TaxTMI 
TaxTMI 
TaxTMI 
2016 (5) TMI 351
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....arises. 3) It is, therefore, prayed that the : (a) Appeal be accepted, (b) Set off of Rs. 618448/- should be allowed in respect of business loss and profit under the head Capital gain. (c) Penalty proceedings initiated u/s 271(1)(c) of the IT Act be cancelled . (d) Interest charged under section 234 B/C be cancelled 2. Briefly stated facts as culled out from the records are that assessee is a private limited company engaged in the business of share broking and trading in shares and securities, which filed its return of income on 27.9.2008 declaring total income of Rs.NIL. The case was selected for scrutiny assessment. Notice u/s 143(2) was issued on 19.8.2009 and duly served upon the assessee. During the course of assessment proceedings ld. Assessing Officer observed that assessee has claimed set off of business loss of Rs. 6,18,448/- against short term capital gain of Rs. 6,58,227/-. However on the basis of examination of financial statement of the assessee ld. Assessing Officer was of the view that explanation to provisions of section 73 of the Act are clearly applicable to the assessee as the main source of income of the assessee is from share trading and, there....
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.... in the business of share Broking and Trading in Securities & Shares. During the year under review appellant company has incurred loss of Rs. 618448/- under the head business & profession and income of Rs. 658227/- under the head Capital Gain and made intra head adjustment at the time of calculating its total income. The ld. Assessing officer while passing the order u/s 143(3), treated the Business loss of Rs. 618448/- as speculation loss by invoking the provisions of Explanation to section 73. In this connection we would like to first of all bring to your notice the exact wordings of Explanation to section 73 of the Income Tax Act, 1961. the same is reproduced hereunder for your kind perusal: "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 head "interest on Security", "Income from House Property", "Capital Gain" and "Income from Other Sources", or a company the principal business of which is the business of banking or the granting of loans, and advances) consists in .the purchase and sale of shares of other companies, such companies shall for the purposes of this section .be deem....
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....red in interpreting the law and failed to appreciate the facts of the case. 6. Ld. AR further referred and relied on the judgment of Hon. Bombay High Court in the case of CIT vs. HSBC securities & Capital Markets India P. Ltd. (2012) 23 taxmann.com 377 (Bom) and also relied on the decision of the ITAT Mumbai (Special Bench) in the case of ACIT, Spl.Circle 18(1) vs. Concord Commercials (P) Ltd. in ITA No.5220(BOM) of 1994. 7. On the other hand ld. DR supported the orders of lower authorities. 8. We have heard the rival contentions and perused the material on record and gone through the judgment of Hon. Bombay High Court and the decision of the Tribunal (Special Bench). Solitary grievance of the assessee is against the order of ld. CIT(A) in confirming the addition made by ld. Assessing Officer by way of not allowing the claim of set off of business loss of Rs. 6,18,448/- against the short term capital gains of Rs. 6,58,227/- by way of applying explanation to section 73 of the Act to assessee's case thereby treating the business loss of Rs. 6,18,448/- as deemed speculation loss. From going through the computation of income we observe that during the year assessee has suffered busi....
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....n a speculation business to the extent to which the business consists of the purchase and sale of such shares.] 9. We further observe that there has been an amendment with effect from 1.4.2015 brought in by Finance (No.2) Act 2014 by way of which the line "the principal business of which is the business of trading in shares and banking" has been inserted at the place of "the principal business is a business of banking" which in our view means that before this amendment the only catch point of bringing into a company under the clutches of explanation to section 73 of the Act was to analyze the composition of gross total income by way of which, if the gross total income consists mainly an income chargeable under the head of "interest on security", "income from house property" "capital gain" and "income from other sources" then such companies will be out of the purview of explanation to sec.73 of the Act. 10. We further observe that Hon. Bombay High Court in the case of CIT vs. HSBC Securities & Capital Markets India P. Ltd. (supra) dealt with similar issue wherein assessee company showed loss of Rs. 1.72 crores as business loss and had income from other sources at Rs. 7 lacs and l....
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.... The transactions of purchase and sale of shares would be held as speculation business only if the company was hit by the Explanation to section 73. The implication of the Explanation is that if a company incurs a speculation loss in a manner deemed in the Explanation, such loss shall not be set off except against profits and gains, if any, of another speculation business. [Para 20] But. the Explanation has provided two exceptions. The first exception is available in the case of 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'. The second exception is in the case of a company whose principal business is the business of banking or the granting of loans and advances, I Para 2! / The first category of exception is identified by the composition of its gross total income. The words used in the statute provide thrust on the composition of the gross total income of that company, if the gross total income o( the company mainly consists of income falling under the above mentioned heads, Explanation t....
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....er the set off of the dividend income and the business loss, the gross total income had been worked out which was entirely made up of dividend income computed under the head 'Income from other sources'. [Para 31] The character of gross total income for the purpose of Explanation to section 73 is to be examined in the light of the 'chargeability' to tax, of various components of the gross total income under the specified heads of income. The 'chargeability' is to be looked into with reference to the heads of income. The emphasis given to 'chargeability' on the basis of the heads of income is apparent from the relevant text of law given in Explanation to section 73. [Para 32] The chargeabililv of income under a specified head is the prime consideration in verifying the composition of gross total income for the purpose of Explanation io section 73. As the question whether an income is chargeable under any of the specified heads of income or not is to be looked into, it is equally important to follow the principles governing the classification of income. The classification of income under different heads is import in the context of 'charge'....