TaxTMI 
TaxTMI 
2016 (7) TMI 539
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....ified in deleting the addition of Rs . 1,02,12,277/- treated as deemed speculation loss u/s 73 of the Act in the facts and circumstances of the case. 4. The brief facts of this issue is that the assessee carried on business of trading and dealing in shares in its capacity as member of a recognized stock exchange. In its capacity as member of recognized stock exchange, the assessee derived income in various forms and for accounting purposes the income was classified under following different segments such as: a) Stock Broking b) Derivative trading c) Speculative trading involving non delivery d) Trading involving deliveries In the course of assessment proceedings u/s 143(3), the assessee was required to explain as to why the provisions of Explanation to Section 73 should not be invoked and the loss incurred in share trading be treated as loss arising from speculation business. The ld AO observed that the gross total income of the assessee consists of income from business, other sources and capital gains as under:- "Income from business: a) Brokerage 60,12,948/- b) Future & Option 97,70,575/- c) Trading in share specul....
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....cts of the appellant's case then it is noted that appellant's negative income in share trading was Rs.l,02,12,277/- whereas the gross receipts from sources other than "business" were computed by the AO himself at Rs. 2,35,95,198/- This inter alia included short term capital gain of Rs.l,04,37,642/- and dividend of Rs. 32,69,797/-. Admittedly income chargeable under the heads other than "profits & gains" was therefore higher than the negative income derived from share trading. Applying ratio laid down by the Calcutta High Court in the case of CIT Vs. Parkview Properties (P) Limited (261 ITR 473) I find that Explanation to Sec 73 was not applicable. I therefore hold that Explanation to Sec 73 was not applicable to the appellant's case and accordingly loss in proprietary share trading was not assessable by way of loss in deemed speculation business. The AO is directed to modify his assessment order and recompute the assessed total income. Ground Nos. 1 & 2 are treated as allowed." 5.1. The Ld. CITA also deleted the addition on the ground that the profits derived from derivative transactions amounting to Rs. 97,70,575/- would have to be treated as speculative profits for....
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....s chargeable under any of heads referred to in Explanation. In the facts of the present case, the income returned under the head business was Rs. 71,01,301/- whereas income from capital gains and other sources was Rs. 2,35,95,198/-. Applying the ratio laid down by the Bombay High Court in the decision rendered in the case of CIT Vs Darshan Securities Private Limited (341 ITR 556) the assessee fell within the purview of the first limb of exception carved out in the Explanation to section 73 and accordingly the assessee could not be deemed to be carrying on a speculation business. The assessee further submits all transactions are shares activities were conducted by the assessee on the common platform of National Stock Exchange/ Bombay Stock Exchange of which the assessee was holding membership. The assessee maintained one single indivisible and composite business establishment for carrying on the business transactions involving purchase & sale of shares & securities. Even though for the purpose of accounting different nomenclatures and segment heads of accounts were used; yet the underlying transactions giving rise to income chargeable under the head profits & gains of business in....
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.... applicable not to income or loss. The said Explanation defines the terms "speculation business" to mean that part of the assessee's business which consists of purchase & sale of shares. Since the assessee's business of stock broking consisted "purchase & sales of shares", the income arising from the said activity was liable to be considered as profit or loss arising from deemed speculative business and therefore the income arising from stock broking was also integral part of assessee's deemed speculative business entitled for set off against loss arising deemed speculation business. The ld AR further submitted that during the year, the assessee also earned profit of Rs. 8,76,950 / - from shares speculative business. No set off for the said income was allowed by the AO without assigning any reasons. He submitted that the AO ought to have treated all the transactions of the assessee in shares as part of its deemed speculation business. Accordingly, the net income therefrom, which happened to be profit, should have been assessed as income of the assessee from speculation business. The AO, however, wrongly assessed loss of Rs. 1,02, 12,277/ - as loss incurred in deemed speculation....
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....lation. The proprietary transactions in derivative segments involved purchase and sale of futures where the underlying security was the shares of the same companies which were transacted by the assessee in cash segment. Based on this fact, he held that for the purpose of applying Explanation to Section 73 , transactions in derivative segment could not be kept outside the ambit of the said Explanation. This proposition was endorsed by the co-ordinate bench decision of this tribunal in Arion Commerical Private Limited & Others in ITA No. 1010 & 1011/Kol/2011 dated 28.11.2011. 8.2. We find that similar issue was also adjudicated by the Hon'ble Delhi High Court in the case of CIT vs DLF Commercial Developers Ltd reported in (2013) 35 taxmann.com 280 (Del HC) wherein it was held that the Explanation to Section 73 does not differentiate between derivatives and delivery based shares. Placing reliance on clause (d) of Explanation to section 43(5) , it was the assessee's plea that the derivative trading transactions were not speculative transactions and therefore the loss incurred could not be assessed by way of speculation business loss under the Explanation to section 73. The Tribunal ....
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....f Rs. 8,76,950/-. 8.4. We find that the assessee had derived share broking income to the tune of Rs. 60,12,948/- which is also available for set off against the loss incurred on share trading. Reliance in this regard is placed on the co-ordinate bench decision of this Tribunal in the case of Guiness Securities Limited vs DCIT in ITA No. 894 & 895 /Kol/2007 dated 29.6.2007. This Tribunal relied on the decision of the Hon'ble Calcutta High Court in the case of Arvind Investment Ltd vs CIT reported in 192 ITR 365 (Cal) for arriving at the conclusion that the share broking business income also come within the ambit of Explanation to Section 73 of the Act. The Tribunal after analyzing the nature of business carried on by the members of the recognized stock exchanges , held that both in share broking as well as in proprietary share trading, the underlying business transactions giving rise to income involved only purchase and sale of shares of other companies and therefore in terms of Explanation to Section 73 of the Act, the entire business of the stock broker assessee came within the ambit of Explanation to Section 73 of the Act. We find that once these profits (i.e 97,70,575 + 8,76,....
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....'s name for the financial year 2009-10. The ld CITA observed from the certificate that total turnover recorded in the assessee's name by the said stock exchange in respect of assessee's transactions in cash segment amounted to Rs. 680,26,47,142/- , whereas the assessee's own trading turnover in cash segment was only Rs. 191,41,25,976/-. With reference to such turnover, transaction charges were collected from the assessee by the exchange. It therefore transpired from the transactional documents that as per the Stock exchange regulations, purchase and sale of shares both on proprietary and clients account were regarded to be assessee's own trading turnover and accordingly transaction charges were collected from the assessee thereby proving beyond doubt, that both in respect of proprietary share trading and trading on behalf of the clients, the assessee's business consisted of purchase and sale of shares of other companies. In terms of Explanation to Section 73, such business was the speculation business and therefore every income and accretion as also every expenditure, outgoing or loss in relation to such business had character of income or loss derived from 'speculation business' a....