHARE TRADING BUSINESS BY SUCH COMPANIES, I.E. LIKE THE ASSESSEE WILL NOT BE TREAT ED AS SPECULATION BUSINESS LOSS BUT NORMAL BUSINESS LOSS, AND HENCE THE SAME LOSS CAN B E ADJUSTED AGAINST OTHER BUSINESS INCOME OR INCOME FROM ANY OTHER SOURCES OF THE YEAR UNDER CONSIDERATION. IN THIS VIEW OF THE MATTER, WE DIRECT THE AO TO ALL OW THE ASSESSEE'S CLAIM FOR SETTING OFF THE LOSS FROM 'SHARE TRADING BUSINESS' AGAINST 'OTHER BUSINESS INCOME' AND INCOME FROM ANY OTHER SOURCES DURING THE YEAR UNDER CONSIDERATION. SINCE WE HAVE ITA NOS.1349/M/2012 & 955/M/2014 M/S. FIDUCIARY EUROMAX GLOBAL MARKETS LTD. 11 ALLOWED THE ASSESSEE'S PRIMARY CONTENTION/GROUND, W E DO NOT CONSIDER IT NECESSARY TO ADJUDICATE THE ALTERNATIVE CONTENTION RAISED BY THE ASSESSEE. 9. IN OUR VIEW, THE ABOVE DECISION OF THE TRIBUNAL IN THE CASE OF FULLY OWNED SUBSIDIARY OF THE ASSESSEE FIDUCIARY SHARES & STOCK P. LTD. (SUPRA) ON IDENTICAL FACTS, IS FULLY APPLICABLE TO THE CASE OF THE ASSESSEE. 10. SO FAR AS THE RELIANCE OF THE LD. DR ON THE DEC ISION IN THE CASE OF CIT VS. INTERMETAL TRADE LTD. [2006] 285 ITR 536 (MP) AND IN THE CASE OF R.P.G. INDUSTRIES LTD. VS CIT & ANOTHER [2011] 338 ITR 3 13 (CAL) IS CONCERNED, WE FIND THAT THE SAID DECISIONS HAVE BEEN RENDERED PRI OR TO THE INSERTION OF AMENDMENT TO EXPLANATION TO SECTION 73 OF THE ACT B Y FINANCE (NO. 2) ACT, 2014, HENCE THERE WAS NO QUESTION BEFORE THE HONBL E RESPECTIVE HIGH COURTS REGARDING THE RETROSPECTIVE OR PROSPECTIVE OPERATI ON OF THE SAID AMENDMENT BROUGHT VIDE ACT OF 2014. MOREOVER THE SAID DECISIO NS HAVE BEEN RENDERED IN DIFFERENT CONTEXT AND IT WAS NOT THE CASE OF ANY PA RTY THAT THEIR PRINCIPAL BUSINESS WAS OF TRADING IN SHARES. HENCE, THE SAID DECISIONS RELIED UPON BY THE LD. DR CAN NOT BE APPLIED TO THE FACTS OF THE CASE IN HAND. THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE DECISIO N OF THE TRIBUNAL IN THE CASE OF FULLY OWNED SUBSIDIARY OF THE ASSESSEE FIDUCIA RY SHARES & STOCK P. LTD. (SUPRA) ON IDENTICAL FACTS, THIS ISSUE IS ACCORDING LY DECIDED IN FAVOUR OF THE ASSESSEE. THE AO, THEREFORE, IS DIRECTED TO ALLOW THE ASSESSEE'S CLAIM FOR SETTING OFF THE LOSS FROM 'SHARE TRADING ACTIVITY' AND ALSO THE EXPENDITURE INCURRED RELATING TO THE SAID SHARE TRADING ACTIVITY AGAINST THE INCOME FROM BUSINESS OR PROFESSION FOR THE YEAR UNDER CONSIDERATION. GROUND NO.3: 11. IN THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER (AO) NOTICED THAT THE ASSESSEE HAD EARNED TAX FREE DIVIDEND INCOME OF RS.13288/- AND THAT NO EXPENSES HAD BEEN ALLOCATED AS HAVING BEEN EXPENDED FOR EARNING SUCH EXEMPT INCOME. ON BEING QUERIED IN THIS REGARD, THE ASSESS EE CONTENDED THAT IT HAD NOT INCURRED ANY EXPENSES FOR EARNING THE EXEMPT INCOME . THE AO REJECTED THE ITA NOS.1349/M/2012 & 955/M/2014 M/S. FIDUCIARY EUROMAX GLOBAL MARKETS LTD. 12 ASSESSEE'S EXPLANATION AND HELD THAT A CERTAIN PERC ENTAGE OF THE EXPENSES CLAIMED BY THE ASSESSEE COMPANY WOULD DEFINITELY BE ATTRIBUTABLE TO THE EXEMPT INCOME EARNED AS THE ASSESSEE- COMPANY HAD A COMMON POOL OF HUMAN AND FINANCIAL RESOURCES WHICH WERE BEING UTILIZED T O EARN INCOME IN VARIOUS FORMS. HE, THEREFORE, APPLYING RULE 8D OF THE INCO ME TAX RULES, CALCULATED THE DISALLOWANCE UNDER SECTION 14A OF THE ACT AT RS.17, 11,021/- AND DISALLOWED THE SAME ON ACCOUNT OF EXPENDITURE INCURRED FOR EAR NING OF EXEMPT INCOME. THE LD. CIT(A) CONFIRMED THE SAID DISALLOWANCE. 12. AT THE OUTSET, THE LD. A.R. FOR THE ASSESSEE, B EFORE US, HAS STATED THAT THE ASSESSEE HAS MAINTAINED TWO PORTFOLIOS IN RELATION TO SHARE TRANSACTIONS I.E. ONE RELATING TO THE INVESTMENTS MADE AND THE OTHER BEIN G TRADING PORTFOLIO. HE HAS FURTHER SUBMITTED THE ASSESSEE HAD MADE INVESTMENTS ONLY IN THE WHOLLY OWNED SUBSIDIARIES AND IN ASSOCIATED COMPANIES AGGREGATIN G TO RS.5,06,00,000/-. THAT THE ENTIRE INVESTMENTS WERE MADE FOR BUSINESS PURPO SES FOR HAVING CONTROL OVER SUBSIDIARY AND ASSOCIATED COMPANIES. HE, THEREFORE, HAS SUBMITTED THAT THE STRATEGIC INVESTMENTS MADE BY THE ASSESSEE WERE NOT FOR THE PURPOSE OF EARNING OF EXEMPT INCOME BUT THE SAME WERE RELATING TO THE BUSINESS STRATEGY OF THE ASSESSEE. HE, THEREFORE, HAS CONTENDED THAT WHILE MAKING OUT THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME T AX RULES, THE STRATEGIC INVESTMENTS MADE IN THE GROUP CONCERNS SHOULD NOT B E CONSIDERED AND BE EXCLUDED WHILE CALCULATING THE DISALLOWANCE UNDER R ULE 8D. HE HAS FURTHER SUBMITTED THAT STRATEGIC INVESTMEN TS WERE MADE OUT OF OWN SHARE CAPITAL AND RESERVES OF THE ASSESSEE COMPANY. HE IN THIS RESPECT HAS BROUGHT OUR ATTENTION TO PAGE 2 OF THE COMPILATION TO SHOW THAT THE ASSESSEE HAD OWN SUFFICIENT FUNDS AVAILABLE TO IT FOR MAKING SUCH STRATEGIC INVESTMENTS IN ITS SUBSIDIARIES. THE LEARNED AR HAS FURTHER SUB MITTED THAT THE ASSESSEE HAD NOT EARNED ANY DIVIDEND INCOME IN RELATION TO THE I NVESTMENTS MADE IN SUBSIDIARY COMPANIES. THE ONLY DIVIDEND INCOME OF R S. 13288/- EARNED DURING THE YEAR WAS IN RELATION TO SHARES HELD AS STOCK IN TRADE. THE ENTIRE DIVIDEND ITA NOS.1349/M/2012 & 955/M/2014 M/S. FIDUCIARY EUROMAX GLOBAL MARKETS LTD. 13 INCOME EARNED FROM SHARE TRADING ACTIVITY WAS OFFER ED FOR TAXATION AS BUSINESS INCOME OF THE ASSESSEE. INTEREST EXPENDITURE, IF AN Y, INCURRED BY THE ASSESSEE WAS RELATING TO THE LOANS USED FOR THE ACTIVITY OF TRADING IN GOVERNMENT SECURITIES AND THAT NO INTEREST AMOUNT WAS PAID IN RELATION TO THE INVESTMENTS MADE IN WHOLLY OWNED SUBSIDIARIES AS THE ASSESSEE W AS POSSESSED OF OWN FUNDS FOR MAKING SUCH INVESTMENTS. HE HAS FURTHER SUBMITT ED THAT SINCE NO DIVIDEND INCOME HAS BEEN EARNED OUT OF THE INVESTMENT PORTFO LIO, HENCE, NO DISALLOWANCE WAS ATTRACTED IN THE LIGHT OF THE RECE NT DECISION OF THE HONOURABLE DELHI HIGH COURT IN THE CASE OF M/S CHEMINVEST LTD VERSUS CIT (ITA NO. 749/2014). THE LEARNED AR ON THE OTHER HAND, HAS RELIED UPON T HE OBSERVATIONS OF THE LOWER AUTHORITIES. 13. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. SO FA R AS THE CONTENTION OF THE LD. AR THAT NO DISALLOWANCE IS ATTRACTED IN RELATIO N TO STRATEGIC INVESTMENTS MADE IN THE SISTER CONCERNS/GROUP COMPANIES WHERE T HE ASSESSEE HOLDS SUBSTANTIAL STAKE IS CONCERNED, WE FIND THAT THE ID ENTICAL ISSUE HAS BEEN RAISED AND DECIDED BY THE CO-ORDINATE BENCH OF THE TRIBUNA L IN THE CASE OF KOTAK MAHINDRA CAPITAL CO. LTD. VS. DCIT IN ITA NOS.5748 /M/2012 AND 248/M/2013 FOR A.YS. 2008-09 & 2009-10 RESPECTIVELY , DECIDED ON 21.01.2015 WHEREIN THE TRIBUNAL HAS MADE THE FOLLOW ING OBSERVATIONS: 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND PERUSED T HE RECORDS. THE A.O. HAS MADE THE DISALLOWANCE U/S 14A R.W. RULE 8-D AT 0.5% OF A DMINISTRATIVE EXPENSES. THERE WAS NO DISALLOWANCE ON ACCOUNT OF INTEREST WHILE WO RKING OUT THE DISALLOWANCE U/S 14A OF THE INCOME TAX ACT, 1961. IT WAS ARGUED BY T HE LEARNED A.R. THAT THE ASSESSEE HAS INVESTMENTS IN COMPANIES WHICH ARE ITS GROUP COMPANIES WHERE THE ASSESSEE HOLDS SUBSTANTIAL STAKE. THE ID. A.R. SUBM ITS THAT STRATEGIC INVESTMENTS, PER SE DO NOT REQUIRE ANY DAY TODAY MONITORING AS T HEY ARE INHERENTLY LONG TERM IN NATURE. NO EXPENDITURE ON DAY- TO-DAY BASIS IS INCU RRED FOR MANAGING THOSE INVESTMENTS. THEREFORE, STRATEGIC INVESTMENT SHOULD BE EXCLUDED FOR ATTRIBUTING ADMINISTRATIVE EXPENSES FOR MAKING DISALLOWANCE U/S 14A OF THE ACT. THE LD. A.R. HAS PLACED RELIANCE ON THE FOLLOWING DECISIONS:- I) HSBC SECURITIES AND CAPITAL MARKETS (I) P. LTD. - ITA NO. 3186/M/08 II) ZENSTAR TECHNOLOGIES LTD. - ITA NO. 4538/M/05 III) SHRI BHALCHANDRA R. SULE - ITA NO. 3684/M/05 IV) EIH ASSOCIATED HOTELS VS. DCIT - ITA NO. 1503/M AD/12 ITA NOS.1349/M/2012 & 955/M/2014 M/S. FIDUCIARY EUROMAX GLOBAL MARKETS LTD. 14 V) INTERGLOBE ENTERPRISES LTD. VS. DCIT - ITA NO. 1 362 & 1032/DE1/13 VI) JM FINANCIAL LIMITED VS. ACIT - ITA NO. 4521/M /12 VII) CIT VS. ORIENTAL STRUCTURAL ENGINEERS P. LTD. - ITA 605 OF 2012(HC) VIII) ACIT VS. ORIENTAL STRUCTURAL ENGINEERS P. LTD . ITA NO. 4245/DE1/2011 IX) GARWARE WALL ROPES LTD. VS. ACIT - ITA NO. 5408 /M/2012 IN VIEW OF THE ABOVE JUDICIAL PRONOUNCEMENTS, THE L D. A.R. PRAYED THAT THE A.O. BE DIRECTED TO EXCLUDE THE INVESTMENTS MADE IN FOREIGN SUBSIDIARIES AND INVESTMENT MADE IN COMPANIES WHICH ARE STRATEGIC IN NATURE WHI LE COMPUTING THE DISALLOWANCE U/S 14A OF THE ACT IN RESPECT OF ADMINISTRATIVE EXP ENSES. 4. ON THE OTHER HAND, THE LD. D.R. RELIED ON THE OR DERS OF LOWER AUTHORITIES. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFU LLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO DELIBERATED UPON THE JUDICIAL PRONOUNCEMENTS CITED WITH REFERENCE TO THE EXCLUSION OF INVESTMENT MADE IN THE COMPANIES WHICH ARE STRATEGIC IN NATURE. AS PER THE JUDICIAL PRONOU NCEMENTS CITED ABOVE, SUCH INVESTMENTS SHOULD NOT BE TAKEN INTO ACCOUNT FOR WO RKING OUT THE DISALLOWANCE U/S 14A OF THE ACT. 14. THE LD. A.R. OF THE ASSESSEE HAS FURTHER BROUGH T OUR ATTENTION TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT, PANAJI, GOA VS. PHIL CORPN. LTD. (2011) 202 TAXMAN 368 WHEREIN THE HONBLE BOMBAY HIGH COURT HAS HELD THAT WHERE THE INVESTMENT IN SH ARES OF SISTER/SUBSIDIARY COMPANY IS MADE TO HAVE CONTROL OVER THAT COMPANY A ND FURTHER THAT SUCH AN INVESTMENT WAS ACCORDINGLY PART OF THE BUSINESS OF THE ASSESSEE, IN THAT EVENT THE ASSESSEE IS ENTITLED TO DEDUCTION OF INTEREST P AID ON THE BORROWED AMOUNT UNDER SECTION 36(1)(III) OF THE ACT. WE, FURTHER F IND THAT RECENTLY THE HONBLE DELHI HIGH COURT IN THE CASE OF EICHER GOODEARTH L TD. VS. CIT (2015) 60 TAXMAN.COM 268 (DEL.) HAS HELD THAT IF THE EXPENDIT URE IS INCURRED FOR THE PURPOSE OF PROMOTION OF BUSINESS-MORE SPECIFICALLY TO RETAIN CONTROL OR AS PART OF HIS STRATEGIC INVESTMENT OF THE ASSESSEE COMPANY , SUCH EXPENSES BY WAY OF INTEREST OUT GO WOULD HAVE TO BE TREATED AS ALLOWAB LE UNDER SECTION 36(1)(III) OF THE ACT. IN VIEW OF THIS, THE STRATEGIC INVESTMENT IN GROUP COMPANIES THEREFORE CANNOT BE HELD TO BE FOR INVESTMENT PURPOSES OR WITH THE O BJECT OF EARNING OF DIVIDEND/TAX EXEMPT INCOME, BUT THE SAME, IN THE LI GHT OF ABOVE REFERRED TO JUDICIAL DECISIONS CAN SAFELY BE SAID TO BE RELATED TO THE BUSINESS ACTIVITY OF THE ITA NOS.1349/M/2012 & 955/M/2014 M/S. FIDUCIARY EUROMAX GLOBAL MARKETS LTD. 15 ASSESSEE AND NO DISALLOWANCE, THEREFORE, IS ATTRACT ED ON SUCH AN INCOME U/S 14A OF THE ACT. IN THE LIGHT OF THE ABOVE REFERRED TO DECISIONS AND RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE AO TO EXCLUDE THE STRATEGIC INVESTMENTS MADE BY THE ASSESSEE IN GROUP COMPANIES WHILE CALCU LATING THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME T AX ACT. 15. FURTHER, WE FIND THAT THE HONBLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM) HAS HELD HAS HELD THAT IF THERE ARE FUNDS AVAILABLE, BO TH INTEREST FREE AND OVER DRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST FREE FUND GENERATED OR AVAILABL E WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INV ESTMENT. SIMILAR VIEW HAS BEEN TAKEN IN THE CASE OF CIT VS. HDFC BANK LTD. IN ITA NO.330 OF 2012 DECIDED ON 23 RD JULY 2014 BY THE HONBLE BOMBAY HIGH COURT. IN THE LIGHT OF THE ABOVE CITED DECISIONS, EVEN OTHERWISE, NO INTER EST DISALLOWANCE IS ATTRACTED IN RELATION TO INVESTMENTS MADE BY THE ASSESSEE AS THE ASSESSEE HAD ITS OWN SUFFICIENT FUNDS FOR THE PURPOSE OF MAKING INVESTME NTS. 16. FURTHER, THE HONBLE DELHI HIGH COURT IN THE CA SE OF JOINT INVESTMENT PRIVATE LIMITED (SUPRA) HAS HELD THAT SECTION 14 OF THE ACT OR RULE 8D CANNOT BE INTERPRETED SO AS TO MEAN THAT THE ENTIRE TAX EXEMP T INCOME OF THE ASSESSEE IS TO BE DISALLOWED. THAT THE WINDOW FOR DISALLOWANCE IS INDICATED IN SECTION 14A, AND IS ONLY TO THE EXTENT OF DISALLOWING EXPENDITUR E INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOME. THIS PROPORTION OR PORTION OF THE TAX EXEMPT INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOUNT OF T AX EXEMPT INCOME. THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEM INVES TMENTS VS. CIT (2015) 61 TAXMAN.COM 118 HAS HELD THAT SECTION 14A WILL NO T APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVAN T PREVIOUS YEAR AND THAT THE EXPRESSION DOES NOT FORM PART OF THE TOTAL INCOME , IN SECTION 14A OF THE ACT ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME WHICH IS NOT INCLUDED IN THE TOTAL INCOME DURING THE RELEVANT PR EVIOUS YEAR FOR THE PURPOSE ITA NOS.1349/M/2012 & 955/M/2014 M/S. FIDUCIARY EUROMAX GLOBAL MARKETS LTD. 16 OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. ALMOST IDENTICAL ISSUE HAS BEEN TAKEN BY THE HONBLE ALLAH ABAD HIGH COURT IN THE CASE OF CIT KANPUR VS. M/S. SHIVAM MOTORS PVT. LTD. IN ITA NO.88 OF 2014 VIDE ORDER DATED 05.05.2014; BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. CORRTECTH ENERGY PVT. LTD. IN ITA NO.239 OF 20 14 VIDE ORDER DATED 24.03.2014 AND BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S. DELITE ENTERPRISES IN ITA NO.110 OF 2009 VIDE ORDER DATED 26.02.09. SINCE THE ASSESSEE, IN THE CASE IN HAND, HAS NOT EA RNED ANY DIVIDEND INCOME IN RESPECT OF THE INVESTMENTS MADE, HENCE IN THE LIGHT OF THE ABOVE CASE LAWS OF THE HIGHER AUTHORITIES, NO DISALLOWANCE OF EXPENDIT URE U/S 14 A IS ATTRACTED IN RELATION TO THE INVESTMENT PORTFOLIO. 17. SO FAR AS THE NEXT CONTENTION THAT WHILE CALC ULATING THE DISALLOWANCE UNDER SECTION 14A, THE AMOUNT USED FOR THE PURCHASE OF THE SHARES WHICH ARE HELD AS STOCK IN TRADE IS REQUIRED TO BE EXCLUDED F ROM THE PURVIEW OF DISALLOWANCE U/S 14A OF THE ACT IS CONCERNED, THE L D. A.R., IN THIS RESPECT, HAS RELIED UPON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDIA ADVANTAGE SECURITIES LTD. IN ITA NO .1131 OF 2013 VIDE ORDER DATED 17.03.2015 WHEREIN THE HONBLE BOMBAY HIGH CO URT HAS UPHELD THE FINDING OF THE TRIBUNAL HOLDING THAT WHILE MAKING T HE DISALLOWANCE UNDER RULE 8D, THE SHARES HELD AS STOCK IN TRADE SHOULD NOT BE CONSIDERED; ONLY THE SHARES TAKEN AS INVESTMENT IN THE ACCOUNT BE CONSIDERED FO R COMPUTATION OF DISALLOWANCE OF EXPENDITURE UNDER RULE 8D. THE LD. A.R. HAS SUBMITTED THAT THE DIVIDEND EARNED IN RESPECT OF SHARES HELD IN ST OCK IN TRADE IS INCIDENTAL TO THE BUSINESS OF THE ASSESSEE AND THE INVESTMENT IN THE SHARES HELD AS STOCK IN TRADE WAS NOT MADE FOR EARNING OF EXEMPT INCOME. 18. WE HAVE EXAMINED THE ABOVE CONTENTIONS OF THE L D. AR. WE FIND THAT THE TRIBUNAL IN THE CASE OF DCIT VS. INDIA ADVANTA GE SECURITIES LTD. IN ITA NO.6711/M/2011 VIDE ORDER DATED 14.09.2012 WHILE RE LYING UPON THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF CI T VS. SMT. LEENA ITA NOS.1349/M/2012 & 955/M/2014 M/S. FIDUCIARY EUROMAX GLOBAL MARKETS LTD. 17 RAMACHANDRAN (339 ITR 296) AND FURTHER ON THE DECIS ION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CCI LTD. VS. JCI T 250 CTR 291 HAS HELD THAT DISALLOWANCE UNDER SECTION 14A IN RELATION TO DIVIDEND RECEIVED FROM TRADING SHARES CANNOT BE MADE. THE SAID FINDING OF THE TRIBUNAL HAS BEEN UPHELD BY THE HONBLE JURISDICTIONAL BOMBAY HIGH CO URT IN THE CASE OF CIT VS. INDIA ADVANTAGE SECURITIES LTD. IN ITA NO.1131 OF 2013 VIDE ORDER DATED 17.03.2015 (SUPRA). THE SAID DECISION HOLDS BINDIN G PRECEDENT UPON THIS TRIBUNAL. MOREOVER THE ASSESSEE HAS ALREADY OFFERED THE DIVIDEND INCOME EARNED ON THE SHARES HELD AS STOCK IN TRADE AS BUSI NESS INCOME OF THE ASSESSEE. 19. RESPECTFULLY FOLLOWING THE ABOVE REFERRED TO D ECISIONS OF THE HIGHER COURTS, THIS ISSUE IS ACCORDINGLY DECIDED IN FAVOUR OF THE ASSESSEE AND THE DISALLOWANCE MADE BY THE AO IN THE CASE OF THE ASSE SSEE UNDER SECTION 14A OF THE ACT IS HEREBY ORDERED TO BE DELETED. 20. IN THE RESULT, THIS APPEAL OF THE ASSESSEE IS A LLOWED. 21. NOW COMING TO THE ASSESSEES APPEAL FOR A.Y. 20 10-11 BEARING ITA NO.955/M/2014. ITA NO.955/M/2014 FOR A.Y 2010-11 22. THE ASSESSEE, IN THIS APPEAL, HAS TAKEN THREE E FFECTIVE GROUNDS OF APPEAL. GROUND NOS.1 & 2 ARE RELATING TO THE DISALLOWANCE U NDER SECTION 14A OF THE ACT. THE FACTS FOR THIS YEAR SINCE ARE IDENTICAL T O THAT OF A.Y. 2009-10 AND IN VIEW OF OUR DISCUSSIONS MADE ABOVE AND IN THE LIGHT OF THE VARIOUS JUDICIAL DECISIONS OF THE HIGH COURTS AS DISCUSSED SUPRA, TH E GROUND NOS.1 & 2 ARE ALLOWED. 23. SO FAR AS GROUND NO.3 IS CONCERNED, THE LD. A.R . OF THE ASSESSEE HAS STATED AT BAR THAT AS PER THE INSTRUCTIONS OF HIS C LIENT HE DOES NOT PRESS GROUND NO.3. GROUND NO.3 IS THEREFORE DISMISSED BEING NOT PRESSED. ITA NOS.1349/M/2012 & 955/M/2014 M/S. FIDUCIARY EUROMAX GLOBAL MARKETS LTD. 18 24. GROUND NOS.4 & 5 OF THE APPEAL ARE GENERAL IN N ATURE AND DO NOT REQUIRE ANY ADJUDICATION. 25. IN VIEW OF THIS, THIS APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED. 26. IN THE RESULT, ITA NO.1349/M/2012 FOR A.Y 2009- 10 IS ALLOWED AND ITA NO.955/M/2014 FOR A.Y 2010-11 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.06.2016. SD/- SD/- (G.S. PANNU) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 29.06.2016. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.