TaxTMI 
TaxTMI 
2016 (3) TMI 490
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....see in the return of income. The Assessing Officer (hereinafter referred to as the AO) during the assessment proceedings observed that the assessee had shown purchase/sale transactions of shares in 10 listed companies and had also shown investment in mutual fund units. Some of the shares in respect of the said 10 companies were sold during the year and the assessee had returned the profits earned as short term capital gains. The AO treated the above stated income from the from the sale and purchase transactions of shares as business income of the assessee observing that in all the scripts, holding period was not substantial and further that the assessee had taken huge borrowings for making investment in shares. He therefore observed that the objective of the assessee was to carry out trading in shares. He therefore treated the income of the assessee from share transactions as business income of the assessee. Being aggrieved by the order of the AO, the assessee preferred appeal before the Ld. CIT(A). 4. The Ld. CIT(A) confirmed the above findings of the AO. Being aggrieved, the assessee has come in appeal before us. 5. We have heard the rival contentions and have also gone thr....
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....o, the assessee has returned the income/loss as capital gains/loss. Even subsequently, the long term capital loss claimed by the assessee in respect of the same scripts has been accepted by the AO in assessment order for A.Y. 2011-12. Though the assessee had made the investments by using borrowed funds also but that itself cannot be a sole ground to treat the assessee as a trader in respect of the scripts which had been kept in the investment portfolio, especially when the assessee has clearly bifurcated the investment portfolio and trading portfolio and has consistently maintained the same. 7. In view of the above, the profit on share transactions relating to investment portfolio of the assessee is ordered to be treated as capital gains and not as business income of the assessee. Appeal of the assessee is therefore allowed. 8. Now coming to the appeal of the Revenue i.e. ITA No.3680/M/2012. ITA No.3680/M/2012 (Revenue's Appeal) 9. The Revenue in its appeal has agitated the action of the Ld. CIT(A) in holding that the explanation to section 73 of the Act would not be attracted in the case of the assessee in relation to the share transactions which were treated by th....
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....ther source 19, 66, 73,974 Gross Total Income 8,46,42,309 * Perusal of the aforesaid facts clearly shows the Gross Total Income of the Assessee amounting to Rs. 8,46,42,309/- is mainly on Income from other sources of Rs. 19,66,73,974/-. * As per the ratio in the case of Rajan Enterprises Vs ITO in,TAT Mumbai Bench D & ACIT Vs. Concord Commercials P.Ltd 95 lTD 117 Mumbai ( Special Bench)- and CIT Vs.Darshan Securities (Pvt) Ltd ITA No.2886 of 2009 (Mum HC) dated 2/2/12 for determining the nature and transaction of sale/purchase in the case of the assessee - the same is to be determined with respect to Gross Total Income of the assessee without applying the provisions of Explanation to Sec.73. Gross Total Income of the Appellant which is Rs. 8,46,42,309/- as discussed aforesaid mainly comprises of Income from Other sources. Loss on purchase/sale of shares therefore cannot be treated as Speculation Loss as the Appellant's case falls in the exceptional clause to the Explanation to Sec.73 i.e. being a Company whose Gross total Income mainly consists of income chargeable under the head "Income on Securities, Capital Gains and Income from Other Sourc....
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....ousing property", "capital gains" and "income from other sources". We have set out the relevant part of the assessment order which indicates that in the relevant year, the income from other sources was the only chargeable income, as the respondent had suffered a business loss otherwise. In that view of the matter, the judgment of the Division Bench of this Court in the case of Darshan Securities (P.) Ltd.(supra) supports the respondent's case. In that case, during the relevant assessment year, the assessee had a loss of about Rs. 2.33 crores in the share trading and had dividend income of about Rs. 4.80 lacs. The Division Bench held in paragraphs 6, 7, 8 and 9 as under :- "6. The explanation to Section 73 introduces a deeming fiction. The deeming fiction stipulates that 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 the section be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sales of such shares. The deeming fiction applies only to a company and the provision makes it clear that the deeming fixation (sic) ....
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....s 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 or, the ambit of Sub-Section (1) of Section 73 is only to prohibit the setting off of a loss which has resulted from a speculation business, save and accept against the profits and gains of another speculation business. In order to determine whether the exception that is carved out by the explanation applies, the legislature has first mandated a computation of the gross total income of the Company. The words "consists mainly" are indicative of the fact that the legislature had in its contemplation that the gross total income consists predominantly of income from the four heads that are referred to therein. Obviously, in computing the gross total income the normal provisions of the Act must be applied and it is only thereafter, that it has to be determined as to whether the gross total income so computed consists mainly of income which is chargeable under the heads referred to in the explanation. 9. Consequently, in the present case the gross total income of the assessee was required to be compute....