ITO 4(2)(4), MUMBAI V. MARUDHAR MUDRA P.LTD, MUMBAI

ITA 3166/MUM/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2482 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 30-04-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 08-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VIJAY C KOTHARI
• Keywords: Capital asset; Business income; Depreciation; Speculation loss; Capital receipt

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.3166/MUM/2012 ASSESSMENT YEAR 2007-08 ITO-4(2)(4), ROOM NO.647, 6 TH FLOOR, M.K. ROAD, AAYAKAR BHAVAN, MUMBAI-400020 / VS. M/S MARUDHAR MUDRA PVT. LTD. 101-102, CHARTERED HOUSE, 293-297, DR. C.H.STREET, MARINE LINES, MUMBAI-400002 ( / REVENUE) ( !'# $ /ASSESSEE) PAN. NO. AABCM5764F / REVENUE BY SHRI MAURYA PRATAP-DR !'# $ / ASSESSEE BY SHRI VIJAY C. KOTHARI % & $ ' / DATE OF HEARING : 13/10/2015 & $ ' / DATE OF ORDER: 20 /11/2015 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 15/02/2012 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI. THE ONLY GROUND RAISED IN THIS APPEAL PERTAINS TO A LLOWING M/S MARUDHAR MUDRA PVT. LTD. ITA NO.3166/MUM/2012 2 SHARE TRADING LOSS OF RS.5,65,99,543, BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 2. DURING THE HEARING OF THIS APPEAL, THE LD, D.R., SHRI MAURYA PRATAP, ADVANCED HIS ARGUMENTS WHICH ARE IDE NTICAL TO THE GROUND RAISE BY PLACING RELIANCE UPON THE AS SESSMENT ORDER. ON THE OTHER HAND, THE LD. COUNSEL FOR THE A SSESSEE, SHRI VIJAY KOTHARI, DEFENDED THE ORDER OF THE LD. F IRST APPELLATE AUTHORITY BY INVITING OUR ATTENTION TO PAGE-4 (PARA -4.6) OF THE ASSESSMENT ORDER AND FURTHER PARA-5 (PAGE-14) OF TH E IMPUGNED ORDER BY SUBMITTING THAT THE DEPARTMENT IS NOT IN APPEAL TO THE EFFECT THAT INCOME IS ASSESSABLE FROM OTHER SOURCES. IT WAS ALSO CONTENDED THAT EXPLANATION TO SECTION 73 OF THE ACT IS NOT APPLICABLE TO THE FACTS OF THE CA SE. RELIANCE WAS PLACED UPON THE DECISION IN CIT V/S DARSHAN SEC URITIES PVT. LTD., [2012] 341 ITR 556 (BOM.) AND CIT V/S HS BC SECURITIES AND CAPITAL MARKET INDIA (P) LTD., [2012 ] 208 TAXMAN 439 (BOM.). 2.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL AVAILABLE ON RECORD. BEFORE COMING TO ANY CONCLUSION, WE ARE REPRODUCING HEREUNDER THE RELEVA NT PORTION FROM THE FINDINGS ARRIVED AT IN THE IMPUGNE D ORDER FOR READY REFERENCE:- 5.1. I HAVE CAREFULLY AND DISPASSIONATELY CONSIDE RED THE FACTS AND CIRCUMSTANCES OF THE CASE. BRIEFLY STATED THE FACTS ARE THAT THE APPELLANT COMPANY PAID RS.15 LACS BY ACCOUNT PAYEE CHEQUE NO.80308 DATED 30/02/2006 TO THE BUILDER M/S SKY W HISPER REAL ESTATE PVT. LTD. HAVING RECEIVED THE SAID INITIAL PAYMENT OF RS.15 M/S MARUDHAR MUDRA PVT. LTD. ITA NO.3166/MUM/2012 3 LACS, THE SAID BUILDER MIS SKY WHISPER REAL ESTATE PVT LTD. ALLOTTED 12000 SQ.FT BUILTUP AREA TO THE PRESENT APPELLANT C OMPANY ON THE 9 TH AND 10 TH FLOOR OF THE PROPOSED BUILDING VIDE ALLOTMENT LETT ER DATED 07.02.06 ISSUED IN FAVOUR OF THE APPELLANT. DURING THE PENDENCY OF CONSTRUCTION THE PREVIOUSLY MENTIONED BUILDER APPRO ACHED THE APPELLANT WITH A REQUEST LETTER DATED 09.06.06.THE APPELLANT FILED THEIR LETTER DATED 15.06.06 AND EXPRESSED WILLINGNESS TO SURRENDER THE PREVIOUSLY MENTIONED ALLOTMENT OF 12000 SQ.FT BUILT UP AREA. T HE BUILDER THEN ACCEPTED THE SURRENDER OF ALLOTMENT RIGHTS MADE BY THE APPELLANT AND OFFERED A SUM OF RS.5,65,000/-(RS.5.80 LACS - R S.15 LACS) UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. THE LAO TAXED THE SAID INCOME AS 'BUSINESS INCOME'. I DO NOT AGRE E WITH THE VIEW OF THE LAO THAT THE CANCELLATION OF ALLOTMENT RIGHT IS AN INCOME CHARGEABLE TO TAX UNDER THE HEAD 'INCOME FROM BUSIN ESS/PROFESSION'. THERE IS NO FINDING THAT, AT ANY POINT OF TIME PREC EDING TO THIS, THE APPELLANT HAD ENTERED INTO A SIMILAR AGREEMENT. IT WAS IMPOSSIBLE UPON THE GIVEN FACTS TO HOLD THAT CANCELLATION OF A LLOTMENT OF 12000 SQ.FT BUILT UP AREA WAS IN THE COURSE OF REGULAR BU SINESS. AT THE BEST, IT WAS TANTAMOUNT TO TERMINATION OR PRE-MATUR ED DETERMINATION OF A CAPITAL ASSET AND ANY AMOUNT REC EIVED FOR SUCH PRE-MATURED DETERMINATION CANNOT BE ASSESSED U NDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. RELIANCE IS PLACED ON THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS KANTILAL SHAH & ANR. (1979) 118 ITR 647 (BORN). THEREFORE COMPENSATION RECEIVED FOR PRE-MATURED CANCELLATION OF ALLOTMENT OF A FLAT, WHICH IS NOT A USUAL FEATURE O F BUSINESS CANNOT BE ASSESSED UNDER THE HEAD 'INCOME FROM BUSINESS OR PROFESSION'. 5.2 SECONDLY, THE APPELLANT RECEIVED COMPENSATION FOR SURRENDERING THE RIGHT OF ALLOTMENT IN AN IMMOVABLE PROPERTY. WHEN A RECEIPT IS REFERABLE TO FIXED CAPITAL, IT IS NOT TAXABLE. IT IS TAXABLE AS A REVENUE RECEIPT WHEN IT IS REFERABLE T O CIRCULATING CAPITAL OR STOCK-IN-TRADE. THE BUSINESS OF THE PRESENT APPELLA NT IS NOT OF BUYING AND SELLING OF REAL ESTATE. THEREFORE SUCH COMPENSA TION RECEIVED BY THE APPELLANT CANNOT BE TAXED UNDER THE HEAD 'INCOM E FROM BUSINESS OR PROFESSION'. STRONG RELIANCE IS PLACED ON THE DECISION OF CIT VS SESHASAYEE BROS (P) LTD (1996) 222 ITR 8 18 (MAD). 5.3 THIRDLY, THE LAO HAS NOT DISPUTED THAT THE SUM RECEIVED BY THE APPELLANT WAS A COMPENSATION FOR RELINQUISHING ALL THE RIGHTS THE APPELLANT HAD IN THE ALLOTTED PROPERTY. IT IS N OT DISPUTED THAT THE COMPENSATION WAS A CONSIDERATION RECEIVED TOWARDS R ELINQUISHMENT OR SURRENDER OF THE TENANCY RIGHTS AND OWNERSHIP RI GHTS AND CONSEQUENTLY IT DOES NOT PARTAKE THE CHARACTER OF I NCOME UNDER THE HEAD M/S MARUDHAR MUDRA PVT. LTD. ITA NO.3166/MUM/2012 4 'INCOME FROM BUSINESS OR PROFESSION'. RELIANCE IS P LACED ON THE DECISION IN THE CASE OF CIT VS JOY ICE-CREAMS(BANG.) PVT. LT D (1993) 201 ITR 894(KAR). 5.4 FOURTHLY, HON'BLE GUJARAT HIGH COURT IN THE CAS E OF RAJABALI NAZARALI &SONS VS CIT (1987) 163 ITR 7 (GUJ) HAS HELD THAT MERE TR ANSFER OF VACANT PROFESSION OF SHOP AND COMPENSATION WAS NOTHING BUT PREMIUM RECEIVED FROM TRANSFERRING LEASE HOLD RIGHTS. BURDEN LIES ON THE REVENUE TO SHOW THAT THE RIGHT WAS LIABLE TO TAX. NOMENCLATURE OF RECEIP T WAS IRRELEVANT AND THAT SUCH RECEIPT WAS OF CAPITAL NATURE. HON BLE BOMBAY HIGH COURT IN THE CASE OF CADELL WEAVING MILL CO.(P) LTD VS CIT (2001) 249 ITR 265 (BORN) HELD THAT CONSIDERATION FOR SURRENDERING TENANCY RIGHT I S A CAPITAL RECEIPT ACCRUING ON TRANSFER OF CAPITAL ASSET. 5.5 SIMILAR VIEWS HAVE BEEN ALSO GIVEN BY VARIOUS COURTS AND SUCH DECISIONS MAY BE CITED AS UNDER:- CIT VS SMT T P SIDHWA (1982) 133 ITR 840 (BONI) CIT VS BOMBAY BURMA TRADING CORPORATION (1987) 161 ITR 386(5C) CIT VS MANNA RAMJI & CO.(1972) 86 ITR 29(5C) 5.6 HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE LIGHT OF THE AFORESAID DECISIONS, IT IS HELD TH AT THE LAO HAS WRONGLY CHARGED COMPENSATION RECEIVED BY THE APPELL ANT FROM CANCELLATION OF ALLOTMENT RIGHTS IN THE PREMISES AL LOTTED TO THE APPELLANT UNDER THE HEAD 'INCOME FROM BUSINESS OR PROFESSION' . THE APPELLANT HAS OFFERED SUCH INCOME AS 'INCOME FROM OTHER SOURCES'. 6. THE SECOND LIMB OF GROUND OF APPEAL IS THAT IF SUCH COMPENSATION HAS BEEN OFFERED AS 'INCOME FROM OTHER SOURCES' THEN WH ETHER EXPLANATION TO SECTION 73 OF THE ACT IS APPLICABLE IN THE PRESENT SET OF FACTS ARID CIRCUMSTANCES. IT IS NOT DISPUTED THAT THE APPELLAN T HAS OFFERED RS.3,75,000/- ONLY AS CONSULTANCY FEE UNDER THE HEAD 'INCOME FROM BUSINESS OR PROFESSION'. REMAINING SUM OF RS.13,81,755/- ON ACC OUNT OF INTEREST RECEIVED HAS BEEN OFFERED AND ALSO ASSESSED UNDER T HE HEAD ' INCOME FROM OTHER SOURCES'. THE COMPENSATION FOR SU RRENDERING THE THE ALLOTMENT OF FLATS HAS NOT BEEN HELD AS INCOME UNDE R THE HEAD INCOME FROM BUSINESS & PROFESSION UNDER THE CIRCUMSTANCES, EXP LANATION TO SECTION 73 IS NOT APPLICABLE AS DISCUSSED IN THE FOLLOWING PAR AGRAPHS: 6.1. AS PER EXPLANATION TO SECTION 73 WHERE ANY PAR T OF THE BUSINESS OF A COMPANY CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY IS DEEMED TO BE CARRYING ON A SPECULAT ION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SALE M/S MARUDHAR MUDRA PVT. LTD. ITA NO.3166/MUM/2012 5 OF SUCH SHARES. HOWEVER, THIS FICTION IS SPECIFICAL LY MADE INAPPLICABLE TO COMPANIES WHOSE GROSS TOTAL INCOME CONSISTS MAIN LY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS 'INTEREST ON SECURITI ES', 'INCOME FROM HOUSE PROPERTY', CAPITAL GAINS' AND 'INCOME FROM OTHER SO URCES' OR A COMPANY WHOSE PRINCIPAL BUSINESS IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES. 6.1.1 A PERUSAL OF THE EXPLANATION TO S. 73 WOULD MAKE IT CLEAR THAT WHERE ANY PART OF THE BUSINESS OF THE CO MPANY CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHE R COMPANIES, FOR THE PURPOSE OF S. 73 SUCH COMPANY SHALL BE DEEM ED TO BE CARRYING ON SPECULATION BUSINESS. THERE CAN BE NO D IFFERENCE BETWEEN THE LOSSES SUFFERED IN THE COURSE OF TRADIN G BY DELIVERY AND LOSSES IN TERMS OF THE BOOK VALUE. AS LONG AS T HE ASSESSEE IS CARRYING ON BUSINESS OF TRADING BY WAY OF PURCHASE AND SALE OF SHARES EVEN IF IN RESPECT OF ANY FINANCIAL YEAR, THERE ARE NO TRANSAC TIONS AND YET THE COMPANY HAS STOCK-IN-TRADE OF SHARES, THE BOOK VALUE WILL H AVE TO BE CONSIDERED FOR THE PURPOSE OF CONSIDERING THE PROFIT AND LOSS IN C ASE OF SPECULATIVE BUSINESS. THERE CAN BE NO DOUBT THAT THE EXPLANATIO N TO S. 73 CANNOT BE READ TO MEAN ONLY WHEN THERE IS A PURCHASE AND SALE OF SHARES IN THE COURSE OF THE FINANCIAL YEAR. THE EXPLANATION WILL COVER BOTH THE SHARES WHICH ARE STOCK-IN-TRADE AND SHARES WHICH ARE TRADE D IN THE COURSE OF THE FINANCIAL YEAR FOR THE PURPOSE OF CONSIDERING THE L OSS AND PROFIT FOR THAT YEAR. THE LOSS OF PROFIT ON ACCOUNT OF VALUAT ION AMOUNTS TO REVENUE LOSSES OR REVENUE RECEIPT. PRASAD AGENTS (P) LTD. VS ITO (2009) 226 CTR (BOM) 13. 6.1.2 THE WORDS 'INCOME' OR 'PROFITS ARID GAINS' SH OULD BE UNDERSTOOD AS INCLUDING LOSSES ALSO, SO THAT IN ONE SENSE 'PROFIT S AND GAINS' REPRESENT 'POSITIVE INCOME' WHEREAS 'LOSSES' REPRESENT 'NEGAT IVE INCOME'. IN OTHER WORDS, 'LOSS' IS 'NEGATIVE PROFIT'. BOTH POSITIVE A RID NEGATIVE PROFITS ARE OF REVENUE CHARACTER. BOTH MUST ENTER INTO THE COMPUTA TION, WHEREVER IT BECOMES MATERIAL, IN THE SAME MODE OF THE TAXABLE I NCOME OF THE ASSESSEE. IN EASTERN AVIATION INDUSTRIES LTD. VS CIT (1994) 2 08 ITR 1023 (CAL): THE LOSS OF RS.28,50,358 AS PER PROFIT AND LOSS ACCOUNT COMPRISED LOSS OF S.7,95,447 FROM SPECULATIVE SHARE TRANSACTIONS, LOS S OF 5.12,90,145 FROM REGULAR SHARE DEALING BUSINESS AND INTEREST PA YMENTS OF RS.8,21,400 PERTAINING TO THE SHARES DEALING BUSINE SS. THE ONLY INCOME WAS BY WAY OF DIVIDENDS AMOUNTING TO IS.3,87 ,603. ON THESE FACTS, EXPLANATION TO SECTION 73 WAS HELD TO BE ATTRACTED AS THE BUSINESS LOSS WAS MORE THAN THE DIVIDEND INC OME AND AS SUCH THE ASSESSEE COMPANY COULD NOT BE SAID TO BE A COMPANY WHOSE GROSS TOTAL INCOME CONSISTED MAINLY OF INCOME WHICH WAS CHARGEABLE UNDER THE HEADS 'INTEREST ON SECURITIES' , 'INCOME FROM HOUSE PROPERTY', CAPITAL GAINS' AND 'INCOME FR OM OTHER SOURCES'. M/S MARUDHAR MUDRA PVT. LTD. ITA NO.3166/MUM/2012 6 6.1.3. THIS DECISION WAS FOLLOWED IN ARIJASTIUIN CO RPORATION LTD. VS CIT (2002) 253 ITR 401 (CAL) IN WHICH IT WA S HELD THAT WHEN THE ASSESSEE COMPANY HAD INCURRED LOSS, IN SHORE DE ALINGS FAR IN EXCESS OF INCOME COMPUTED UNDER THE HEAD 'INCOME FROM OTHE R SOURCES' DURING THE RELEVANT PREVIOUS YEAR, IT COULD NOT BE HELD TO BE AN INVESTMENT COMPANY WITHIN THE MEANING OF S. 109(II) AND THEREF ORE, EXPLANATION TO S. 73 WAS CLEARLY APPLICABLE AND LOSS WAS SPECULATIVE LOS S. 6.1.4. ACCORDING TO THE KARNATAKA HIGH COURT IN MYS ORE ROLLING MILLS (P) LTD. VS CIT (1992) 195 ITR 404(KAR): TC46R 257 THE PART OF THE BUSINESS OF THE ASSESSEE-COMPANY CONSISTED OF THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES; IT IS ONLY IN SUCH A SITUATION THA T SUCH DEALING IN SHARES IS DEEMED TO BE CARRYING ON A SPECULATION BU SINESS. THE FACTS OF EACH CASE WILL HAVE TO BE EXAMINED TO ARRIVE AT THE CONCLUSION AS TO WHETHER THE TRANSACTION IN QUESTION IS A SPECULA TIVE VENTURE OR BUSINESS. THE HIGH COURT OBSERVED THAT THE NATURE O F THE ASSESSEE'S BUSINESS IN GENERAL, THE PURPOSE BEHIND THE PARTICULAR TRANSACTION, THE EFFECT OF THE TRANSACTION, ARE ALL TO BE CONSIDERED AND UNLESS IT IS CONCLUSIVELY ESTABLISHED THAT THE ASSESSEE EN TERED INTO THE TRANSACTION CLEARLY AS A SPECULATIVE VENTURE, THE COURTS CANNOT INFER THAT THE TRANSACTION WAS A SPECULATIVE VENTURE ONLY BECAUSE THE ASSESSEE DERIVES SUBSEQUENTLY THE BENEFIT OF TAX REDUCTION. IN THE SAID CASE, THE LOSS ARISING FROM THE PURCHASE AND SALE OF SHAR ES IN A SISTER CONCERN WAS HELD BE A A SHORT TERM CAPITAL LOSS BUT NOT A SPECULATION LOSS. 6.1.5 ASSESSEE COMPANY HAVING INCURRED LOSS IN SHAR E DEALING ACCOUNT FAR IN EXCESS OF INCOME FROM OTHER SOURCES AND DIVI DEND INCOME IT HAS TO BE HELD THAT ITS MAIN INCOME CONSISTS OF BUSINESS OF S HARE TRADING AND TEST OF EXPLANATION TO S. 73 WAS NOT SA TISFIED AND, THEREFORE, THE LOSS INCURRED BY ASSESSEE WAS A LOSS FROM SPECULATIVE BUSINESS. [CIT VS. PARK VIEW PROPERTIES (P) LTD. ( 2003) 261 ITR 473 (CAL)]. 6.1.6 IN WILLIAMSON FINANCIAL SERVICES LTD. VS CIT & ANR. (2007) 290 ITR 385 (GAU) TRIBUNAL HAD NOT RECORDED A DEFINE FINDIN G BASED ON MATERIALS ON THE QUESTION WHETHER ASSESSEE WAS COVERED BY EXPLAN ATION TO S. 73 AND HENCE HIGH COURT REMANDED THE MATTER TO THE TRIBUNA L. 6.1.7 THE HONBLE ITAT, SPECIAL BENCH, MUMBAI IN THE CASE OF ACIT VS CONCORD COMMERCIALS P LTD (2005) 2 SOT 2 76 (MUM) (5B) HAS HELD THAT EXPLANATION TO SEC 73 IS N OT APPLICABLE TO A COMPANY FALLING UNDER ANY OF THE FOLLOWING CAT EGORIES:- M/S MARUDHAR MUDRA PVT. LTD. ITA NO.3166/MUM/2012 7 (I) A COMPANY WHOSE GROSS TOTAL INCOME CONSISTED MA INLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS 'INTEREST ON SE CURITIES', 'INCOME FROM HOUSE PROPERTY', 'CAPITAL GAINS' AND 'INCOME FROM O THER SOURCES'. (II) A COMPANY, THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES. 2.THAT, THE TESTS NECESSARY FOR DETERMINING WHETHER A COMPANY FALLS UNDER ANY OF THE ABOVE TWO EXCEPTIONS ARE PROVIDED IN THE EXP LANATION ITSELF. 3.THAT, IN THE CASE OF A COMPANY FALLING UNDER THE FIRST CATEGORY ABOVE THE TEST IS TO EXAMINE WHETHER GROSS TOTAL INCOME O F THAT COMPANY CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS 'INTEREST ON SE CURITIES', 'INCOME FROM HOUSE PROPERTY', CAPITAL GAINS', AND 'INCOME FROM OTHER S OURCES'. THE COMPOSITION OF GROSS TOTAL INCOME ALONE NEEDS TO BE LOOKED INTO. 4.THAT, IN THE CASE OF A COMPANY FALLING UNDER THE SECOND CATEGORY ABOVE, THE TEST IS TO EXAMINE THE PRINCIPAL BUSINESS CARRI ED ON BY THE COMPANY TO ASCERTAIN WHETHER THE PRINCIPAL BUSINESS IS THAT OF BANKING OR THE GRANTING OF LOANS AND ADVANCES. THE NATURE O F THE PRINCIPAL BUSINESS CARRIED ON BY THE COMPANY ALONE NEED TO BE LOOKED INTO. 6.1.8. THE HON BLE AHMEDABAD TRIBUNAL IN THE CASE OF AAYOJAN INVES TMENTS P LTD VS ACIT (2009) 123 ITA (AHD) 129 HAS HELD TH AT IF ASSESSEE HAVING LOSSUNDER THE HEAD 'CAPITAL GAINS' MUCH MORE THAN T HE INCOME UNDER THE HEAD 'INCOME FROM BUSINESS', THEN SUCH CASE IS COVERED B Y EXCEPTION AS PROVIDED IN EXPLANATION TO S. 73. 6.1.9. HONBLE ITAT MUMBAI BENCH IN THE CASE OF PA RAMOUNT INFORMATION ALSO HELD THAT UPON EXCLUDING THE SPECULATION LOSS OF RS.22,728/-, THE GROSS TOTAL INCOME BECAME A POSITIVE FIGURE OF RS.2 ,957/- AND ACCORDINGLY, INCOME FROM OTHER SOURCES WAS MORE THA N BUSINESS PROFITS AND THEREFORE, ASSESSES'S LOSS ON TRADING I N SHARES WAS NOT ATTRACTED BY PROVISIONS OF SECTION 73. THE ASSESSEE 'S CASE WAS HELD TO BE COVERED BY FIRST EXCEPTION IN EXPLANATION TO SEC TION 73 OF THE ACT. 6.1.10 THE HONBLE MUMBAI TRIBUNAL FOLLOWED THE DECI SIONS IN THE CASE OF IIT INVESTMENTS TRUSTS LIMITED 107 ITI) 257 AND HELD TH AT THE ASSESSEE'S CASE WAS COVERED BY EXCEPTION IN EXPLANATION TO SECTION 73 OF THE ACT. 6,1.11 HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND IN THE LIGHT OF THE AFORESAID JUDI CIAL DECISIONS, IT IS HELD THAT THE PRESENT APPELLANT'S CASE IS COVERE D BY THE FIRST M/S MARUDHAR MUDRA PVT. LTD. ITA NO.3166/MUM/2012 8 EXCEPTION IN EXPLANATION TO S. 73 OF THE ACT AND TH EREFORE, PROVISIONS OF EXPLANATION TO S. 73 WILL NOT APPLY. THE LAO IS DIRECTED TO ALLOW THE SET OFF OF LOSSES INCURRED IN THE SHARE TRADING AGAINST THE ASSESSED INCOME. THEREFORE THE AFORESAID GROUND OF APPEAL IS ALLOWED. 7. IN THE RESULT, THE APPEAL IS ALLOWED. 2.2 IF THE OBSERVATION MADE IN THE ASSESSMENT ORDER , LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCLUSION DR AWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSER TIONS MADE BY THE LD. RESPECTIVE COUNSELS, IF KEPT IN JUX TAPOSITION AND ANALYZED, WE NOTE THAT AS PER THE PROFIT & LOSS A/C FOR THE YEAR ENDED 31 ST MARCH 2007, FOLLOWING RECEIPTS / INCOME WERE DISCLOSED BY THE ASSESSEE:- 1. CONSULTANCY INCOME RS. 3,75,000 2. INTEREST RECEIPT RS. 13,81,755 3. COMPENSATION RECEIVED RS, 5,65,00,000 TOTAL: RS. 5,82,56,755 NOW, WE SHALL ANALYSE THE PROFIT & LOSS A/C FOR TH E YEAR ENDING 31 ST MARCH 2007, WHEREIN FOLLOWING EXPENSES / OUTGOINGS WERE DEBITED BY THE ASSESSEE:- 1. LOSS ON SALE OF SHARES RS.5,65,99,543 2. ADMINISTRATION OTHER EXPENSES RS.12,61,798 3. DEPRECIATION RS.88,664 4. DIRECTORS REMUNERATION RS.1,50,000 TOTAL: RS.5,81,00,005 M/S MARUDHAR MUDRA PVT. LTD. ITA NO.3166/MUM/2012 9 WE NOTE THAT IN ORDER GIVING EFFECT TO THE ORDER O F THE LD. FIRST APPELLATE AUTHORITY, THE COMPUTATION OF INCOM E WOULD BE AS UNDER:- INCOME FROM BUSINESS & PROFESSION CONSULTANCY INCOME RS.3,75,000 INTEREST RS.13,81,755 LESS: EXPENSES & OUTGOINGS AS PER PROFIT & LOSS A/C RS.(5,81,00,005) RS.(5,63,43,250) INCOME FROM OTHER SOURCES COMPENSATION RECEIVED RS.5,65,00,000 TOTAL INCOME RS.1,56,750 IF THE AFORESAID TABLES ARE ANALYSED, ONE UNDISPUT ED FACTS IS OOZING OUT THAT THE TOTAL INCOME ASSESSED FOR TH E YEAR WAS UNDER THE HEAD INCOME FROM OTHER SOURCES BECAUSE THE LD. A.O. WRONGLY CHARGED COMPENSATION FROM CANCELLATION OF ALLOTMENT RIGHTS IN THE PREMISES ALLOTTED TO THE AS SESSEE UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION . IT IS ALSO NOTED THAT THE ASSESSEE ALSO OFFERED SUCH INCOME AS INCOME FROM OTHER SOURCES . NOW, QUESTION ARISES WHETHER EXPLANATION TO SECTION 73 OF THE ACT IS APPLICABLE TO THE FACTS AN D THE CIRCUMSTANCES AVAILABLE ON RECORD. WE NOTE THAT IT IS NOT IN DISPUTE THAT THE ASSESSEE OFFERED RS.3,75,000 ONLY A S CONSULTATION FEES UNDER THE HEAD INCOME FROM BUSINESS OR M/S MARUDHAR MUDRA PVT. LTD. ITA NO.3166/MUM/2012 10 PROFESSION AND THE REMAINING AMOUNT OF RS.13,81,755, WAS ON ACCOUNT OF INTEREST RECEIVED WHICH WAS OFFERED A ND ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES . THE COMPENSATION FOR SURRENDERING THE ALLOTMENT OF FLAT S HAS NOT BEEN HELD AS INCOME UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION THEREFORE, EXPLANATION TO SECTION 73, IN OUR VIEW, IS NOT APPLICABLE BECAUSE AS PER SECTION 73, WHERE ANY PART OF THE BUSINESS OF A COMPANY CONSIST IN PURCHA SE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY IS DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSIST OF PURCHASE AND SALE OF SUCH S HARES. IT IS ALSO OBSERVED THAT THE FICTION IS SPECIFICALLY MADE INAPPLICABLE IN THE CASES OF THE COMPANY WHOSE GROSS TOTAL INCOM E CONSIST MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEAD INTEREST ON SECURITIES , INCOME FROM HOUSE PROPERTY , CAPITAL GAINS AND INCOME FROM OTHER SOURCES OR A COMPANY WHOSE PRINCIPAL BUSINESS IS BUSINESS OF BANKING OR GRANTI NG LOANS AND ADVANCES. OUR VIEW IS FORTIFIED BY THE RATIO LA ID DOWN IN PRASAD AGENTS (P) LTD. V/S ITO, [2009] 227 CTR (BOM .) 13. THE WORD INCOME OR PROFIT & GAINS SHOULD BE UNDERSTOOD AS INCLUDING LOSSES ALSO. IN VIEW OF THE FACT, IT CAN BE CONCLUDED THAT PROFITS AND GAINS REPRESENT POSITIVE INCOME WHEREAS LOSSES REPRESENTS NEGATIVE INCOME OR IT CAN BE SAID THAT LOSS IS NEGATIVE PROFIT . BOTH POSITIVE AND NEGATIVE PROFITS ARE OF REVENUE IN CHARACTER. THE RATIO LAID DOWN IN EAS TERN AVIATION INDUSTRIES LTD. V/S CIT, [1994] 208 ITR 10 23 (CAL.) SUPPORTS OUR VIEW. THIS DECISION WAS FOLLOWED IN AR YASTHAN M/S MARUDHAR MUDRA PVT. LTD. ITA NO.3166/MUM/2012 11 CORPORATION LTD V/S CIT, [2002] 253 ITR 401 (CAL.) WHEREIN IT WAS HELD THAT WHERE THE ASSESSEE COMPANY HAD INCURR ED LOSS, IN SHARE DEALING FAR IN EXCESS OF INCOME COMPUTED U NDER THE HEAD INCOME FROM OTHER SOURCES , DURING THE RELEVANT PREVIOUS YEAR, IT COULD NOT BE HELD TO BE AN INVEST MENT COMPANY WITHIN THE MEANING OF SECTION 109(II), THER EFORE, EXPLANATION TO SECTION 73 WAS APPLICABLE AND LOSS W AS SPECULATIVE LOSS. IN ANOTHER CASE OF MYSORE ROLLING MILLS P. LTD. V/S CIT, 195 ITR 404 (KAR.), THE HONBLE HIGH COURT HELD THAT EXPLANATION IS ATTRACTED ONLY WHEN PART OF BUSINESS OF THE ASSESSEE COMPANY CONSISTED OF PURCHASE AND SALE OF SHARES OF OTHER COMPANIES. IT IS ONLY IN SUCH A SITUATION THA T SUCH DEALING IN SHARES IS DEEMED TO BE CARRYING ON SPECU LATION BUSINESS. THUS, THE FACTS OF EACH CASE HAVE TO BE E XAMINED INDEPENDENTLY TO ARRIVE AT A CONCLUSION AS TO WHETH ER THE TRANSACTION IN QUESTION IS A SPECULATIVE VENTURE OR BUSINESS. THUS, IT CAN BE CONCLUDED THAT HAVING THE ASSESSEE COMPANY INCURRED LOSS IN SHARE DEALING ACCOUNT FAR IN EXCES S OF INCOME FROM OTHER SOURCES AND DIVIDEND INCOME, IT HAS TO B E CONCLUDED THAT ITS MAIN INCOME CONSIST OF BUSINESS OF SHARE TRADING THUS, THE TEST OF EXPLANATION TO SECTION 73 IS NOT SATISFIED. THE SPECIAL BENCH OF THE TRIBUNAL IN CON CORD COMMERCIALS PVT. LTD., [2005] 2 SOT 276 (MUM.) (SB) , HELD THAT EXPLANATION TO SECTION 73 IS NOT APPLICABLE TO A COMPANY WHICH IS FALLING UNDER ANY OF THE CATEGORIES MENTIO NED HEREUNDER:- M/S MARUDHAR MUDRA PVT. LTD. ITA NO.3166/MUM/2012 12 (I) A COMPANY WHOSE GROSS TOTAL INCOME CONSISTED MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SROUCES. (II) A COMPANY, THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES. 2. THAT, THE TESTS NECESSARY FOR DETERMINING WHETHE R A COMPANY FALLS UNDER ANY OF THE ABOVE TWO EXCEPTIONS ARE PROVIDED IN THE EXPLANATION ITSELF. 3. THAT, IN THE CASE OF A COMPANY FALLING UNDER THE FIRST CATEGORY ABOVE THE TEST IS TO EXAMINE WHETHER GROSS TOTAL INCOME OF THAT COMPANY CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INCOME FROM OTHER SOURCES , INCOME FROM HOUSE PROPERTY , CAPITAL GAINS AND INCOME FROM OTHER SOURCES . THE COMPOSITION OF GROSS TOTAL INCOME ALONE NEEDS TO BE LOOKED INTO. 4. THAT, IN THE CASE OF A COMPANY FALLING UNDER THE SECOND CATEGORY ABOVE, THE TEST IS TO EXAMINE THE PRINCIPLE BUSINESS CARRIED ON BY THE COMPANY TO ASCERTAIN WHETHER THE PRINCIPAL BUSINESS IS THAT OF BANKING OR THE GRANTING OF LOANS AND ADVANCES. THE NATURE OF THE PRINCIPAL BUSINESS CARRIED ON BY THE COMPANY ALONE NEED TO BE LOOKED INTO. WE FURTHER NOTE THAT THE ASSESSEE FINDS SUPPORT F ROM THE RATIO LAID DOWN IN PARAMOUNT INFORMATION SYSTEMS PV T. LTD. AND AAYOJAN INVESTMENTS PVT. LTD. V/S ACIT, [2009] 123 TTA (AHD.) 129 AND IIT INVESTMENT TRUST LTD. 107 ITD 25 7. THUS, IN TOTALITY OF THE FACTS AND CIRCUMSTANCES AND THE CASE LAWS CLEARLY INDICATE THAT THE PRESENT CASE IS COVERED B Y THE FIRST M/S MARUDHAR MUDRA PVT. LTD. ITA NO.3166/MUM/2012 13 EXCEPTION IN EXPLANATION TO SECTION 73 OF THE ACT, THEREFORE, THE PROVISIONS OF EXPLANATION TO SECTION 73 WILL NO T APPLY, CONSEQUENTLY, WE FIND NO INFIRMITY IN THE CONCLUSIO N DRAWN BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). THE O RDER OF THE FIRST APPELLATE AUTHORITY, THEREFORE, IS AFFIRMED. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 13/10/2015. SD/- SD/- ( RAJESH KUMAR ) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER % MUMBAI; ( DATED : 20/11/2015 F{X~{T? P.S/. . . %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. *+,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. 0 0 1$ ( *+ ) / THE CIT, MUMBAI. 4. 0 0 1$ / CIT(A)- , MUMBAI 5. 34 .$ ! , 0 *+' *! 5 , % / DR, ITAT, MUMBAI 6. 6' 7% / GUARD FILE. / BY ORDER, /3+$ .$ //TRUE COPY// / (DY./ASSTT. REGISTRAR) , % / ITAT, MUMBAI.