TaxTMI 
TaxTMI 
2010 (11) TMI 450
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....extent assessee's investment in shares is included as stock-in-trade." 3. The brief facts leading to the above issue are that the assessee is a private limited company filed its return of income for the relevant assessment year 1996-97 on 30-11-1996. The assessee-company is dealing in shares and apart from that is also engaged in the business of earning interest from the advancement of borrowed funds, Consultancy income ad income from sale of debentures. The Assessing Officer concluded that assessee is not an Investment Company as per the Explanation-1 to Section 73 of the Act, as it has earned more income from business or profession than the income from other source or from capital gains. According to the Assessing Officer, assessee's principal business is of dealing in shares and not that of Banking or granting of loans or advances on which it has eared interest income. Accordingly he disallowed loss arising out of business of dealing in shares at Rs.54,65,063/- from the business speculative profit in this year by holding as under:- "On the basis of the analysis of different heads of income and the objections of the assessee the following conclusions therefore eme....
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....eing claimed by them, it may be relevant to look at the financial profile of the company as it emerges from the various documents filed by the appellant: Assessment Year. Funds available. Application of funds Investment in shares - Loans and advances 1994-95 5,45,62,355 0 5,60,29,749 1995-96 6,17,08,153 4,40,00,000 5,59,56,441 1996-97 11,56,07,465 5,38,70,000 7,31,90,517 From the above financial profile there remains no doubt that the appellant has utilized their funds mainly for the purpose of investment in shares and more than that for the purpose of making loans and advances. 11. Finally, the most clinching argument in the appellant's favour regarding their claim that they are a company whose principal business is making loans and advances is the appellant's assessment under the Interest Tax Act. The Interest Tax is leviable on the interest income of banks and credit institutions. Under section 2(5A) of the Interest Tax Act a credit institution has been defined to mean inter alia, many other financial company. Section 2(5B) defines a financial company being inter alia, an investment company, that is to say, a company which carries on as its princip....
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....ccount of the assessee-company as appearing on assessee's paper book page 27, the income from share activity is worked out as under:- Trading in shares 1,25,89,000 Add: Increase/decrease in stock 1,39,89,772 2,65,78,772 Less:- Trading purchases 2,60,12,272 Balance Profit from share activity 05,66,500 We further find from the break up of gross income given on page 50 of the assessee's paper book and computed as per profit and loss account as under:- Income Amount Percentage 1. Income by way of profit on trading activity of shares (as worked out above in Sr.No.1 5,66,500 3.79% 2. Interest earned on loans and Adv,. 96,10,776 64.23% 3. Dividend income from stock holdings as investments 13,85,950 9.2% 4. Other income (As per Sch.J appearing on page 37 of paper book: 5. (a) Consultancy fees income 22,00,000 14.70% 6. (b) Capital gains on sale of Debn. 12,00,000 8.02% 1,49,63,226 We find from the facts of the case that the Assessing Officer has been re-caste the profit and loss a/c and against each activity of income apportioned the expenditure and worked out net income. He worked out from ....
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....- Stock of shares as on 31.3.96 at cost 14496223 Cost of Shares Sold 12022500 Less:- Sale of Shares 12589000 Profit 566500 Annexure-"B" Investment Criteria 31.3.96 (Crores) 31.3.95 (Crores) Loans and Advances 7.32 5.60 Investment 5.38 4.40 12.79 10.00 Stock of Shares 1.45 0.05 Percentage of loan Finance/Investment To stock of share 89.75% 99.50%" 7. Now, the only issue remains in the Revenue's appeal is, whether, in the given facts and circumstances, deeming provisions of Explanation-1 to Section 73(1) are applicable in the assessee's case. The explanation-1 to Section 73(1) is not applicable to a company falling under the following two categories:- "(a) A company, WHOSE GROSS TOTAL INCOME consisted mainly of income which is chargeable under the heads "interest on securities", "income from hose property", "capital gains" and "income from other sources", and (b) A company, the principal business of which is business of banking or granting of loans and advances." We find from the above provision that in the case of principal business of granting of loans and advances by th....