Soma Textiles & Inds. Ltd. V. Dy. C.I.T. (Assessment)

TAXAP/332/2002

AI Insights

The case revolves around a tax dispute involving M/S. Soma Textiles & Inds. Ltd., the appellant, and the Deputy Commissioner of Income-tax (Assessment), the respondent. The core issue was the interpretation of Explanation to Section 73 of the Income-tax Act, 1961, in conjunction with Section 32(3) of the Unit Trust of India Act, 1963, concerning the treatment of units purchased from the UTI. The appellant contested the disallowance of a short-term capital loss of Rs.18,30,000, which was initially accepted by the lower tax authorities. The Income Tax Appellate Tribunal had partly allowed the appellant's appeal, which led to the current appeal in the High Court of Gujarat.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 798795 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 17-11-2014
• Assessment Year: misc
• Other Referred Cases: Apollo Tyres Ltd. v. Commissioner of Income-tax
• Laws Referred To: Income-tax Act, 1961, Unit Trust of India Act, 1963
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: VARUN PATEL
• Assessee Lawyers: R K PATEL
• Keywords: Assessment; Income Tax; Short Term Capital Loss; Speculative business; Tax appeal; Unabsorbed Investment Allowance
• Section: 143(3); 73; 260A; 143(1)(a); 32(3)

Judgement Text

"O/TAXAP/332/2002 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 332 of 2002 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ M/S.SOMA TEXTILES & INDS.LTD.....Appellant(s) Versus DY.C.I.T. (ASSESSMENT)....Opponent(s) ================================================================ Appearance: MR RK PATEL, ADVOCATE for the Appellant(s) No. 1 MR.VARUN K.PATEL, ADVOCATE for the Opponent(s) No. 1 ============================================================ ==== CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and Page 1 of 5 O/TAXAP/332/2002 JUDGMENT HONOURABLE MR.JUSTICE K.J.THAKER Date : 17/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. This Tax Appeal u/s.260A of the Income­tax Act, 1961 is filed against the judgment and order dated 21.05.2002 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench in ITA No.569/AHD/1995 whereby, the appeal filed by the assessee was allowed in part. 2. Briefly stated, the assessee is engaged in the business of manufacturing of textiles. The assessee filed its original return of income on 30.12.1991 showing income at Rs.39,57,860/­. It was revised on 06.03.1992 by showing income at Rs.8,88,860/­. The reason given for revising the return was a mathematical error. After carrying out certain adjustments, out of Rs.2,47,47,941/­ instead of the previous claim of Rs.2,16,98,941/­. The return was against revised on 31.03.1992 making the total income at Rs.Nil. The reason given was the revised order passed by the A.O for A.Y. 1984­85 u/s.143(3) of the Act. The claim of unabsorbed investment allowance was revised at Rs.2,67,17,618/­ against the revised claim of Rs.2,47,67,941/­. The return was processed u/s.143(1)(a) on 04.12.1992 adjusting Rs.18,30,000/­ as per explanation to Section 73 of the Act. The assessee applied for rectification contending that it is out of the purview of Section 73 as well as Section 143(1)(a) of the Act. However, the contention was not accepted. Assessment scrutiny was undertaken and Page 2 of 5 O/TAXAP/332/2002 JUDGMENT ultimately, the A.O passed the order of assessment u/s.143(3). 3. Against the aforesaid order, appeal was filed before the CIT(A). Vide order dated 30.11.1994, the CIT(A) partly allowed the appeal by directing the A.O to recompute the allowance allowable to the assessee. Being aggrieved by the same, the assessee filed appeal before the Appellate Tribunal. Vide judgment and order dated 21.05.2002, the Appellate Tribunal allowed the appeal of the assessee in part. Against the said order, the present appeal has been preferred. 4. While admitting the matter on 17.01.2003, the following substantial question of law was formulated for our determination; “Whether on the facts and in the circumstances of the case, the Tribunal is right in law in its interpretation of explanation to Section 73, read along with section 32(3) of the Unit Trust of India Act, 1963 for confirming disallowance of Rs.18,30,000/­ in respect of short term capital loss claimed by the appellant Company?” 5. We have heard learned counsel for both the sides. The issue involved in this appeal is already concluded by the decision of the Apex Court in the case of Apollo Tyres Ltd. v. Commissioner of Income­tax, [2002] 255 ITR 273 (SC) and more particularly, on the observations made in Paras – 8 & 9 therein, which reads as under; Page 3 of 5 O/TAXAP/332/2002 JUDGMENT “8. The last point for our consideration is : whether buying and selling of units by the assessee­company can be treated as a speculative business? For this purpose, the revenue argues that the units purchased by the assessee­company from the UTI are shares, therefore, as per Explanation to section 73 of the Act, the said business of purchasing and selling of shares will have to be treated as a business of speculation. The revenue in support of this argument, relies on section 32(3) of the UTI Act which reads as follows : “(3) Subject to the foregoing sub­sections, for the purposes of the Income­tax Act, 1961 ­ (a) any distribution of income received by a unit holder from the Trust shall be deemed to be his income by way of dividents; (b) the Trust shall be deemed to be a company.” 9. Relying on the above provision of the UTI Act, the revenue contends that if the UTI is a company and income from its units is divident, then ipso facto the units will have to be shares, therefore, the business of purchase and sale of units conducted by the assessee­company will have to be deemed to be a business in shares which business, according to the revenue, attracts Explanation to section 73. On this basis, it is contended that the business of purchase and sale of units by the assessee­company amounts to a business of speculation. Both the Tribunal and the High Court have considered this argument as also the effect of section 32(3) of the UTI Act and have come to the conclusion that the provision of the said Act is limited for the purpose of assessment of divident income under the Act, and for deduction of tax at source. They have held that the legal fiction created by section 32(3) of the UTI Act cannot be carried any further. We have examined the provisions of the UTI Act and we are of the opinion that even though the said section creates a fiction to make the UTI as a deemed company and distribution of income received by the unit holder as a deemed dividend, by virtue of these deemed provisions, it cannot be said that it also makes the unit of the Page 4 of 5 O/TAXAP/332/2002 JUDGMENT UTI a deemed share. In our opinion, a deeming provision of this nature, as found in section 32(3), should be applied for the purpose for which the same deeming provision is specifically enacted, which in the present case, is confined only to deeming the UTI as a company and deeming the income from the units as a dividend. If as a matter of fact, the Legislature had contemplated making the unit as also a deemed share, then it would have stated so. In the absence of any such specific deeming in regard to the units as shares, it would be erroneous to extend the provisions of section 32(3) of the UTI Act to the units of UTI for the purpose of holding that the unit is a share. For these reasons, we are in agreement with the finding of the High Court on this point also.” 6. Learned Standing Counsel Mr. Varun Patel appearing for the Revenue is not in a position to dispute the aforesaid proposition of law. 7. In view of the same, the issue is answered in favour of the assessee and against the Revenue. Since we are concurring with the view taken in the aforesaid decision, no elaborate reasons are assigned while disposing of this appeal. Accordingly, the appeal stands allowed. (K.S.JHAVERI, J.) (K.J.THAKER, J) Pravin/* Page 5 of 5 "