TaxTMI 
TaxTMI 
2016 (5) TMI 430
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....mstances of the case, Ld. CIT(A) erred in law in stating that provisions to Section 73 are not applicable in the case of an assessee dealing in shares. 3. Whether on the facts and circumstances of the case, Ld. CIT(A) erred in law in stating that the business of dealing in shares is one and inseparable and it could not separated into speculative and non speculative business. 4. That the appellant craves for leave to add, delete or modify any of the grounds of appeal before or at the time of hearing. 4. The Assessee is a company. It is engaged in the business of trading in shares on own account, derivative transactions and share broking activity The Assessee incurred a loss of Rs. 34,61,912/- in share trading on his own account. It is not in dispute that there was actual delivery of shares in the transactions carried out by the Assessee which resulted in the loss in the business of trading in shares on own account by the Assessee. The Assessee earned profit of Rs. 90,58,340/- from trading in Derivatives (Futres & Options). The Assessee adjusted the loss arising from own trading in shares against the profits from trading in derivatives and declared the resulted i....
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.... can be seen from Explanation to Sec.73 of the Act that if an Assessee is a company and it carries on business in purchase and sale of shares of other companies than such company shall be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. There are exceptions set out in the explanation. The explanation does not apply to (a) a company whose gross total income consists mainly of income which is chargeable under the head "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources": (b) a company the principal business of which is the business of banking (c) a company whose principal business of which is granting of loans and advances. It can also be seen from Sec.73(1) of the Act that any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business. 6. The profits from dealing in derivatives are not in the nature of profits and gains of speculation business in view of proviso (d) to Sec.43(5) of the Act, which reads ....
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....ofit from such transactions cannot be regarded as income from speculation business in view of the proviso (d) to Sec.43(5) of the Act and therefore was of the nature of normal business loss. 8. According to the Assessee the business of trading in shares and business of dealing in derivatives were to be regarded as one business and loss in share trading ought to be allowed to be set off against the income from trading in derivatives. Such set off has to be done even before the stage of application of Chapter VI of the Act which contains the provisions of Sec.73 of the Act. 9. According to the AO, the two business of dealing in shares and share broking were distinct businesses. In share broking business the Assessee buys and sells stocks and shares on behalf of the client. The risk and rewards are that of the client and not of the Assessee. The Assessee receives commission for his services. In the business of dealing in shares where shares and brought and sold, irrespective of delivery or no delivery, the deeming provisions of Explanation to Sec.73 will operate. The AO in this regard referred to the decision of the Hon'ble Calcutta High Court in the case of R.P.G. Industries Lt....
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....and only business is to deal in shares and securities including derivatives and work as broker on behalf of clients. All the business activities are cumulatively related to sale and purchase of shares. The appellant has shown income from interest, brokerage, dividend, misc. income, penalty charge recovered, F&O & share trading etc. The income and expenditure account shows that there is a profit of Rs. 27,96,413/-. The appellant has income from derivative trading amounting to Rs. 90,58,340/- and stock broking operations amounting to Rs. 9,58,95,368/- and loss from share trading of Rs. 34,61,912/-. The appellant has shown an income of Rs. 30,88,216/- in the return filed on 27.09.2009. There is a net income of the appellant from F & O and share trading as combined activities/part of business." 13. The CIT(A) thereafter found that the ITAT Calcutta bench in the case of ITO Vs. Arena Textiles & Industries Ltd. In ITA No.1019/Kol/2011 dated 29.12.2011 and in the case of ITO Vs. Rajanigandha Properties Ltd. In ITA No.1011/Kol/2011 dated 29.12.2011 and M/S.Arion Commercial Pvt.Ltd. ITA No.1010/kol/2011 dated 29.12.2011 held that transactions done by delivery as well as the transaction i....
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....s from share trading with income from F & 0 in Appeal No. 04/CIT(A)-VI/Cir-6/11-12!Kol dated 18.02.2013 and decided accordingly 34. Therefore, it is held that since 'there is net income from share trading and F&O, therefore, the provision of section 73 are not applicable in the case of the appellant. Hence, the amount of Rs. 34,61,912/- is allowed to be set off with income from derivative trading. This ground of appeal is allowed." 15. Aggrieved by the order of the CIT(A), the revenue is in appeal before the Tribunal. The request for adjournment made on behalf of the learned DR was refused as the issues raised by the revenue in the grounds of appeal have been consistently held against the revenue in several decisions, referred to by the learned AR before us. 16. We have considered the submissions made before us in the light of the various decisions rendered on identical facts and circumstances of the case such as the Assessee. In the case of ITO Vs. Bijco Holdings Ltd., ITA No.1036/Kol/2012 dated 9.1.2015 rendered by a co-ordinate Bench of ITAT, Kolkata, the facts were identical to the facts of the Assessee in the present appeal. The Assessee in that case for the relevant....
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....values of underlying assets"; in the present case, by all accounts the derivatives are based on stocks and shares, which fall squarely within the explanation to Section 73(4). Therefore, it is idle to contend that derivatives do not fall within that provision, when the underlying asset itself does not qualify for the benefit, as they (derivatives - once removed from it and entirely dependent on stocks and shares, for determination of their value)." In view of the alternative plea of the assessee, we are in agreement with the argument of Ld. counsel for the assessee that the income from derivatives is defined in section 43(5) of the Act and since it excludes such transactions from the nature of speculative transaction and AO treats that the transaction has not been excluded from section 73 of the Act, therefore, the assessee was entitled to claim the loss of shares against the income of derivatives. Respectfully following the decision of Hon'ble Delhi High Court in the case of DLF Commercial Developers Ltd. supra, we allow the alternative claim of the assessee and direct the AO to allow this loss against derivative incomes. This issue of revenue's appeal is dismissed bu....