TaxTMI 
TaxTMI 
2008 (4) TMI 415
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....2,22,356 worked as under: Profit and gain from business other than speculation Rs. -5,69,001 business : Loss Profit and gain from speculation business Rs. 12,53,427 ------------- Rs. 6,84,426 Less: Brought forward business loss for asst. yr. 1998-99 &nbs....
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....able. The CIT(A) did not agree with the assessee and took the view that the gross total income means the total income computed in accordance with the provisions of this Act before making any deduction under Chapter VI-A. The long-term capital gains of the current year since stands carried forward, therefore, in the gross total income it is only nil income under the head "Capital gains". The income from business being more than the income from capital gains, the assessee company would not be covered by the exceptions as explained in Explanation to s. 73. The CIT(A) accordingly upheld the order of the AO. 5. The learned Authorised Representative before us pointed out that this is an undisputed fact that the assessee has derived the income from business amounting to Rs. 6,84,426 which. consists of income from speculation business-Rs. 12,53,427 and loss from business other than speculation business Rs. 5,69,001. The loss under the head "Long-term capital gains" has been accepted at Rs. 17,14,957. The loss under the head "Capital gains" was thus much more than 51 per cent of the income from business. The case of the assessee is duly covered by the exceptions contained in Explanation ....
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....se of applicability of Explanation to s. 73, 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". Both must enter into the taxable income of the assessee. It was also pointed out that in that case also the assessee has also incurred loss under the head "Business" and that loss was to be carried forward in view of the provisions of s. 72 ultimately there was only nil income which is to be taken in the gross total income for considering whether the assessee's gross total income consists mainly of income which was chargeable under the head "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources". In that case the current year's business loss exceeded the income computed under the head "Income from other sources". Our attention was also drawn towards the decision of the Hon'ble Calcutta High Court in the case of Aryasthan Corporation Ltd. vs. CIT (2002) 172 CTR (Cal) 640 : (2002) 253 ITR 401 (Cal) for the proposition of law that the income under the head will include loss also and for determ....
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.... reading of this Explanation to s. 73 it is apparently clear that this Explanation is applicable. Where any part of the business of a company consists in the purchase and sale of shares of other companies, such company shall, for the purposes of s. 73, be deemed to be carrying on the speculation business to the extent to which the business consists of purchase and sale of shares. Two exceptions are provided under this Explanation and wherever these exceptions are applicable, purchase and sale of shares the business will not be regarded to be the speculation loss. The first exception is applicable to the company whose gross total income consists mainly of income chargeable under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources". The second exception is applicable to a company where the principal business of the company is the business of banking or granting of loans and advances. 9. The claim of the assessee is that the first exception to the Explanation is applicable in his case. The gross total income mainly consists of the income chargeable under the head "Income from capital gains". This is also a fact that the i....
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....: (1975) 99 ITR 118 (SC). The Supreme Court in the case of CIT vs. J.H. Gotla (1985) 48 CTR (SC) 363 : (1985) 156 ITR 323 (SC), in construing the word 'income' in s. 16(3) of the Indian IT Act, 1922, held that the word 'income' would include loss. In this view of the matter, it must be held that the assessee for the year under reference cannot be said to be 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', since business loss exceeds' income computed under the head 'Income from other sources'. As such, the Explanation to s. 73 is clearly applicable and loss suffered by the assessee company in its share trading transactions inclusive of interest paid on borrowed monies attributable to that business was rightly treated by the Tribunal as a loss in speculative business." II, If we go to the facts of the case the business loss returned by the assessee to the extent it could not be set off was in fact carried forward and while computing the gross total income the income under the head 'Business' was nil but in fact the assessee ha....
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....70. When the matter travelled to the High Court on the question whether the Tribunal was justified in directing the AO to compute the total income of the assessee without applying the provisions of Explanation to s. 73 when the loss in share trading exceeded the income from other sources and the loss was a loss from speculative business contrary to the finding of the Tribunal that the loss is not a speculative loss, the Hon'ble High Court at p. 475 held as under: "It is abundantly clear from the said finding that the learned Tribunal had allowed the benefit of the Explanation to s. 73 after setting off of the speculation loss. In order to ascertain whether an assessee would be entitled to the benefit of the Explanation to s. 73, it is to be examined first whether the assessee comes within the exception provided in the said Explanation. It is to be found out as to how it stands before the benefit of the Explanation to s. 73 is allowed. The expression "...gross total income consists mainly of income ... chargeable under the heads ..." used in the Explanation is clear and unambiguous. It gives out the intent of the legislature. Sec. 73 restricts adjustment of speculation loss with ....
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....which in sub-s. (1) makes it clear that speculation loss cannot be set off except against a speculative profit permissible of being carried forward for being set off in the subsequent years stretching to a period of eight years and not otherwise, unless the test of the Explanation is satisfied, which, in our opinion, is not being satisfied in the present case." 14. In view of this decision it is apparently clear that while computing the gross total income even if it has been carried forward but it has to be taken into account as the loss is also treated as a negative profit. In the case of the assessee we find that there is a loss to the extent of Rs. 17,54,836 under the head "Income from capital gains" and there is income under the head "Income from business" at Rs. 6,84,416. Therefore, the income under the head "Capital gains" is much more than the income under the head "Income from business". The assessee therefore in the instant case can be said to be a company whose gross total income consists mainly of the income which is chargeable under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources". As such the case of t....
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....p; (Rs. 10,57,547) Profits and gains from speculation business Rs. 16,59,141 --------------- Total business Income Rs. 6,01,594 6,01,594 The loss of Rs. 10,57,547 arising out of the business other than speculation activity was arrived at by claiming the trading loss of Rs. 24,46,445 with reference to the market value of investment on the date of their conversion against the other business. The assessee was asked to explain as to why this trading loss of Rs. 24,46,445 not be treated as deemed speculation loss in view of the provisions of Explanation to s. 73 of the Act. The assessee claimed that since the loss incurred under the head "Long-term capital loss" amounting to Rs. 1,61,65,5....
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.... 7,72,978 Current year long-term capital loss (1,80,798) Long-term capital loss on 5,37,431 Conversion (with indexation) long-term capital loss on 2,17,431 1,60,06,124 Atul Shares still in stock-to be claimed at the time of their sale 21,326 -------- Long-term capital loss on 3,20,000 shares sold during the year under consideration &....
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....be said to be the one whose gross total income consists mainly of income assessable under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources" and therefore Explanation to s. 73 was applicable in the case of the assessee. 17. The assessee went in appeal before the CIT(A) on both the grounds about the applicability of s. 45(2) as well as Explanation to s. 73 of the Act. Before the CIT(A), assessee contended that the assessee has actually sold 320000 shares of Atul Ltd. out of the shares converted during the year and therefore, as per the provisions of s. 45(2), has incurred loss during the year. The CIT(A) also held that the assessee has not sold the shares converted as stock-in-trade during the year and therefore he took the view that the Explanation to s. 73 was clearly applicable in the case of the assessee. 18. The learned Authorised Representative before us by referring to the computation statement vehemently contended that the assessee has converted 5,37,431 shares of Atul Ltd. in his stock-in-trade and out of these, he sold 3,20,000 shares during the year on which the assessee has incurred the loss of-Rs. 1,59....
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....sessment order under para 3.5 has given the finding that the assessee has not sold the shares during the year but nothing borne out of the assessment order whether the AO has given an opportunity to the assessee to prove the sales of the shares as claimed by the assessee during the year. The assessee has also not brought out any evidence and details except the computation statement before us to prove that the assessee has actually sold 3,20,000 shares of Atul Ltd. which were converted during the year. If the assessee has sold the shares during the year and incurred the loss, the loss as returned by the assessee under the head "Capital gains" in any case is much more than the income from business and one can construe that the gross total income of the assessee consists mainly of the income derived from "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources". In ITA No. 1878/Ahd/2006 relating to asst. yr. 2000-01 we have already held that for ascertaining whether the case of the assessee is covered by the exceptions provided in Explanation to s. 73 both negative and positive income in the respective heads of income has to be considered.....