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2003 (2) TMI 171
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.... similar transaction and to subsidise, finance or assist in subsidising or financing the sale and maintenance of any goods, articles or commodities of all or any kind and description upon any terms or immovable and movable property including land, buildings and also to provide advice, counsel and services. B. To finance industrial and trading enterprises and for that purpose lend and advance monies to entrepreneurs, promoters and industrial or trading concerns on such terms and conditions and with or without securities as may be thought appropriate." In the light of the above object, it is claimed by the assessee-company that it is an investment company. 3. The appellant-company filed a revised return declaring a loss of Rs. 29,71,990 and also claimed some carry forward losses and unabsorbed depreciation of earlier years, which have to be carried forward to subsequent years. The audited annual report for the year ended 31st March, 1997, relevant for the assessment year 1997-98, to the extent relevant for our purposes, reads as under- "..... Profit & Loss Account for the year ended 31-3-1997 ------------------------------------------------------------------------ ....
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.... 3,51,80,951 -------------------- Expenditure 1,40,47,723 Decrease in Stocks H 2,06,09,615 Purchase of Goods/shares 6,11,758 Administrative Expenses Salaries and other benefits to the employees J  ....
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....sp; -------------------- The computation of total income, as per the revised return filed by the assessee reads as under- "Income from business Loss as per profit & Loss Account (29,53,244) Add: Depreciation considered separately 85,869 ---------------- (28,67,375) Less: Dividends considered separately &nbs....
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.... Short term capital gains on sale of vehicle 8,120 Income from other sources Dividends 21,89,445 ---------------- Loss to be carried forward and 29,71,993 set off againt future year's profits . . . ." &nbs....
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.... Rs. 25,29,699 Interest income Rs. 24,904 Miscellaneous Income Rs. 6,00,000 Rs. 31,54,603 C. Short Term Capital Gains on sale of Vehicle Rs. 8,120 ----------------- Total Income &nbs....
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....p; 25,29,699 Interest 24,904 Misc. Income 6,00,000 31,54,603 --------------- Income from purchase and sale of waste: Sale 1,75,75,135 Less: Purchase price 80,80,816 Profit &n....
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....nbsp; 21,89,445 Loss from speculation in terms of Explanation to section 73(4) Sale of shares 1,22,42,135 Less: Decrease in stock 1,40,47,723 To purchase of shares 1,25,28,799 Finance charges 26,86,203 ------------- ....
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....at the assessee-company held shares as investments, and such investments were shown in the Balance Sheet as on 31st March, 1997, i.e. on the last day of the accounting year 1996-97 at Rs. 1,33,48,429, and so, the assessee is an investment company, to which Explanation to section 73 is not applicable. The CIT(A) rejected the said contention, and relying upon the decision of the Calcutta High Court in Eastern Aviation & Industries Ltd. v. CIT [1994] 208 ITR 1023, he held that the assessee's business of purchase and sale of shares is hit by Explanation to section 73, as its gross total income did not consist mainly of the specified categories of income, which are the following - (a) income from house property, (b) interest on securities; and (c) Capital gains. He computed the total income of the assessee at Rs. 1,61,25,189 with the following observations- "11. During the course of final hearing, the A.R. also submitted that the entire finance charges of Rs. 26,86,203 did not pertain to only purchase of shares and it was incurred for reducing the unsecured loans and sundry creditors. The A.R. has submitted that out of Rs. 150 lakhs of unsecured loans as on 31-3-1997, a sum of Rs. 45....
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....Less: Purchase price 80,80,816 Profit 94,94,319 ------------- Total 1,26,48,922 &n....
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....; 1,22,42,135 Less: Decrease in stock 1,40,47,723 To purchase of shares 1,25,28,799 Finance charges 17,90,802 ------------- 2,83,67,324 &nbs....
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....bsp; -------------- The Assessing Officer is directed to calculate the tax on the above total income and send a Demand Notice for the extra amount to the appellant. Needless to mention that the speculation loss of Rs. 1,61,25,189 is to be allowed to be carried forward and given set off according to the relevant provisions of the Act. 13. Appeal dismissed and income enhanced: 8. The CIT(A) also rejected the contention of the assessee that the erosion in the market value of the shares should not be taken into consideration as part of the business of the purchase and sale of shares, and so, should not be considered as speculation loss, on the ground that such loss arose on account of share transaction. He, however, held that the entire finance charges of Rs. 26,86,203 did not pertain only to the purchase and sale of shares and so held that 1/3rd of finance charges did not pertain to the share transactions. He accordingly held that an amount of Rs. 8,95,401 out of financ....
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...., and the expression "other than a company as defined in clause (ii) of section 109" that figured in the said Explanation earlier had been substituted by the expression-"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'. In the light of this, he pleaded that it is immaterial whether the assessee-company was an investment company or not for the application of the Explanation to section 73. He also pointed out that what has to be seen is whether the gross total income of the assessee consisted mainly of the specified categories of income, and even losses have to be counted as income, while considering the application of the Explanation. If a substantial portion of the income of the assessee consisted of loss from share transactions, it has to be held that the Explanation to section 73 is applicable, even if a small portion of the gross total income consisted of income assessable under the head "other sources". In other words, the learned Departmental Representative explained that simply because the loss is a negative figure....
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.... The appellant is a company (b) Its gross total income does not consist mainly of the following incomes- (i) Interest on securities (ii) Income from House property (iii) Capital gains (iv) Income from other sources (c) The principal business of the assessee is not banking or granting of loans and advances (d) A part of the business of the assessee consists of purchase and sale of shares. We find that the income assessable under the head 'other sources' in the case on hand, is a marginal figure of Rs. 21,89,445, as mentioned in the show-cause notice issued by the CIT(A), which we have extracted above. The income from purchase and sale of yarn waste, before deduction of expenditure is Rs. 94,94,319, and income from business, i.e. inclusive of commission, interest and miscellaneous income is Rs. 1,19,12,225. The loss from the share transactions is Rs. 1,70,20,590, as indicated in the same show-cause notice given by the CIT(A). With these figures of substantial income from business, which included transactions from sale of yarn and transactions resulting in substantial loss from purchase and sale of shares, it can hardly be said that the gross total income of th....
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....the light of clear language of section 73, what has to be seen is only the composition of the gross total income and not the percentage of the funds of the assessee held as investments. This criterion has no bearing at all on the consideration of the issue on hand. In the case of Easter Aviation & Industries Ltd, relied upon by the learned Departmental Representative, the Hon'ble Calcutta High Court observed as under- "It is by now well settled that the words "income" or "profits and gains" should be understood as including losses also so that in one sense "profits and gains" represent "positive income" whereas "losses" represent "negative income", In other words, "loss" is "negative profit". Both positive and negative profits are of revenue character, Both must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee. Reference, in this context may be made to the decision of the Supreme Court in CIT v. Harprasad and Co. (P.) Ltd. [1975] 99 ITR 118. The Supreme Court in the case of CIT v. J.H. Gotla [1985] 136 ITR 323, in construing the word "income" in section 16(3) of Indian Income-tax Act, 1922, held that the word "income....