TaxTMI 
TaxTMI 
2016 (11) TMI 69
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....) of the Income Tax Act, 1961; in short 'the Act' whereas the above stated appeal involves proceedings u/s.271(1)(c) of the Act. We proceed assessment year-wise for the sake of convenience and brevity. Assessment Year 2001-02 2. This assessment year comprises of three appeals as clarified hereinabove in opening paragraph. Assessee's appeal ITA No.943/Ahd/2005 raises three substantive grounds inter alia pleading that the CIT(A) has erred in confirming Assessing Officer's action making Section 14A interest disallowance of Rs. 1,27,74,382/-, treating its loss of Rs. 1,20,741/- as speculation loss and further assessing its commission income of Rs. 86.50 lacs received from M/s. Vimpson Agencies and declared as business income to be income from other sources; respectively. The assessee does not press for its last substantive ground in the course of hearing after stating that the same is revenue neutral. Ld. Departmental Representative does not object to the said prayer. We accordingly reject assessee's third and last substantive ground as not pressed. 3. We now advert to Revenue's former appeal ITA No.1256/Ahd/2005 challenging correctness of the lower appellate order deleting Section....
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....jaj Auto Ltd. 18,58 Morgaon Stanley Units 423,430 Reliance Industries Ltd. 13940750 Total 14382748 B Shares on hand at the end of the year on which no dividend is received Gujarat Alkalies &Chemicals Ltd. 807 Modilut Ltd. 3,036,619 Vedant Fincap Pvt. Ltd. 30,000 OCPS of Vivro Financial Services Pvt. Ltd. 7,490,500 Digital Equipment India Ltd. 42,732 DSQ Bio Tech Ltd. 273,090 Khandwala Securities Ltd. 45,684 Total 10,919,432 C Other Investment on which dividend is received. Morgan Stanley Units (sold) 423,430 Gujarat Narmada Valley Fertilizers Ltd. 11,442 Nirma ltd. 9.576,900 Shree Rama Multitech Ltd. 125,760,881 The Royal Co. op. Bank Ltd. (sold) 15,000 DSQ Software Ltd. Total 815,000 Total 136,602,653 Total (A+B) on which dividend not received 25,302,180 Total (A+B+C) 1,61,904,833 Amount of interest for the year 17,038,044 Working of interest on which no dividend is received. 17038044 x 25302180/161904833 2,662,673 According to this working, it can be seen that interest of Rs. 26,62,673/- is not connected with dividend income and thus sec. 14 A would not apply on this ap....
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....s of Rs, 1,20,741/- which has been considered as trading loss from share trading activity and is disallowed as speculation loss u/s.73. He has stated that the assessee has itself show the entire income as business income, and. therefore, it is not She company whose total income is chargeable under the head 'Interest on securities", income from house property, capital gains and income front other sources. With reference to this disallowance the appellant has filed written submissions date 06.01.2005 the following lines. (i) Explanation below section 73 is not applicable to its case. It is staled that when the assessee has not incurred any loss from trading activity, question of applying section 73 does not arise. The Assessing Officer has computed loss u/s. 73 by notionally allocating interest expenditure to the trading activity But what is envisaged is that the assessee should have incurred loss from purchase and sale of shares. (ii) It is further submitted that explanation enacts a deeming provision in respect of companies other than those being investment and finance companies. Hence such explanation has to be considered strictly, the explanation refers to the business w....
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....d commission receipts aggregating to Rs. 86.50lacs (supra) as income from other sources forming subject matter of third substantive ground not pressed hereinabove. Shri Ranjan takes us to exempt income figures of Rs. 62,57,998/- (supra) alongwith interest of Rs. 70,568/- as revealed from schedule 10 & 11 of the balance sheet in page 32 of the paper book. His submission accordingly is that Section 73 explanation inserted in the Act w.e.f. 01.04.1997 itself exclude from operation of the main provision those companies whose gross total income consists mainly of income which is chargeable as "income from other sources". It is thus contented that both the Assessing Officer as well as the CIT(A) have erred in applying the above explanation to Section 73 of the Act in its case. 8. Learned Departmental Representative strongly supports CIT(A)'s order under challenge. 9. Heard both sides. Relevant finding perused. There is not dispute about the fact that the assessee had already proved that its main income has already been treated to be under the head "income from other sources". The Assessing Officer's findings in assessment order as affirmed in the CIT(A)'s opinion deny application of ab....
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....d. We now proceed to adjudicate the remaining substantive two issues. 12. Both parties are ad - idem in the course of hearing qua first substantive ground of Section 14A interest disallowance of Rs. 1,11,83,862/- is squarely covered by our findings on the corresponding first issue in preceding assessment year 2001-02 in absence of any distinction on facts involved therein. We refer to our discussion in preceding paragraphs on the very issue holding that Section 14A does not apply in case of investments being made for acquiring controlling interest in group companies and direct the Assessing Officer to delete the impugned disallowance. This first substantive ground stands accepted. 13. We now come to second substantive ground raising the issue of speculation loss hereinabove. There is no dispute that the assessee is a company engaged in construction and investment business activities. It raised tow loss claimed of Rs. 16,71,900/- and Rs. 94,42,003/- on sale of 17000 shares of M/s. Nirma Ltd. sold @ Rs. 465/- and due to reduction in the value of stop of shares; respectively. The Assessing Officer quoted Section 73 explanation for observing that former loss claimed had to be disallo....
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....its speculation loss in view of Section 73 explanation. All this resulted in disallowance of gross loss sum of Rs. 1,18,80,055/-. 17. The CIT(A) deals with the issue in the following manner: "4.1 Grounds No. 4, 5 & 6 are regarding treatment of a sum of Rs. 24,38,052/- as speculation loss by treating it as attributable to the sale of 17000 shares of Nirma Ltd. The A.O. has found that the assessee had shown loss of Rs. 16,17,900/p on sale of 17000 shares of Nirma Ltd. He further calculated the interest expenses attributable to the investment in the shares and calculated the interest cost @ 8% amounting to Rs. 7,66,152/- and thus the total loss in transaction of the shares came to Rs. 24,38,052/-. The A.O. held that explanation to sec. 73 is applicable to the assessee's case and hence this loss was treated as speculation loss. 4.2 The appellant has submitted that that the explanation to sec. 73 is not applicable in its case and the amount of Rs. 24,38,052/- should not be treated as speculation loss, but should be treated as business loss. The AO. Was also not justified in calculating the interest cost amounting to Rs. 7,66,152/- and treating it as part of loss. After careful....
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....djust this profit with the speculation loss." 18. Shri Ranjan vehemently argues in the course of hearing that assessee's share transactions are regular in nature and there is no reason on Assessing Officer's part to treat the same as speculative ones by invoking Section 73 explanation. He states that both the lower authorities have erred in holding assessee's consequential loss as speculation loss so far as former claim is concerned. The assessee then submits qua latter claim that the impugned sum of loss amounting to Rs. 94,42,003/- has arisen on account of reduction in value of shares without any transaction involved at all. 19. Learned Departmental Representative strongly relied upon CIT(A)'s finding extracted hereinabove on the impugned issue of speculation loss. 20. We have heard rival contentions. The assessee's case admittedly is that neither of the two losses arising from sale of shares and reduction in the value of Nirma's shares amounts to speculative business. We find that the coordinate bench of this tribunal through one of us i.e. Accountant Member in Paharpur Cooling Towers Ltd. vs. DCIT (2003) 85 ITD 745 (Kolkata) has already decided the very issue in Revenue's f....
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....ion business. In our considered view, therefore, there is no conflict in these two provisions, namely provisions of section 43(5) and of Explanation td section 73. As far as scope of Explanation to section 73 is concerned, it may be relevant to quote from the Central Board of Direct Taxes Circular No. 204 dated 24-7-1976 which inter alia states as follows : "Section 73 provides that any loss computed in respect of speculation business carried on by an assessee will not be set-off except against the profits & gains, if any, or another speculation business. Further, where any loss, computed in respect of a speculation business for an assessment year is not wholly set-off in the above manner in the said year, the excess shall be allowed to be carried forward to the following assessment year and set-off against the speculation profits, if any, in that year, and so on. The Amending Act has added an Explanation to section 73 to provide that the business of purchase and sale or shares by companies which are not investment or banking companies or companies carrying on business of granting loans or advances will be treated on the same footing as a speculation business. Thus, in the case ....
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....case of CIT v. Teja Singh (1959) 35 ITR 408 (SC) has also observed as follows : "A construction which leads to such a result must, if that is possible, be avoided, on the principle expressed in the maxim, "ut res magis valeat quam pereat". Vide Courtis v. Stovin and in particular, the following observations of Fry, L.J., at page 519 : The only alternative construction offered to us would lead to this result, that the plain intention of the legislature had entirely failed by reason of a slight inexactitude in the language of the section. If we were to adopt this construction, we should be constructing the Act in order to defeat its object rather than with a view to carry its object into effect." Vide also Craies on Statute Law, page 90 and Maxwell on The Interpretation of Statutes, Tenth Edition, pages 236-237. "A statute is designed", observed Lord Dunedin in Whitney v. Commissioner of Inland Revenue, "to be workable, the interpretation thereof by a court should be to secure that object, unless crucial omission or clear direction makes that end unattainable." 15. In case we are to accept the contentions of the learned counsel, Explanation to section 73 has to be treated....
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....business. A careful perusal of Explanation to Section 73 indicates that this Explanation lays down that the expression 'speculation business', under the specified circumstances, will cover assessee's business 'to the extent to which the business consists of the purchase and sale of such shares'. The definition thus sought to be placed is of the 'speculation business' and not 'speculation profits'. As to what will constitute profits from such speculation business, this is to be essentially governed by the normal accounting principles and business practices. Unlike the definition under Section 43(5) which defines 'speculative transactions' per se, the deeming provisions of Explanation to Section 73 lay down the circumstances in which, and the extent to which, a business is to be deemed as 'speculation business'. The thrust of the provisions under Explanation to Section 73 is on the nature of 'business', rather than nature of 'transaction'. It is thus immaterial as to whether profit is, or is not, on account of sale and purchase of shares but, in our considered view, to the extent it is arising out of 'business of....