TaxTMI 
TaxTMI 
2012 (6) TMI 38
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.... to why the business of sale and purchase of shares may not be treated as speculation business as per Explanation to Section 73 of the Act. The assessee submitted before the assessing officer that its company is also doing business of sale and purchase of shares and earning mainly interest by granting loans and advances and income from interest has been shown in the profit and loss account. The assessee stated before the assessing officer that according to the memorandum of association its principal business is to deal and develop real estate. The assessee disclosed receipt of interest amounting to Rs. 9,59,252/-. The assessing officer worked out the net profit as Rs. 9,27,137/-. The speculation loss of Rs. 10,80,336/- was not set off against the net profit and the assessing officer held that speculation loss will only be set off against the speculation profit in the subsequent years. Against the order of the assessing officer dated 22nd March, 1999, the assessee filed an appeal before the Commissioner (Appeals) who by its order dated 6th August, 1999 dismissed the appeal. An appeal was filed before the Income Tax Appellate Tribunal, which has been allowed by the judgment and order....
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....principal business of a company, the profit and loss account of one year is not relevant and the said issue can be determined while taking into consideration the trend of business activities of last several years. Sri Sambhu Chopra has placed reliance on the judgment of the Bombay High Court in the cases of Commissioner of Income Tax v. Amritlal and Co. Ltd. reported in [2012] 212 ITR 540, Commissioner of Income Tax v. Darshan Securities P. Ltd. reported in [2012] 341 ITR 556, judgment of Calcutta High Court in the case of Commissioner of Income tax v. Arvind Investments Ltd. reported in [1991] 192 ITR 365, judgment of the Bombay High Court in the case of Commissioner of Income Tax v. Lokmat Newspapers P. Ltd. reported in [2010] 322 ITR 43 and the case of the Calcutta High Court in the case of Commissioner of Income Tax v. Park View Properties P. Ltd. reported in [2003] 261 ITR 473. 6. Sri V.B. Upadhyaya, learned Senior Advocate, assisted by Sri Rakesh Ranjan Agarwal, appearing for the assessee, refuting the submissions of learned counsel for the revenue, submits that the principal business of the assessee being advancing loans and advances, it was fully covered by exclusionary ....
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....fession which was carried on by the assessee at any time during the previous year. Section 28(i), (ii) and Explanation-II, which are relevant for the purpose, are quoted below:- "28. Profits and gains of business or profession. The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession,- (i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year: (ii) any compensation or other payment due to or received by, - (a), (b), (c) and (d)** ** ** (iii) income derived by a trade, professional or similar association from specific services performed for its members; Explanation 2.- Where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business (hereinafter referred to as "speculation business") shall be deemed to be distinct and separate from any other business." 10. Section 73 of the Act provides for losses in speculation business. Section 73, which falls for consideration in the present appeals, is as follows:- "73. Losses in speculation business. (1....
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....Section 28(1) provides for charging of income tax on profits and gains of any business or profession which was carried on by the assessee at any time during the previous year. Section 28(1) read with Section 73(1) which also uses the words "business carried on" clearly indicate that what is chargeable to the income tax is the business actually carried on and profits and gains of the said business. Explanation to Section 73 of the Act mentions "where any part of the business of a company 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" or a company the principal business of which is the business of banking or granting of loan and advances....". The Explanation to Section 73 of the Act contains a deeming clause which is to the effect that where any part of the business of a company consists in the purchase and sale of the other companies, such company shall, for the purpose of this section, be deemed to be carrying on a speculation business. The Explanation to Section 73 of the Act contains an exclusionary clause, according....
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....rty", (c) "Capital gains" and (d) "Income from other sources". The said provision uses the words "mainly of income". The words "mainly of income" and similarly in the second category the words "principal business of which" mean substantially or primarily. The said words came for consideration in the case of Commissioner of Income Tax v. Amritlal and Co. Ltd. (supra). Following was laid down by the Bombay High Court in the said judgment:- "Thus, in order to term a company an "investment company" its gross total income should consist "mainly" of income from securities, house property, capital gains, etc. The expression "mainly" appearing in the definition of investment company in clause (ii) means "substantially" or "primarily". If the business of the company consists mainly in dealing in goods or merchandise, it cannot be held to be an "investment company" within the meaning of clause (ii) merely because, for one reason or the others, its income from business happens to fall short of its income from investments, etc. in a particular previous year. The decisive factor for determining whether a company is an "investment company" or any other company is, therefore, the true nature o....
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....inst the profits and gains of any other business. Consequently, a loss which has arisen on account of speculation business can be set off only against the profits and gains of another speculation business. However, for Sub Section (1) of Section 73 to apply the loss must arise in relation to a speculation business. The explanation provides a deeming definition of when a company is deemed to be carrying on a speculation business. If, the submission of the Revenue is accepted, it would lead to an incongruous situation, where in determining as to whether a company is carrying on a speculation business within the meaning of the explanation, sub section (1) of Section 73 is applied in the first instance. This would in our view not be permissible as a matter of statutory interpretation, because the explanation is designed to define a situation where a company is deemed to carry on speculation business. It is only thereafter that sub section (1) of section 73 can apply. Applying the provisions of Section 73(1) to determine whether a company is carrying on speculation business would reverse the order of application. That would be impermissible, nor, is it contemplated by Parliament. For, t....
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....unal. The revenue filed appeal before the High Court. The Division Bench in its judgment, as quoted above, held that words "consists mainly" are indicative of the fact that Legislature had in its contemplation that the gross total income consists predominantly of income from the four heads that are referred to therein. In the said case the Division Bench held that gross total income of the assessee was required to be computed by computing the income under the head of profits and gains of business or profession as well. The Division Bench further held that Tribunal was justified in coming to the conclusion that assessee fell within the purview of the exception carved out in the Explanation to Section 73 of the Act and that consequently the assessee would not be deemed to be carrying on a speculation business for the purpose of section 73(1) of the Act. The issue was answered in favour of the assessee. 17. Sri Sambhu Chopra, learned counsel for the revenue, placing reliance on the judgment of the Bombay High Court in Commissioner of Income Tax v. Amritlal and Co. Ltd. (supra) has contended that for finding out true nature and character of a company the income of one assessment yea....
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....ell short of fifty-one percent of its gross total income. The view of the Tribunal taking an overall view of the functioning of the company instead of confining its attention to the income of the year under consideration for the purposes of determining whether the assessee-company was an "investment company" was approved. In the appeals details of return income i.e. of two years (1996-97 and 1998-99) are before us. The Tribunal in paragraph 7 of the order impugned has referred to details of return of income, assessed income and speculation loss, which are to the following effect:- "Assessment year Returned Income Assessed Income Speculation loss directed to be carried forward 1996-97 9,94,300 17,51,290 9,91,073 1998-99 1,53,198 9,27,137 10,80,336" 19. In both the aforesaid assessment years, the assessed income was substantial which was an interest income as compared to loss in sale and purchase of the shares. Thus the income mainly consists of income from interest and the assessee-company was clearly covered under the exclusionary clause of Explanation to Section 73 of the Act. Thus the judgment of the Bombay High....
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....advance the case of the assessee in any way. The object as stated in the circular is to curb the device to manipulate and reduce the taxable income of a company under the management of a controlling group of persons. But the circular has clearly stated in paragraph 19.1 that "the business of purchase and sale of shares by companies which are not investment or banking companies or companies carrying on the business of granting loans and advances will be treated on the same footing as speculation business". Therefore, the circular does not leave any room for doubt that the Explanation will apply to the business of purchase and sale of shares of certain companies. Nowhere in the circular has any indication been given that where the only business of a company consists of purchase and sale of shares, the Explanation will not apply. Therefore, both the questions are answered in the negative and in favour of the Revenue." 22. The aforesaid judgment of the Calcutta High Court does not help the revenue in the present case since present is not a case where entire business of the assessee is purchase and sale of shares. Before the Calcutta High Court the finding that entire business ....
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....issed. There shall be no order as to costs." 24. The aforesaid judgment does not help the revenue in facts of the present case. 25. The last judgment, which has been relied by Sri Sambhu Chopra, is a judgment of Calcutta High Court in the case of Commissioner of Income Tax v. Park View Properties P. Ltd. (supra). In the aforesaid case, the assessing officer disallowed the benefit of Explanation to Section 73 of the Act declining to set off the loss in share dealing on the ground that this share dealing is a speculation business carried on by the assessee. The Commissioner (Appeals) and the Tribunal reversed the order of the assessing officer and allowed the benefit of Explanation to Section 73 of the Act holding that the main source of income consists of income from interest of securities and income from house property. The Calcutta High Court while considering Explanation to Section 73 of the Act, laid down following:- "It is abundantly clear from the said finding that the learned Tribunal had allowed the benefit of the Explanation to Section 73 after setting off of the speculation loss. In order to ascertain whether an assessee would be entitled to the benefit of the Exp....