TaxTMI 
TaxTMI 
2016 (5) TMI 814
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....on trading of shares as per Explanation to Section 73 Rs. 2,43,32,584/- iii. Disallowances of transaction charges Rs. 2,38,821/- 2.2 Aggrieved by the order of assessment for A.Y. 2009-10 dated 22.12.2011, the assessee preferred an appeal before the CIT(A)-8, Mumbai. The learned CIT(A) disposed off the appeal vide the impugned order dated 06.12.2012 allowing the assessee partial relief. 3. Aggrieved by the order of the CIT(A)-8, Mumbai dated 06.12.2012 for A.Y. 2009-10, the assessee has preferred this appeal before the Tribunal raising the following grounds: - "1. On the facts and circumstances of the case the learned CIT(A) erred in retaining the disallowance u/s 14A of the Income Tax Act amounting to Rs. 12,58,232/- by incorrectly applying rule 8D of the Income Tax Rules, though your appellant had not incurred any expenditure for the purpose of earning any tax free income. 2. On the facts and circumstances of the case the learned CIT(A) erred in confirming that treatment given by the learned A.O. to the business loss of Rs. 2,43,32,584/- as speculation loss by incorrectly applying the provisions contained in explanation in sec 73 of the I.T. Act. 3. On the facts and ....
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....ntal dividend income that is exempt from tax. It was further submitted that the AO had erroneously considered the stock-in-trade as investment while computing the disallowance under section 14A r.w. Rule 8D. In support of the proposition that no disallowance under section 14A of the Act can be made in respect of dividend held as stock-in-trade, the learned A.R. for the assessee placed reliance on the decision of the Hon'ble Bombay High Court in the case of CIT vs. India Advantage Securities Ltd. in ITA No. 1131 of 2013 dated 17.03.2015 which it was submitted was followed by the Coordinate Benches of the Tribunal in the following cases: - i. Devkant Synthetics (India) P. Ltd. in ITA Nos. 2663/to 2665/Mum/2015 dated 28.10.2015 for assessment years 2009-10 to 2011-12; ii. KSM Securities & Finance Pvt. Ltd. in ITA No. 3632/Mum/2013 dated 11.09.2015; iii. Shri Durga Capital Ltd. in ITA No. 7405/Mum/2011 dated 03.08.2015. 4.2.2 The learned A.R. for the assessee also relied on the decision of the Hon'ble Karnataka High Court in the case of CCI Ltd. vs. JCIT [(2012) 20 Taxmann.com 176)]. It was submitted that as the assessee-company is dealing in shares, dividend is the i....
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....supra), the Hon'ble Bombay High Court has noticed that the CIT(A) took into account the words of the Rule and found that the figures as derived by the Assessing officer cannot be taken into consideration. The Ld CIT(A) had observed that, one can at best disallow the expenses which are incurred for earning dividend income and for that purpose, the figures under the head "Investment" could be taken and some charges apportioned for the purpose of computing expenses. The decision rendered by the Tribunal in the case of India Advantage Securities Ltd (supra) was found to be neither perverse nor vitiated by any error of law apparent on the face of record by Hon'ble Bombay High Court. We further notice that the decision rendered in the case of CCI Ltd (supra) has been followed by the co-ordinate benches of Tribunal in the case of India Advantage Securities Ltd (ITA No.6711/Mum/2011 and Ganjam Trading Co. Pvt Ltd (supra). 13. In the case of Ganjam Trading Co.P.Ltd (supra), the Tribunal took note of the decision rendered by the Special Bench of the Tribunal in the case of ITO V/s. Daga Capital Management (P.) Ltd. [2009] 117 ITD 169 (Mum)(SB) also. However, following the decision of Hon'....
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....earned CIT(A) upheld this disallowance made by the AO by invoking the provisions of Explanation to section 73 of the Act and by relying on the decision of the Hon'ble Bombay High Court in the case of Prasad Agents (P) Ltd. in 333 ITR 275 (Bom). 5.3.1 The learned A.R. for the assessee was heard in support of the ground raised on this issue. It is submitted that the AO invoked the provisions of Explanation to section 73 of the Act for disallowing the assessee's claim for setting off the loss on trading of shares against other business income. In this regard, the learned A.R. for the assessee referred to the recommendations of Wanchoo Committee report of December, 1971 pursuant to which the Explanation to section 73 of the Act was inserted by the Taxation Laws (Amendment) Act, 1975 w.e.f. 01.04.1977; the relevant portion of which is extracted hereunder: - "A tax avoidance device often resorted to by business houses controlling groups of companies is manipulation of results from dealings in shares of the companies controlled by them. In our opinion, such manipulation in share dealings for the purpose of tax avoidance can be checked effectively if the results of dealings in share....
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....e Explanation to section 73 of the Act was inserted to curb the methods sometimes resorted to by business houses controlling a group of companies to manipulate and reduce the taxable income of companies under their control by showing losses incurred on purchase and sale of shares of group companies. It was contended that while making its recommendations, the Wanchoo Committee did not intend to treat losses incurred in purchase and sale of shares by all companies. It is for this reason that an exception was carved out of the Explanation at the time of insertion of the Explanation by providing that the provisions of section 73 of the Act will be applicable to business of purchase and sale of shares by companies other than investment companies, banking companies or finance companies as speculation business. The learned A.R. for the assessee further contended that Explanation to section 73 of the Act created a fiction to the effect that where any part of the business of a company consists of purchase and of share of other companies, such company shall be deemed to be carrying on speculation business to the extent to which business consists of purchase and sale of such shares. It is sub....
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....be treated as speculative income and accordingly the loss from trading in shares may be allowed to be adjusted against such brokerage and commission income. 5.5 Per contra, the learned D.R. for Revenue strongly supported the decision of the learned CIT(A) on this issue and placed reliance on the decision of the Hon'ble Bombay High Court in the case of Prasad Agents Pvt. Ltd. vs. Income Tax Officer (333 ITR 275) to contend that the authorities below had correctly not allowed the assessee to claim adjustment of loss from share trading against other business income of the assessee-company. 5.6.1. We have heard the rival contentions of both the parties and perused and carefully considered the material on record; including the judicial pronouncements cited. Section 73 of the Act stipulates that any loss computed in respect of speculation business shall not be set off except against profits and gains of speculation business. Section 43(5) of the Act clarifies 'speculative transaction' to mean a transaction in which a contract for purchase or sale of any commodity including stock and shares is periodically or ultimately settled otherwise than by actual delivery. Explanation 2 to sec....
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....ies whose main business is trading in shares as speculative business and therefore the Explanation to section 73 of the Act should be read only to the extent of the purpose for which it was inserted. The subsequent amendment made by Finance (No.2) Act, 2014 in the Explanation to section 73 of the Act appears to be made in order to clarify the real intention behind the insertion thereof, by removing the obvious hardship caused to various assessees whose main business is trading in shares. The amendment has removed the anomaly and brought the ambit of the Explanation to section 73 of the Act in line with the intention of the Legislature by placing the companies whose principal business is trading in shares as part of the exception to Explanation to section 73 of the Act, because such companies were not the companies for whom the Explanation was inserted. 5.6.3 The insertion of the amendment in the Explanation to section 73 of the Act by the Finance (No. 2) Act, 2014, in our view, is curative and classificatory in nature. If the amendment is applied prospectively from A.Y. 2015-16, a piquant situation would arise that an assessee who has earned profit from purchase and sale of shares....
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....4 from when the section was brought on the statue. 5.6.4 The Hon'ble Apex Court in the case of CIT vs. J.H. Gotla (156 ITR 323) at page 339 and 340 thereof has observed as under: - "In the case of Varghese v. ITO [1981]131 ITR 597, this court emphasised that a statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. "Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature, the court might modify the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational construction. The task of interpretation of a statutory provision is an attempt to discover the intention of the Legislature from the language used. It is necessary to remember that language is at best an imperfect instrument for the expression of human intention. It is well to remember the warning administered by judge Learned Hand that one should not make a fortress out of the dictionary but remember that statutes always have some purpose or object to accomplish and sympathetic and imaginative discovery is the surest guide to their....
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....oss." 5.6.6 The Hon'ble Apex Court in the case of CIT vs. Podar Cement P. Ltd. (226 ITR 625) has held that the circumstances under which the amendment was brought in and the consequences of the amendment will have to be taken care of while deciding the issue as to whether the amendment was clarificatory or substantive in nature and whether it will have retrospective or prospective effect. 5.6.7 In the case of Daga Capital Management Pvt. Ltd. (117 ITD 169) the Tribunal by majority view held that the ultimate test for considering the retrospective or prospective operation of an amendment is to consider its nature rather than going by the date on which it is stated to be applicable from. 5.6.8 In the case of Rajeev Kumar Agarwal vs. Addl.CIT ([(2014) 45 taxmann.com 555 (Agra-Trib.)], the assessee had made interest payments without discharging his obligation to withhold tax under section 194A and the AO therefore disallowed the interest payments under section 40(a)(ia) of the Act. On appeal, the assessee contended that in view of the insertion of second proviso to section 40(a)(ia) by Finance Act, 2012 and in view of the fact that the recipients of the interest had included the....
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....e Act by insertion of proviso is clarificatory and hence retrospective. 5.6.10 We have carefully perused the decision of the Hon'ble Bombay High Court in the case of Prasad Agents (P) Ltd. in 333 ITR 275 (Bom) and are of the humble opinion that the decision/finding rendered therein would not apply to the issue in the case on hand since the issue raised before the Hon'ble High Court was whether the loss due to valuation of stock is covered by Explanation to section 73 of the Act as it stood in 2009 and not in respect to the effect of the amendment by way of the insertion of exception in Explanation to section 73 of the Act by Finance Act (No. 2) Act, 2014 which is before us. The Hon'ble High Court in the cited case (supra) held that there cannot be difference in the treatment between losses suffered in the course of trading in shares and losses in terms of book value of stock-in-trade, even if there was no trading in the course of financial year as the Explanation to section 73 of the Act would cover both shares which are stock-in-trade and shares which are traded for the purpose of considering the profit and loss for the year. 5.6.11 In our humble view, drawing suppor....
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....the assessee had paid transaction charges of Rs. 5,25,432/- without deducting tax at source thereon as per the practice prevailing among the stock brokers at the Stock Exchange, Mumbai. It is submitted that the return for this period i.e. A.Y. 2007-08 was only processed under section 143(1) of the Act and it was for the first time in A.Y. 2009-10 that the AO disallowed transaction charges of Rs. 2,85,821/- under section 40(a)(ia) of the Act for non deduction of TDS thereon while making payment to the Stock Exchange. It was further submitted that most of the brokers started deducting tax at source on payment of transaction charges to the Stock Exchange from the previous year relevant to A.Y. 2010-11 and the assessee also accordingly following this practice, there is no disallowance under section 40(a)(ia) of the Act in the case on hand for A.Y. 2010-11 onwards. 6.2.3 In support of its plea that no TDS is required to be made on payment of transaction charges to Stock Exchanges, the learned A.R. for the assessee placed reliance on the decision of the Hon'ble Apex Court in the case of CIT vs. Kotak Securities Ltd. (in Civil Appeal No. 3141 of 2016 dated 29.03.2016) contending that....
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....blur the specific human element in an otherwise fully automated process by which such services may be provided. The search for a more effective basis, therefore, must be made. 8. A reading of the very elaborate order of the Assessing Officer containing a lengthy discourse on the services made available by the Stock Exchange would go to show that apart from facilities of a faceless screen based transaction, a constant upgradation of the services made available and surveillance of the essential parameters connected with the trade including those of a particular/ single transaction that would lead credence to its authenticity is provided for by the Stock Exchange. All such services, fully automated, are available to all members of the stock exchange in respect of every transaction that is entered into. There is nothing special, exclusive or customised service that is rendered by the Stock Exchange. "Technical services" like "Managerial and Consultancy service" would denote seeking of services to cater to the special needs of the consumer/user as may be felt necessary and the making of the same available by the service provider. It is the above feature that would distinguish/identif....