Jai Bhikshu Credit and Holding Ltd., New Delhi V. DCIT, New Delhi

ITA 2911/DEL/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5156 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 23-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NAINA SOIN KAPIL
• Assessee Lawyers: V P GUTA; ANUVA V KUMAR
• Keywords: Business income; Transactions in derivatives; Earning of tax free income; Speculation loss; Tax effect; Futures and options; Speculative transactions
• Section: 143(3); 43(5); 147

Judgement Text

PAGE | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SMT BEENA A PILLAI , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 2911/DEL/2016 (ASSESSMENT YEAR: 2012 - 13 ) JAI BHIKSHU CREDIT AND HOLDING LTD, F - 591, SARITA VIHAR, NEW DELHI PAN: AAACJ0774F VS. DCIT, CIRCLE - 13(1), NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI V P GUTA & ANUVA V KUMAR, ADV REVENUE BY: MS. NAINA SOIN KAPIL, SR. DR DATE OF HEARING 25 / 03 /2019 DATE OF PRONOUNCEMENT 2 8 / 05 / 2019 O R D E R PER PRASHANT MAHARISHI, A. M. 1 . THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD CIT(A) - 5, DELHI DATED 01.04.2016 FOR THE ASSESSMENT YEAR 2012 - 13. 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN NOT HOLDING THAT THE DISALLOWANCES MADE IN THE ASSESSMENT ARE BASED ON PRESUMPTIONS AND ASSUMPTIONS AND ARE CONTRARY TO THE FACTS, WHOLLY ARBITRARY, ERRONEOUS, UNJUST AND PERVERSE AND THEREFORE, DESERVES TO BE CANCELLED. 2. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN HOLDING THAT TH E EXCEPTIONS PROVIDED IN EXPLANATION TO SECTION 73 OF THE ACT IS NOT APPLICABLE TO APPELLANTS CASE. THE LD. CIT (A) FAILED TO APPRECIATE THE FACT THAT THE APPELLANT COMPANY SATISFIES BOTH THE CONDITIONS GIVEN IN EXPLANATION TO SECTION 73 TO EXCLUDE THE CO MPANY FROM THE DEEMING FICTION OF SECTION 73 OF THE ACT. 3. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN CONCLUDING THAT THE APPELLANT HAS SUFFERED LOSSES ON TRADING OF SHARES AND HENCE APPELLANT MAJOR COMPONENT OF INCOME IS FROM BUSINESS ONLY. THE LD. CIT (A) FAILED TO APPRECIATE THE FACTS THAT THE LOSSES SUFFERED BY APPELLANT WERE ON SALE OF INVESTMENT ONLY AND APPELLANT MAJOR COMPONENT OF INCOME IS NOT FORM BUSINESS AND HENCE APPELLANT IS DULY COVERED BY THE EXCEPTIONS P ROVIDED IN EXPLANATION TO SECTION 73 OF THE ACT. JAI BHIKSHU CREDIT AND HOLDING VS. DCIT, ITA NO.2911/DEL/2016 (ASSESSMENT YEAR: 2012 - 13) PAGE | 2 4. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF ASSESSING OFFICER OF TREATING SHORT TERM CAPITAL LOSS OF RS. 63,27,007/ - (STT PAID) AND LONG TERM CA PITAL LOSS OF RS. 1,14,46,874/ - (STT PAID) AS SPECULATIVE BUSINESS LOSS IN TERMS OF EXPLANATION TO SECTION 73 OF THE ACT. THE LD. CIT (A) FAILED TO APPRECIATE THE FACT THAT THE APPELLANT COMPANY HAD ALWAYS THE INTENTION TO INVEST IN SHARES, BONDS, MUTUAL F UNDS ETC. AND ACCOUNTED FOR THE TRANSACTIONS AS INVESTMENT YEAR AFTER YEAR IN BOOKS OF ACCOUNT AND HENCE CORRECTLY CATEGORIZED THE INCOME FROM SALES OF THOSE SECURITIES UNDER THE HEAD INCOME FROM CAPITAL GAIN. 3 . THE BRIEF FACT OF THE CASE SHOWS THAT THE ASSESSEE IS A COMPANY WHO FILED ITS RETURN OF INCOME DECLARED LOSS OF RS. 6329449/ - ON 27.09.2012. THE LD AO ASKED THE ASSESSEE TO FURNISH THE DETAILS OF SPECULATIVE BUSINESS CARRIED OUT BY THE ASSESSEE DURING THE YEAR. THE ASSESSEE SUBMITTED THE DETAILS T HAT IT HAS NOT CARRIED OUT ANY SPECULATIVE BUSINESS. THE LD AO NOTED THAT FOR THE ASSESSMENT YEAR 2007 - 08 IN CASE OF THE ASSESSEE SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN ARE TREATED AS SPECULATIVE BUSINESS AND THEREFORE, AS THE FACTS OF THE CA SE ARE SIMILAR THE LOSS DECLARED BY THE ASSESSEE WAS TREATED AS SPECULATIVE BUSINESS AND NOT CAPITAL LOSS AS CLAIMED BY THE ASSESSEE. ACCORDINGLY, THE LOSS DECLARED BY THE ASSESSEE OF RS. 6329449/ - CLAIMED BY THE ASSESSEE WAS TREATED AS LOSS FROM SPECULAT IVE BUSINESS ACTIVITY. THE ORDER U/S 143(3) OF THE ACT WAS PASSED ON 09.02.2015. 4 . THE ASSESSEE AGGRIEVED WITH THE ABOVE ORDER PREFERRED THE APPEAL BEFORE THE LD CIT(A) - 5, NEW DELHI WHO CONFIRMED THE FINDING OF THE LD AO AS UNDER AND THEREFORE, THE ASSESS EE IS IN APPEAL BEFORE US. 4. GROUND NOS. 1 & 2 ARE GENERAL IN NATURE AND REQUIRE NO SEPARATE ADJUDICATION. THE APPELLANT HAS CHALLENGED THE VIEW OF THE AO THAT THE LOSSES INCURRED ON SHARE TRANSACTIONS DURING THE YEAR ARE SPECULATIVE IN NATURE. DURING T HE APPEAL PROCEEDINGS, THE LEARNED A/R STATED THAT THE AO HAS COMPLETELY RELIED ON HIS PREDECESSOR'S REASONING FOR THE A.Y. 2007 - 08 TO REJECT THE CLAIM OF CAPITAL LOSSES AS REPORTED BY THE APPELLANT AND TREATING THE SAME AS SPECULATIVE LOSSES. HE STATED TH AT THE SIMILAR ISSUE INVOLVED IN 2007 - 08 HAS BEEN DECIDED IN ITS FAVOUR BY MY PREDECESSOR IN HIS ORDER DATED 17.09.2014 AND THE REVENUE'S FURTHER APPEAL IN THIS REGARD HAS BEEN DISMISSED BY THE ITAT ON ACCOUNT OF LOW TAX EFFECT. ON MERITS, IT IS PLEADED TH AT THE APPELLANT HAS CAPITALIZED THE IMPUGNED INVESTMENTS THAT WAS SOLD AS NON - CURRENT LONG TERM INVESTMENTS IN THE BOOKS OF ACCOUNTS JAI BHIKSHU CREDIT AND HOLDING VS. DCIT, ITA NO.2911/DEL/2016 (ASSESSMENT YEAR: 2012 - 13) PAGE | 3 AND CORRECTLY CATEGORIZED THE INCOME/LOSS FROM SUCH SALES UNDER THE HEAD 'INCOME/LOSS FROM CAPITAL GAINS'. IT IS ALSO SUBM ITTED THAT THE IMPUGNED TRANSACTION COULD BE TREATED AS SPECULATIVE ONLY IF ALL THE CONDITIONS LAID DOWN AND THE PROVISIONS UNDER EXPLANATION TO SECTION 73 WERE MET. ACCORDING TO THE A/R THE APPELLANT IS COVERED BY THE TWO EXCEPTIONS PROVIDED IN THE SAID E XPLANATION, NAMELY, THAT ITS INCOME CONSISTS MAINLY OF OTHER INTEREST INCOME OR DIVIDEND INCOME AND IT IS ALSO PRINCIPALLY IN THE BUSINESS OF BANKING. THE SUBMISSIONS READ AS UNDER: 'DURING THE ASSESSMENT YEAR 2012 - 13, YOUR APPELLANT COMPANY HAS EARNED THE FOLLOWING TAXABLE INCOME: UNDER THE HEAD OF AMOUNT (RS.) LOSS FROM BUSINESS 2,445/ - SHORT TERM CAPITAL LOSS (STT PAID) 63,27,004/ - LONG TERM CAPITAL LOSS (STT PAID) 1,14,46,874/ - DIVIDEND INCOME (EXEMPTED) 12,52,106/ - YOUR APPELLANT COMPANY HAS CONSISTENTLY, YEAR AFTER YEAR, SHOWN THE TRANSACTIONS RELATING TO PURCHASE/SALE OF SHARES, MUTUAL FUNDS ETC AS INVESTMENT IN ITS BOOKS OF ACCOUNTS. DURING THE YEAR, YOUR APPELLANT HAS ENTERED IN TO A VERY FEW DELIVERY BASED TRANSACTIO NS OF PURCHASE & SALE OF FEW SHARES. IT WILL KINDLY BE APPRECIATED THAT ALL THE TRANSACTIONS WERE DELIVERY BASED ONLY AND THERE WAS NO INTRADAY, FUTURE & OPTIONS TRANSACTION MADE BY YOUR APPELLANT. DURING THE YEAR, YOUR APPELLANT HAS SUFFERED LONG TERM CAP ITAL LOSS OF 114,46,874/ - (STT PAID). APPELLANT HAS HOWEVER, CLAIMED SHORT TERM CAPITAL LOSS OF RS. 63,27,004/ - TO BE ALLOWED TO CARRY FORWARD IN SUBSEQUENT YEARS FOR SET OFF AGAINST TAXABLE INCOME IN THAT YEARS. THE ASSESSING OFFICER, WITHOUT APPRECIATING THE AFORESAID FACTS, FOLLOWED THE ORDER DT 05/12/2012 U/S 147 OF HIS PREDECESSOR ASSESSING OFFICER HAS CATEGORIZED THE AFORESAID CAPITAL LOSS AS GAIN/LOSS FROM SPECULATIVE BUSINESS WITHIN THE MEANING OF EXPLANATION TO SECTION 73 OF THE ACT. IN THIS CONNEC TION REFERENCE IS DRAWN TO PARAGRAPH 3 OF THE ASSESSMENT ORDER DT JAI BHIKSHU CREDIT AND HOLDING VS. DCIT, ITA NO.2911/DEL/2016 (ASSESSMENT YEAR: 2012 - 13) PAGE | 4 09/02/2015 FOR AY 2012 - 13 PASSED U/S 143(3) BY THE ASSESSING OFFICER WHEREIN HE HAS RELIED COMPLETELY ON REASONS QUOTED IN THE ASSESSMENT ORDER PASSED U/S!47 R.W.S 143(3) FOR ASSESSMENT YEAR 2007 - 08 FOR CATEGORIZATION OF CAPITAL GAIN/LOSS AS INCOME/LOSS FROM SPECULATIVE BUSINESS. IN THIS CONNECTION, WE WISH TO SUBMIT THAT AGAINST THE ORDER DT 05/12/2012 U/S 147 FOR ASSESSMENT YEAR 2007 - 08 YOUR APPELLANT PREFERRED AN APPEAL BEFORE CIT (A) - VI II, NEW DELHI AND LD. CIT(A) - VIII VIDE HIS ORDER DATED 17/09/2014 HAD ALLOWED OUR APPEAL AND GIVEN FULL RELIEF TO US BY HOLDING THAT THE TRANSACTIONS CARRIED OUT BY YOUR APPELLANT COMPANY CANNOT BE HELD AS SPECULATIVE BUSINESS. IT IS IMPORTANT TO MENTION H ERE THAT THE AFORESAID FINDING OF LD. CIT (A) HAS BECOME FINAL AS HON'BLE ITAT, DELHI HAS REJECTED THE DEPARTMENT APPEAL AGAINST THE AFORESAID ORDER OF CIT (A) - VIII, NEW DELHI FOR ASSESSMENT YEAR 2007 - 08. SINCE, ASSESSING OFFICER HAS MADE THE AFORESAID R E - CATEGORIZATION OF CAPITAL GAIN ON THE BASIS OF ORDER FOR ASSESSMENT YEAR 2007 - 08 WHICH HAS FINALLY BEEN SETTLED IN YOUR APPELLANT'S FAVOUR, WE THEREFORE, REQUEST YOUR GOOD - SELF TO KINDLY GIVE DIRECTION TO ASSESSING OFFICER TO ACCEPT THE GAIN/LOSS ARISING FOR TRANSACTION OF SALE/PURCHASE OF SHARES AS CAPITAL INCOME /LOSS. IT IS HOWEVER, SUBMITTED RESPECTFULLY THAT SECTION 73 OF THE ACT DOES NOT APPLY TO THE FACTS OF YOUR APPELLANT COMPANY'S CASE AS SECTION 73 WAS INTRODUCED BY THE LEGISLATURE WITH THE INTE NTION TO DEAL WITH THOSE COMPANIES WHICH HAVE INCURRED LOSSES FROM THE SHARES TRADING BUSINESS AND INTEND TO SET - OFF THE SAID LOSSES AGAINST THEIR NORMAL BUSINESS INCOME. IN ORDER TO CURB SUCH SET - OFF, THE SAID LOSSES COULD BE TREATED AS SPECULATIVE BUSINE SS LOSSES BY THE DEEMING FICTION OF SECTION 73 OF THE ACT. YOUR GOOD - SELF WILL KINDLY APPRECIATE THE FACT THAT THE APPELLANT COMPANY HAD ALWAYS THE INTENTION TO INVEST IN SHARES, BONDS, MUTUAL FUNDS ETC AND ACCOUNTED THE TRANSACTIONS AS INVESTMENT YEAR AFT ER YEAR IN BOOKS OF ACCOUNT AND HENCE CORRECTLY CATEGORIZED THE INCOME FROM SALES OF THOSE SECURITIES UNDER THE HEAD 'INCOME FROM GAIN'. IT IS REITERATED THAT THE APPELLANT'S INTENTION WAS ALWAYS TO INVEST AND NOT TO TRADE IN THESE INVESTMENTS WITH A VIEW OF CAPITAL APPRECIATION AND ACCORDINGLY APPELLANT HAS ACCOUNTED ACCOUNTED FOR AND VALUED THE SAME AS INVESTMENTS IN ITS BOOKS OF ACCOUNT. IT IS FURTHER SUBMITTED THAT THE TRANSACTION OF PURCHASE AND SALE OF SHARES WOULD BE HELD AS SPECULATIVE BUSINESS ONLY IF THE COMPANY WAS HIT BY THE PROVISIONS OF 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 PROFIT AND GAINS, IF ANY, OF ANOTHER SPECULATION BUSINESS. THE EXPLANATION PROVIDES FOR TWO EXCEPTIONS. THE FIRST EXCEPTION IS AVAILABLE IN THE CASE OF A COMPANY WHOSE JAI BHIKSHU CREDIT AND HOLDING VS. DCIT, ITA NO.2911/DEL/2016 (ASSESSMENT YEAR: 2012 - 13) PAGE | 5 GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER HEAD INTEREST ON SECURITIES', 'INC OME FROM HOUSE PROPERTY, CAPITAL GAIN' AND INCOME FROM OTHER SOURCES'. THE SECOND EXCEPTION IS IN THE CASE OF A COMPANY WHOSE PRINCIPAL BUSINESS IS BUSINESS OF BANKING OR GRANTING LOANS AND ADVANCES. EXPLANATION TO 73 READ AS UNDER: EXPLANATION : WHERE AN Y PART OF THE BUSINESS OF A COMPANY OTHER THAN 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', OR A C OMPANY 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 SPE CULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES. AS IS EVIDENT FROM A PLAIN READING OF THE ABOVE STATUTORY PROVISION OF SECTION 73, IT IS APPARENT THAT IF ANY OF THE FOLLOWING CONDITIONS ARE SATISFIED THE PROVISIONS OF EXPLANATION TO SECTION 73 WILL NOT BE ATTRACTED (I) IF THE GROSS TOTAL INCOME OF THE COMPANY INCLUDES INCOME MAINLY FROM THE HEADS, I.E., 'INTEREST ON SECURITIES', 'INCOME FROM HOUSE PROPERTY', 'CAPITAL GAINS' AND 'INCOME FROM OTHER SOURC ES'. (II) THE PRINCIPAL BUSINESS OF THE COMPANY IS THE BUSINESS OF BANKING OR THE GRANT/ OF LOANS AND ADVANCES. 'THE AFORESAID TWO 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 TOTAL INCOME. THE TEST LAID DOWN IN THE CASE OF THE SECOND CATEGORY OF COMPANY IS THE NATURE OF THE PRINCIPAL BUSINESS CARRIED ON BY IT. IN THE FIRST CATEGORY, WHERE THE TES T IS THAT OF THE CHARACTER OF GROSS TOTAL INCOME THE OTHER TEST RELATING TO THE NATURE OF PRINCIPAL BUSINESS CARRIED ON BY IT DOES NOT APPLY. LIKEWISE IN THE SECOND CATEGORY OF COMPANY WHERE THE TEST IS THE NATURE OF THE PRINCIPAL BUSINESS CARRIED ON BY IT THE TEST OF THE GROSS TOTAL INCOME DOES NOT APPLY. THIS CONDITION SPECIFIES THAT THE PRINCIPAL BUSINESS OF THE COMPANY SHOULD BE BANKING OR GRANTING OF LOANS AND ADVANCES. IT MEANS THAT ANY COMPANY WHOSE PRINCIPAL BUSINESS IS BANKING OR GRANTING OF LOANS AND ADVANCES WILL NOT BE COVERED BY THE EXPLANATION TO SECTION 73. IF ANY ONE OF THE ABOVE TWO CONDITIONS IS SATISFIED, THE COMPANY WILL NOT BE HIT BY THE DEEMING PROVISIONS OF SECTION 73. IN ORDER TO DETERMINE WHETHER THE EXCEPTION THAT IS CARVED OUT BY T HE EXPLANATION APPLIES, THE LEGISLATURE HAS FIRST MANDATED A COMPUTATION OF THE GROSS TOTAL INCOME OF THE COMPANY. THE WORDS 'CONSISTS MAINLY' ARE JAI BHIKSHU CREDIT AND HOLDING VS. DCIT, ITA NO.2911/DEL/2016 (ASSESSMENT YEAR: 2012 - 13) PAGE | 6 INDICATIVE OF THE FACT THAT THE LEGISLATURE HAD IN ITS CONTEMPLATION THAT THE GROSS TOTAL INCOME CONSISTS PRE DOMINANTLY 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 THEREAFTER, THAT IT HAS TO BE DETERMINED AS TO WHETHER THE GROSS TOTAL INC OME SO COMPUTED CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS REFERRED TO IN THE EXPLANATION. THE TWO EXCEPTIONS PROVIDED IN EXPLANATION TO SECTION 73 ARE GOVERNED BY TWO DIFFERENT TESTS LAID DOWN IN THE SAID EXPLANATION ITSELF. THEREFORE, THE EXAMINATION OF THE EXCEPTIONS PROVIDED IN EXPLANATION TO SECTION 73 IS TO BE DONE STRICTLY IN ACCORDANCE WITH THE TESTS LAID DOWN IN THE EXPLANATION.' YOUR GOOD - SELF WILL - KINDLY APPRECIATE THAT IN THE PRESENT CASE YOUR APPELLANT COMPANY SUFFERED LOSSES MAINLY UNDER THE HEAD FROM 'LOSSES FROM CAPITAL GAINS' FURTHER, APPELLANT HAS EARNED EXEMPTED DIVIDEND INCOME. THE APPELLANT COMPANY, THEREFORE, CLEARLY FALLS IN THE FIRST EXEMPTED CATEGORY OF THE COMPANIES WHICH ARE NOT HIT BY PROVISIONS OF EXPLANATION T O SECTION 73, I.E., THE COMPANIES' MAIN INCOME IS FROM HOSE PROPERTY, CAPITAL GAIN AND INTEREST INCOME. IT IS FURTHER SUBMITTED THAT YOUR APPELLANT COMPANY WAS INCORPORATED UNDER THE COMPANIES ACT, 1956 ON 29.07.1994. THE MAIN OBJECTS OF THE COMPANY AS INC ORPORATED IN ITS MEMORANDUM OF ASSOCIATION INTER - ALIA INCLUDE TO CARRY ON THE BUSINESS OF AN INVESTMENT COMPANY AND TO INVEST IN, ACQUIRE, SELL, TRANSFER, SUBSCRIBE FOR, HOLD AND OTHERWISE DEAL IN AND INVEST IN ANY SHARES, BONDS, STOCKS, OBLIGATIONS ISSUE D AND GUARANTEED BY ANY COMPANY OR COMPANIES CONSTITUTED AND CARRYING ON BUSINESS IN INDIA OR ELSEWHERE. THE RESERVE BANK OF INDIA, REGISTERED THE COMPANY AS NON BANKING FINANCIAL COMPANY (NBFC) ON 20.08.1998. THE COMPANY IS MAINLY ENGAGED IN THE ACTIVITY OF FINANCING & MAKING INVESTMENTS IN THE SHARES, SECURITIES, MUTUAL FUND UNITS AND OTHER SECURITIES OF VARIOUS COMPANIES. YOUR GOOD - SELF WILL KINDLY APPRECIATE THAT YOUR APPELLANT COMPANY IS AN APPROVED NON BANKING FINANCE COMPANY (NBFC) WHOSE MAIN BUSINES S IS FINANCING & INVESTMENTS. THE NBFC COMPANIES HAVE BEEN DEFINED AS UNDER: NON - BANK FINANCIAL COMPANIES (NBFCS) ARE FINANCIAL INSTITUTIONS THAT PROVIDE BANKING SERVICES WITHOUT MEETING THE LEGAL DEFINITION OF A BANK, I.E. ONE THAT DOES NOT HOLD BANKING L ICENSE. THESE INSTITUTIONS ARE NOT ALLOWED TO TAKE DEPOSITS FROM THE PUBLIC. NONETHELESS ALL OPERATIONS OF THESE INSTITUTIONS ARE STILL EXERCISED UNDER BANK REGULATION. NBFCS OFFER MOST SORTS OF BANKING SERVICES, SUCH AS LOANS AND CREDIT FACILITIES, PRIVAT E EDUCATION FUNDING, RETIREMENT PLANNING, TRADING IN MONEY MARKETS, JAI BHIKSHU CREDIT AND HOLDING VS. DCIT, ITA NO.2911/DEL/2016 (ASSESSMENT YEAR: 2012 - 13) PAGE | 7 UNDERWRITING STOCKS AND SHARES, TFCS (TERM FINANCE CERTIFICATE) AND OTHER OBLIGATIONS. NON - BANK INSTITUTIONS ALSO FREQUENTLY SUPPORT INVESTMENTS IN PROPERTY AND PREPARE FEASIBILITY, MARKET OR INDUSTRY STUDIES FOR COMPANIES. HOWEVER THEY ARE TYPICALLY NOT ALLOWED TO TAKE DEPOSITS FROM THE GENERAL PUBLIC AND HAVE TO FIND OTHER MEANS OF FUNDING THEIR OPERATIONS SUCH AS ISSUING DEBT INSTRUMENTS. FROM A PERUSAL OF THE AFORESAID DEFINITION OF NBF C, YOUR GOOD - SELF WILL KINDLY OBSERVE THAT NBFC COMPANY IS A COMPANY WHICH PROVIDES THE BANKING SERVICES WITHOUT HOLDING THE BANKING LICENSE. NOW, WE ANALYZE THE SECOND EXCEPTION PROVIDES IN EXPLANATION TO SECTION 73, WHICH READ OUT AS UNDER: OR (II) THE P RINCIPAL BUSINESS OF THE COMPANY IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES. FROM A PLAIN READING OF AFORESAID SECOND EXCEPTION PROVIDED IN EXPLANATION TO SECTION 73, YOUR GOOD - SELF WILL KINDLY OBSERVE THAT SECOND EXCEPTION PROVIDES T HAT IF A COMPANY IS ENGAGED IN THE BUSINESS OF BANKING OR THE GRANTING OF LOAN AND ADVANCES THEN SAID COMPANY IS OUT OF PURVIEW OF EXPLANATION TO SECTION 73 OF THE ACT. IT IS AN UNDISPUTED FACT THAT YOUR APPELLANT COMPANY IS AN APPROVED NBFC MEANING THEREB Y THAT COMPANY IS ENGAGED IN THE BUSINESS OF BANKING SERVICES WITHOUT HOLDING THE BANKING LICENSE. FURTHERMORE THE APPELLANT COMPANY IS ALSO ENGAGED IN THE BUSINESS OF GRANTING OF LOANS AND ADVANCES AND THEREFORE, CLEARLY ALSO FALLS IN THE SECOND EXEMPTED CATEGORY OF THE COMPANIES WHICH ARE NOT HIT BY PROVISIONS OF EXPLANATION TO SECTION 73, I.E., THE COMPANIES' ENGAGED IN THE BUSINESS OF BANKING SERVICES OR IN GRANTING OF LOANS AND ADVANCES. THE APPELLANT COMPANY IS IN THE BUSINESS OF GIVING LOANS AND ADVA NCES, INVESTMENT IN SHARES ETC THEREFORE, EXPLANATION TO SECTION 73 IS NOT APPLICABLE. IT IS SUBMITTED THAT IF ANY ONE OF THE AFORESAID TWO CONDITIONS IS SATISFIED, THE COMPANY WILL NOT FALL INTO THE CLUTCHES OF THE PROVISIONS OF EXPLANATION TO SECTION 73. THE WORD 'OR' WRITTEN IN BETWEEN THE TWO CONDITIONS SUGGESTS THAT EITHER FIRST OR SECOND CONDITION NEEDS TO BE SATISFIED FOR EXCLUDING A COMPANY FROM THE PURVIEW OF EXPLANATION TO SECTION 73. YOUR GOOD - SELF WILL KINDLY APPRECIATE THAT YOUR APPELLANT COMPA NY SATISFIES BOTH THE AFORESAID CONDITIONS AS EXPLAINED HEREIN BELOW: A. THAT THE APPELLANT COMPANY IS HAVING INCOME MAINLY UNDER THE HEADS 'INCOME FROM OTHER SOURCES' (INTEREST INCOME) AND 'INCOME FROM CAPITAL GAINS'. THE COMPANY IS IN THE BUSINESS OF GIV ING LOANS AND ADVANCES, JAI BHIKSHU CREDIT AND HOLDING VS. DCIT, ITA NO.2911/DEL/2016 (ASSESSMENT YEAR: 2012 - 13) PAGE | 8 INVESTMENT IN SHARES, MUTUAL FUNDS, UNITS ETC THEREFORE, CLEARLY SATISFYING THE AFORESAID FIRST CONDITION OF EXPLANATION TO SECTION 73 OF THE ACT. B. THAT FROM A PERUSAL OF SECOND CONDITION, YOUR GOOD - SELF WILL KINDLY OBSERVE THAT THE SECOND CONDITION PROVIDES EXEMPTION TO THE FOLLOWING TWO TYPE OF COMPANIES, FIRST, THE COMPANY, WHICH IS ENGAGED IN THE BANKING BUSINESS OR SECOND, THE COMPANY, WHICH IS ENGAGED IN THE ACTIVITY OF GRANTING OF LOANS AND ADVANCES YOUR GOOD - SELF WILL KINDLY APPRECIATE THAT THE APPELLANT COMPANY IS AN APPROVED NBFC COMPANY AND BEING A NBFC COMPANY, PRINCIPLE BUSINESS OF APPELLANT IS OF BANKING SERVICES. FURTHER THE APPELLANT COMPANY BEING A NBFC IS ALSO IN THE BUSINESS TAKING/GIVING OF LOANS & ADVANCES AND INVESTMENT IN SHARES, MUTUAL FUNDS, UNITS ETC. ACCORDINGLY, THE APPELLANT COMPANY CLEARLY SATISFIED BOTH THE CONDITIONS MENTIONED IN SECOND EXCEPTIONS OF EXPLANATION TO SECTION 73 OF THE ACT. WE REITERATE THAT IF ANY ONE OF THE AFORESAID TWO CONDITIONS IS SATISFIED, THE COMPANY WILL BE EXEMPTED FROM THE CLUTCHES OF THE PROVISIONS OF EXPLANATION TO SECTION 73. THE WORD 'OR' WRITTEN IN BETWEEN THE TWO CONDITIONS SUGGESTS THAT EITHER FIRST OR SECO ND CONDITION NEEDS TO BE SATISFIED FOR EXCLUDING A COMPANY FROM THE PURVIEW OF EXPLANATION TO SECTION 73. WHEREAS IN THE PRESENT CASE, YOUR APPELLANT COMPANY IS SATISFYING BOTH THE AFORESAID CONDITIONS I.E. THE FIRST CONDITION THAT THE HEAD OF INCOME IS TO BE VERIFIED AND THE SECOND CONDITION THAT THE PRINCIPAL BUSINESS OF THE COMPANY SHOULD BE BANKING OR GRANTING OF LOANS AND ADVANCES. YOUR APPELLANT COMPANY HAS MAIN INCOME UNDER THE HEAD CAPITAL GAIN/INCOME FROM OTHER SOURCES I.E. OTHER THAN BUSINESS INCO ME OR BEING A NBFC COMPANY, ITS PRINCIPAL BUSINESS IS BANKING OR GRANTING OF LOANS AND ADVANCES AND, THEREFORE, IT IS NOT COVERED BY THE EXPLANATION TO SECTION 73 OF THE ACT AND THEREFORE, EXPLANATION TO SECTION 73 IS NOT APPLICABLE. IN VIEW OF OUR AFORESA ID SUBMISSIONS, YOUR GOOD - SELF IS REQUESTED TO KINDLY GIVE DIRECTION TO ASSESSING OFFICER TO ACCEPT THE GAIN / LOSS ARISING FROM THE TRANSACTIONS OF SALE/PURCHASE OF SHARES UNDER THE HEAD INCOME/LOSS FROM CAPITAL GAIN. WITHOUT PREJUDICE TO OUR AFORESAID CO NTENTION THAT LOSSES SUFFERED FROM TRANSACTIONS OF SALE / PURCHASE OF SHARES, MUTUAL FUNDS, ETC. ARE LOSS UNDER THE HEAD 'INCOME FROM CAPITAL GAIN' AND NOT SPECULATIVE ACTIVITY, WE WISH TO SUBMIT THAT IN CASE YOUR GOOD - SELF IS OF THE VIEW THAT THE AFORESAI D JAI BHIKSHU CREDIT AND HOLDING VS. DCIT, ITA NO.2911/DEL/2016 (ASSESSMENT YEAR: 2012 - 13) PAGE | 9 LOSS IS FROM SPECULATIVE ACTIVITY THAN IT IS REQUESTED TO PLEASE ALLOW LONG TERM CAPITAL LOSS OF RS. 114,46,874/ - TO BE CARRIED FORWARD TO SUBSEQUENT YEARS (AS SPECULATIVE BUSINESS LOSS) AGAINST SET OFF OF INCOME FROM SPECULATIVE BUSINESS'. 5. THE ISSUE INVOLVED IN THE PRESENT APPEAL IS WHETHER THE APPELLANT'S CASE FALLS IN THE EXCLUDED CATEGORY UNDER EXPLANATION TO SECTION 73. AS PER THE EXPLANATION TO SECTION 73, SUBSTITUTED BY THE FINANCE ACT, 1987 WITH EFFECT FROM 1 - 4 - 1988, WHICH WAS APPLICABLE FOR TH E ASSESSMENT YEAR UNDER APPEAL, THE INVESTMENT COMPANIES WERE NOT AS SUCH EXCLUDED FROM THE OPERATION OF EXPLANATION TO SECTION 73. GENERALLY THE SAID EXPLANATION IS APPLICABLE TO ANY COMPANY WHOSE PART OF THE BUSINESS CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES. THE COMPANIES WHICH ARE EXCLUDED FROM THE OPERATION OF EXPLANATION TO SECTION 73, WITH EFFECT FROM 1 - 4 - 1988 ARE AS UNDER : COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEAD I) INTERES T ON SECURITIES; (II) INCOME FROM HOUSE PROPERTY (III) INCOME FROM CAPITAL GAINS; IV) INCOME FROM OTHER SOURCES; (V) A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING; AND (VI) A COMPANY PRINCIPAL BUSINESS OF WHICH IS OF GRANTING OF LO ANS AND ADVANCES. 5.1. IN ORDER TO DETERMINE AS TO WHETHER THE COMPANY FALLS WITHIN THE EXCLUDED CATEGORY UNDER EXPLANATION TO SECTION 73, IT WILL BE RELEVANT TO FIND OUT THE GROSS TOTAL INCOME OF THE ASSESSEE. TAKING THE DEFINITION OF THE 'TOTAL INCOME' UNDER SECTION 2(45) INTO CONSIDERATION READ WITH THE INCOME - TAX RETURN FORMS AS PER THE RULES, IT CAN BE FOUND THAT THE MEANING OF THE GROSS TOTAL INCOME IS NOT DIFFERENT THAN WHAT IS SPECIFICALLY DEFINED UNDER SECTION 80B(5) FOR THE PURPOSES OF CHAPTER VI A, THAT IS, THE TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT BEFORE MAKING ANY DEDUCTION UNDER THAT CHAPTER. 5.1.1. IN THE INSTANT CASE, AS PER THE PROFIT AND LOSS ACCOUNT, THE BUSINESS LOSS WAS DISCLOSED AT RS. L,66,88,709/ - . THIS W AS AFTER ADJUSTMENT OF DIVIDEND INCOME DISCLOSED IN THE RETURN OF INCOME WAS RS. 2,445/ - . NO DEDUCTION UNDER CHAPTER VIA HAS BEEN CLAIMED. THEREFORE, THE GROSS TOTAL INCOME OF THE ASSESSEE WAS LOSS OF RS. 1,66,88,709/ - . THUS, THE INCOME FROM DIVIDEND WAS R S. 12,52,106/ - AND LOSS IN SHARES WAS RS. JAI BHIKSHU CREDIT AND HOLDING VS. DCIT, ITA NO.2911/DEL/2016 (ASSESSMENT YEAR: 2012 - 13) PAGE | 10 1,77.73.878/ - , .AS HELD BY THE CALCUTTA HIGH COURT IN EASTERN AVIATION & INDUSTRIES LTD. V. CIT [1994] 208 ITR 1023/ 74 TAXMAN 641, THE LOSS IN SHARE TRADING IS ALSO TO BE TAKEN INTO ACCOUNT. THUS, THE COMPONENT OF INCOME/LOSS., ON SHARE TRADING IS SUBSTANTIALLY HIGHER THAN THE INCOME FROM DIVIDEND AND THERE IS NO INCOME REFLECTED IN THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF LOANS AND, ADVANCES. THEREFORE, IT IS NOT POSSIBLE TO APPRECIATE THE A/RS CONTENTION THAT TH E ASSESSEE'S MAIN INCOME WAS DERIVED FROM GRANTING OF LOANS AND ADVANCES. 5.2. IN SO FAR AS THE CONTENTION OF THE A/R IS CONCERNED THAT THE APPELLANT IS ENGAGED IN THE BUSINESS OF BANKING AS IT IS AN APPROVED NBFC AND HENCE PROVIDES BANKING SERVICES WITHO UT HOLDING THE BANKING LICENSE, THE PERUSAL OF THE FINANCIAL STATEMENTS DO NOT SHOW THAT ANY SORT OF BANKING SERVICES ARE PROVIDED. THERE IS NO LOAN OR CREDIT FACILITY PROVIDED, NO LONG TERM OR SHORT TERM FINANCING, NO UNDER WRITING OF STOCKS AND SHARES OR TRADING IN MONEY MARKETS. MOREOVER, NBFCS ARE TYPICALLY NOT ALLOWED TO TAKE DEPOSITS FROM THE GENERAL PUBLIC. HENCE THE APPELLANT IS NOT COVERED BY EITHER OF THE EXCLUSIONARY CLAUSES PROVIDED BY THE EXPLANATION TO SECTION 73 AS IT IS NEITHER IN THE BUSINE SS OF BANKING NOR IN THE BUSINESS OF GRANTING LOANS AND ADVANCES. 5.3. THUS AS DISCUSSED ABOVE, SINCE THE GROSS TOTAL INCOME OF THE APPELLANT DOES NOT MAINLY CONSIST OF BUSINESS INCOME NOR IT IS ENGAGED IN THE BUSINESS OF BANKING OR OF GRANTING OF LOANS O R ADVANCES, IT IS NOT COVERED UNDER EXPLANATION OF SECTION 73. IN THE CASE OF CIT V. ARVIND INVESTMENTS LTD. [1991] 192 ITR 365, THE QUESTION REFERRED TO THE HON'BLE CALCUTTA HIGH COURT WAS WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE TRIBUNAL WA S CORRECT IN HOLDING THAT THE EXPLANATION TO SECTION 73 OF THE INCOME - TAX ACT, 1961 HAS NO APPLICATION IN THE CASE IN VIEW OF THE FACT THAT THE ENTIRE BUSINESS OF THE ASSESSEE WAS IN SHARE DEALING AND WHILE ANSWERING THE SAME IN THE NEGATIVE I.E., IN FAVOU R OF THE REVENUE, IT WAS HELD BY THE HON'BLE CALCUTTA HIGH COURT THAT THE EXPLANATION TO SECTION 73 INTRODUCES A LEGAL FICTION AND IF THE BUSINESS OF A COMPANY WHICH DOES NOT FALL WITHIN THE EXCLUDED CATEGORIES, CONSISTS OF PURCHASE AND SALE OF SHARES OF O THER COMPANIES, THEN SUCH A COMPANY SHALL BE DEEMED TO BE CARRYING ON SPECULATION BUSINESS FOR THE PURPOSE OF SECTION 73 TO THE EXTENT TO WHICH THE BUSINESS CONSISTING OF PURCHASE AND SALE OF SUCH SHARES. IT WAS ALSO HELD THAT THE PROVISIONS OF EXPLANATION TO SECTION 73 HAVE TO BE CONTRASTED WITH THE PROVISIONS OF SECTION 43(5). IT WAS HELD THAT THE EXPLANATION TO SECTION 73, ON THE OTHER HAND, TREATS ANY PURCHASE AND /OR SALE OF SHARES BY CERTAIN COMPANIES TO BE SPECULATIVE FOR THE PURPOSE OF SECTION 73 ON LY. IT WAS HELD THAT FOR THE PURPOSE OF SETTING OFF AND CARRIED FORWARD OF LOSS, THE BUYING AND SELLING OF SHARES BY CERTAIN COMPANIES ARE REGARDED BY THE STATUTE AS SPECULATION BUSINESS EVEN THOUGH THE TRANSFER OF PURCHASE AND JAI BHIKSHU CREDIT AND HOLDING VS. DCIT, ITA NO.2911/DEL/2016 (ASSESSMENT YEAR: 2012 - 13) PAGE | 11 SALE WAS FOLLOWED UP BY DELI VERY OF SCRIPTS AND AS SUCH CANNOT BE TREATED AS 'SPECULATIVE TRANSACTION' AS DEFINED IN SECTION 43(5). THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF PAHARPUR COOLING TOWERS LTD. (338 ITR 295) HAS HELD THAT THE APPLICABILITY OF SECTION 73 IS NOT DEPENDENT ON WHETHER OR NOT THERE IS PHYSICAL DELIVERY OF SHARES AND THUS SECTION 43(5), WHICH DEFINES SPECULATIVE TRANSACTION, AS 'A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OF OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIM ATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS', OPERATES IN DIFFERENT FIELD. IN CONTRADICTION, SECTION 73 APPLIES EVEN TO SHARES THAT ARE TRANSFERRED OR DELIVERED PHYSICALLY. I AM CONSCIOUS THAT MY LEARNED PREDE CESSOR HAS, FOR THE A.Y. 2007 - 08, COME TO A CONCLUSION THAT SINCE THE APPELLANT HAD TRADED THE SHARES THROUGH DELIVERY BASED SHARE TRANSACTIONS IN THE DEMAT ACCOUNT, THE SAME CANNOT BE HELD AS SPECULATIVE BUSINESS. THE OVERWHELMING JUDICIAL OPINION, HOWEVE R, IS THAT SECTION 73 WOULD APPLY EVEN IN A CASE WHERE THERE IS PHYSICAL DELIVERY OF SHARES. THESE DECISIONS, IN ADDITION TO THE ONES CITED ABOVE, ARE AS UNDER: (I) ROHINI CAPITAL SERVICES LTD. VS. DCIT (ITAT, DEL) 92 ITD 317 (II) AMP SPINNING & WEAVING MI LLS (P) LTD. VS. ITO (ITAT, SB - AHD.) 100 ITD 142 (III) RPG INDUSTRIES LTD. VS. CIT (CAL) 338 ITR 313 5.3.1. THEREFORE, IT IS HELD THAT DELIVERY BASED SHARE TRANSACTIONS ARE NOT SPECIFICALLY EXCLUDED FROM THE DEEMING PROVISIONS OF SECTION 73. THERE IS A FU NDAMENTAL DIFFERENCE BETWEEN A SPECULATIVE TRANSACTION PROVIDED U/S 43(5) AND A SPECULATIVE BUSINESS IS DEEMED AS SUCH U/S 73. UNDOUBTEDLY THERE ARE CERTAIN DECISIONS WHICH HAVE HELD THAT THE TRANSACTIONS IN DERIVATIVES AND FUTURES AND OPTIONS WHICH ARE DO NE THROUGH RECOGNIZED STOCK EXCHANGE ARE NOT SPECULATIVE TRANSACTIONS WITHIN THE MEANING OF SECTION 43(5)(D) AND HENCE THESE LOSSES CANNOT BE TREATED AS SPECULATIVE LOSSES. ASSUMING BUT NOT ADMITTING THAT THE APPELLANT INCURRED SPECULATIVE LOSSES U/S 43(5) , EVEN THEN THE APPELLANT'S CASE IS DISTINGUISHABLE, AS IT HAS TRADED IN SHARES OF JK TYRE AND INDUSTRIES LTD., JK PAPER LTD. AND JK SUGAR LTD. MOREOVER THE APPELLANT'S ISSUE HAS NOT BEEN DECIDED ON MERITS BY THE HON'BLE ITAT WHICH HAS DISMISSED THE REVENU ES APPEAL ONLY ON TECHNICAL GROUNDS. IT MAY ALSO BE MENTIONED THAT THE DELHI ITAT IN THE CASE OF FRONTLINE CAPITAL SERVICES LTD. (96 TTJ 201) HAS HELD THAT INSOFAR AS PROVISIONS OF EXPLANATION TO SECTION 73 ARE CONCERNED, THE LANGUAGE IS QUITE CLEAR. IT HA S TO BE APPLIED TO ALL CASES, OTHER THAN EXCLUDED CATEGORY, WHERE ANY PART OF THE BUSINESS OF A COMPANY CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES. THE CATEGORIES OF CASES TO BE EXCLUDED HAVE BEEN SPECIFIED BY THE STATUTE ITSELF AND THE RE IS NO NEED ON THE PART OF JAI BHIKSHU CREDIT AND HOLDING VS. DCIT, ITA NO.2911/DEL/2016 (ASSESSMENT YEAR: 2012 - 13) PAGE | 12 REVENUE TO ESTABLISH OR PROVE TAX AVOIDANCE. THIS DECISION OVER RULED THE SINGLE MEMBER DELHI ITAT DECISION IN THE CASE OF AMAN PORTFOLIO (P) LTD. TO THIS EXTENT, I AM UNABLE TO SUPPORT MY LEARNED PREDECESSOR'S ARGUMENT THAT SP ECULATIVE INCOME EARNED BY THE APPELLANT IN THE ASSESSMENT YEAR 2007 - 08 HAS NO EFFECT ON THE NET TAXES. THE RELEVANT PROVISIONS OF THE INCOME TAX ACT NAMELY SECTION 73 ARE DEEMING PROVISIONS AND THE EFFECT OF THE SAME FOR RATE PURPOSES, TO MY MIND, HAS NO BEARING ON THE ISSUE. FINALLY THE APPELLANT'S ARGUMENT THAT THE APPELLANT CLASSIFIED THESE INVESTMENTS AS LONG TERM INVESTMENTS IN THE BOOKS OF ACCOUNTS IS ALSO NOT FOUND TO HAVE ANY RELEVANCE AS THESE ARE DEEMING PROVISIONS AND THE CLASSIFICATION/TREATMEN TS IN THE BOOKS OF ACCOUNTS ARE IMMATERIAL TO DECIDING THE ISSUE. 5.4. IN CONCLUSION IT IS HELD THAT THE APPELLANT HAS EARNED LOSSES FROM SPECULATIVE BUSINESS ACTIVITY AS IT IS NOT COVERED UNDER THE EXCLUSIONARY CLAUSES OF THE EXPLANATION TO SECTION 73. IN ACCORDANCE WITH THE ALTERNATIVE ARGUMENT TAKEN BY THE A/R IN APPEAL, THAT SHOULD THE LOSSES BE TREATED AS SPECULATIVE LOSSES THEN THE BENEFIT OF CARRY FORWARD MAY BE ALLOWED, IT IS HELD THAT THE APPELLANT IS ENTITLED TO CARRY FORWARD THE SAID LOSSES AS PE R THE PROVISIONS OF SECTION 73(4). KEEPING IN VIEW THE DISCUSSION HEREIN BEFORE THE GROUNDS 3 & 4 STAND DISMISSED. 5 . THE ASSESSEE SUBMITTED THAT IN THE ASSESSMENT YEAR 2007 - 08 WHICH IS RELIED UPON BY THE LD AO , THE LD CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE AND GRANTED RELIEF TO THE ASSESSEE. THE ABOVE ORDER WAS CHALLENGED BY THE AO HAS ALSO BEEN DISMISSED BY THE ITAT. IT WAS FURTHER STATED THAT THE PROVISION OF SECTION 73 OF THE ACT DOS NOT APPLY AS ASSESSEE HAS ACCOUNTED FOR THESE TRANSACTIONS AS INVESTMENT IN BOOKS OF ACCOUNT. IT WAS FURTHER STATED THAT THE PROVISION OF SECTION 73 OF THE ACT WILL NOT BE HIT IF THE GROSS TOTAL INCOME OF THE COMPANY INCLUDES INCOME MAINLY; INCOME FROM OTHER HEADS OR THE PRINCIPLE OF THE COMPANY IS THE BUSINESS OF BANKING OR LOANS AND ADVANCES. HE SUBMITTED THAT DURING THE YEAR THE ASSESSEE HAS SUFFERED LOSSES MAINLY UNDER THE HEAD LOSS FROM CAPITAL GAINS AND FURTHER APPELLANT HAS EARNED EXEMPT DIVIDEND INCOME AND THER EFORE, THE COMPANY CLEARLY FALLS IN THE CATEGORY OF THE COMPANY WHOSE MAIN INCOME IS HOUSE PROPERTY, CAPITAL GAIN AND INTEREST INCOME AND THEREFORE, PROVISION OF SECTION 73 DOES NOT APPLY TO THE COMPANY. FURTHER HE STATED THAT THE COMPANY IS A JAI BHIKSHU CREDIT AND HOLDING VS. DCIT, ITA NO.2911/DEL/2016 (ASSESSMENT YEAR: 2012 - 13) PAGE | 13 NON BANKING FINANCIAL COMPANY REGISTERED WITH THE RESERVE BANK OF INDIA AND IS MAINLY ENGAGED IN THE ACTIVITY OF FINANCING 6 . THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED AO AND THE LEARNED CIT A. HE FURTHER SUBMITTED THAT THE ASSESSEE IS NOT COVERED BY THE EXCEPTION TO SECTION 73 OF THE INCOME TAX ACT. HE REFERRED TO THE ORDER OF THE LEA RNED CIT A WHO CONSIDERED ALL THESE ARGUMENTS. HE THEREFORE SUBMITTED THAT THE ORDER OF THE LEARNED CIT A DESERVES TO BE UPHELD. 7 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. DURING THE YEAR THE AS SESSEE HAS INCURRED THE LOSS FROM BUSINESS OF INR 2 445/ , SHORT - TERM CAPITAL LOSS OF INR 6 327004/ , LONG - TERM CAPITAL LOSS OF RS. 11446874/ AND THE DIVIDEND INCOME OF INR 1252106/ . THE COMPUTATION OF THE TOTAL INCOME IS PLACED AT PAGE NUMBER 10 OF THE PAPER BOOK WHICH SHOWS THAT THE ASSESSEE HAS EARNED THE SHORT - TERM CAPITAL LOSS OF INR 6 327004. ACCORDING TO THE AO THE SAME IS A SPECULATION LOSS IN VIEW OF THE PROVISIONS OF SECTION 73 OF THE INCOME TAX ACT. ACCORDING TO THE ASSESSEE THE PROVISION S OF SECTION 73 DOES NOT APPLY TO THE ASSESSEE AS ASSESSEE IS FALLING INTO THE EXCEPTION. THE PROVISIONS OF SECTION 73 HAS AN EXPLANATION WHICH TALKS ABOUT TREATMENT OF PROFIT AND LOSS ARISING TO A COMPANY IN THE PURCHASE AND SALE OF THE SHARES DEEMED T O BE CARRYING ON SPECULATION BUSINESS. IT PROVIDES THAT EXPLANATION: - 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 SECURITIES, INCOME F ROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES OR A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF TRADING IN SHARES OR BANKING OR THE GRANTING OF LOANS AND ADVANCES) CONSISTS IN THE PURCHASE AND SALE OF THE SHARES OF OTHER CO MPANIES, 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. JAI BHIKSHU CREDIT AND HOLDING VS. DCIT, ITA NO.2911/DEL/2016 (ASSESSMENT YEAR: 2012 - 13) PAGE | 14 8 . ON PLAIN READING OF THE ABOVE EXPLANATION 8 APPLIES TO TH E BUSINESS OF A COMPANY WHICH CONSISTS OF PURCHASE AND SALES OF SHARES . HOWEVER THE EXCLUSION PROVIDES THAT IT DOES NOT APPLY TO FOLLOWING COMPANIES: - A . WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEAD INTEREST ON SECURI TIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES B . THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF TRADING IN SHARES OR BANKING OR GRANTING OF LOANS AND ADVANCES 9 . ON LOOKING AT THE COMPUTATION OF TOTAL INCOME FILED BY THE ASSES SEE BEFORE THE LEARNED ASSESSING OFFICER IT HAS BUSINESS INCOME OF LOSS OF INR 2 445/ , LONG - TERM CAPITAL GAIN EXEMPT U/S 10(38) OF RS. 11446874/ AND EXEMPT DIVIDEND INCOME OF INR 1252106/ . THE LONG - TERM CAPITAL GAIN WHICH IS EXEMPT UNDER SECTION 1 0 (38 ) AS WELL AS THE EXEMPT DIVIDEND INCOME WHICH IS ALSO EXEMPT UNDER SECTION 10 (34) OF THE INCOME TAX ACT DOES NOT ENTER INTO THE COMPUTATION OF THE TOTAL INCOME BUT IS AN EXEMPT INCOME. THEREFORE THE ONLY INCOME WHICH IS CHARGEABLE IS UNDER THE BUSINESS I NCOME OF INR 2 445/ . THEREFORE IT IS APPARENT THAT NO PART OF THE BUSINESS OF THE ASSESSEE COMPANY CONSISTS OF PURCHASE AND SALE OF THE SHARES. MERELY INDULGING IN PURCHASE AND SALE OF SHARES FOR INVESTMENT IS NOT BUSINESS ACTIVITY IN SALE AND PURCHASE OF SHARES OF OTHER COMPANIES FOR THE PURPOSE OF THIS SECTION. SUCH IS THE MANDATE OF HONOURABLE CALCUTTA HIGH COURT 350 ITR 251 IN CASE OF STANDIPACK P LTD V CIT [ CAL]. IN VIEW OF THIS WE REVERSE THE ORDERS OF THE LOWER AUTHORITIES AND HOLD THAT EXPLANA TION TO SECTION 73 DOES NOT APPLY TO THE ASSESSEE COMPANY. ACCORDINGLY GROUND NUMBER 2, 3 AND 4 OF THE APPEAL OF THE ASSESSEE ARE ALLOWED. 10 . ACCORDINGLY APPEAL OF THE ASSESSEE IS ALLOWED. 11 . ORDER PRONOUNCED IN THE OPEN COURT ON 2 8 / 05 / 2019 . - SD/ - - SD/ - ( BEENA A PILLAI ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 8 / 05 / 2019 A K KEOT JAI BHIKSHU CREDIT AND HOLDING VS. DCIT, ITA NO.2911/DEL/2016 (ASSESSMENT YEAR: 2012 - 13) PAGE | 15 COPY FORWARDED TO 1 . APPLICANT 2 . RESPONDENT 3 . CIT 4 . CIT (A) 5 . DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI