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2009 (7) TMI 1245

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....enditure side), apart from purchases of shares the assessee had debited expenditure such as interest of ₹ 6,39,33,267, legal charges, audit fees and other expenses incidental to the business. The net loss shown was ₹ 15,00,92,345 and it was from this figure that the computation of taxable income was commenced in the return of income as mentioned above. 3. In the course of the assessment proceedings u/s 143(3) of the IT Act, the Assessing Officer took the view, based on the Explanation below sec.73 that the share trading business carried on by the assessee should be deemed to be speculation business to the extent to which the business consisted of the purchase and sale of shares. He therefore proceeded to compute the income or loss of such business and in doing so, recast the results of the share trading business in such a manner that only the opening and closing stock of the shares, the purchases and sales of the shares were taken into account. In this manner, he arrived at the loss from the share trading business at ₹ 9,11,40,511 as follows: Decrease in stock Rs.12,42,59,333 Sales of shares ₹ 7,17,39,712 Purchases ₹ 3,86,20,890 Loss due to tra....

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....6. The assessee filed an appeal before the CIT(A) and questioned the assessment in so far as it related to assessing the dividend, brokerage, kasar and interest on tax refund and to the computation of the speculation loss at ₹ 15,51,84,970. The CIT(A) considered the submissions of the assessee and the authorities cited before him and recorded the following findings: a) The dividend income was received in respect of shares which were held as stock in trade. Therefore it is part of the business income, having been earned in the course of the share trading. b) Kasar, brokerage and dividend income are all inter-linked, undistinguishable and inextricably mixed up and cannot be segregated. c) Since dividend income is part of the business income, it cannot be excluded and separately taxed under the head "other sources"; it is also available for being adjusted against the loss from the share business. Sec.56(2)(i) which taxes dividend under the had "income from other sources" has no role to play in applying the Explanation below Sec.73. d) The Assessing Officer should have computed the profit/loss from the entire business in shares without excluding the various items of income f....

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..... The business cannot obviously be confined only to the purchase and sale; incidental expenditure and receipts are also to be considered as part of the business. In fact, the Assessing Officer himself has considered the expenditure aggregating to ₹ 6,40,44,409 which includes interest expenditure of ₹ 6,39,33,267 as expenditure incidental to the share business and has arrived at the speculation loss at ₹ 15,51,84,970. Having done so, he cannot possibly say that the dividend and kasar income, which are incidental to the share business, cannot be considered as part of the business income. To do so shows an inconsistent approach. Even legally speaking, while applying the Explanation to sec.73 one is not required to bring in the notion of the head of income under which a particular receipt is to be assessed. The Explanation does not refer to any head of income. The dividend income is assessable under the head "income from other sources" according to Sec.56(2)(i) but that notion cannot be brought into the said Explanation because what has to be considered, while applying the Explanation, is the business of shares as a whole. The shares in the present case were held as s....

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....nance Ltd in ITA No.1892/Ahd/1999 (AY 1994-95), dated 2-8-2005 as also in the case of ACIT v Megh Malhar Finestock (P) Ltd (ITA No.5303/Ahd/1996 & ITA No.4599/Ahd/1996, dated 30-7-2002. These orders support the decision of the CIT(A) and the defence put up by the assessee in so as the dividend income and kasar income are concerned. 10. Two orders of the Tribunal cited by the department have to be adverted to. The first is the order of the Mumbai Bench in DCIT v Aakrosh Investment & Leasing (P) Ltd (2004) 90 ITD 287. In this order it was held that where shares are held as stock-in-trade (and not as investment) the dividend on the shares would form part of income from the business. It was accordingly held that where the dividend income is taxable as business income and there is no income to be assessed under the other heads such as "capital gains", "income from house property", "interest on securities" or "income from other sources", the assessee will have income only under the head "business" which would attract the Explanation to sec.73. This decision seems to us to support the assessee and not the department as in the present case it is the contention of the assessee, accepted by....