2022 (9) TMI 76

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....erred in holding that loss of Rs.2,96,91,090/- and loss on account of Mark to Market amounting to Rs.1265977/- are not speculation loss in view of explanation Section 73 of the I.T.Act, 1961." 3. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal. 4. The appellant prays that the order of CIT(A) on the above ground be set-aside and that of the assessing officer be restored. A copy of the Ld.CIT(A)'s order was received in the office of Pr.CIT-14, Mumbai on 29 03-2016. The last date for filing appeal is 27-05-2016. However appeal should be filed immediately. 3. We have heard rival submissions and perused the materials available on record. We find that assessee is a private limited company engaged in the business of real estate development and leasing of constructed premises; investment and trading in shares, securities, futures and options. During the year under consideration, the assessee had entered into derivative transactions comprising of futures and options in addition to entering into trading transactions in equity shares. The assessee ....

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....ss. This action of the ld. AO has been reversed by the ld. CIT(A). 3.4. The short point that arises for our consideration is whether the provisions of Explanation to Section 73 of the Act per se could be made applicable to the facts of the instant case. For the sake of convenience, the provisions of Section 73 together with its Explanation as it stood at the relevant point of time i.e. relevant to A.Y.2011-12 are as under:- " (1) 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. (2) Where for any assessment year any loss computed in respect of a speculation business has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and- (i) it shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year; and (ii) if the lo....

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....er sources of Rs.21,51,576/- and income under the head business at Rs.4,55,87,091/- (excluding loss from trading in shares and derivatives amounting to Rs.12,84,78,109). From this, it could be safely concluded that substantial income of the assessee comprises of income from house property and capital gains. Hence, the case squarely falls under the exception provided in Explanation to Section 73 of the Act. 3.6. In any event, loss incurred on futures and options amounting to Rs.5,19,33,951/- and Rs.12,65,977/- can never be treated as speculation loss in terms of provisions of Section 43(5)(d) of the Act. For the sake of convenience, Section 43(5) (d) is reproduced hereunder:- 5) "speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips: Provided that for the purposes of this clause- (d) an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out i....

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....f derivatives would have to be treated as business loss and not speculation loss and accordingly, Explanation to Section 73 of the Act could not be made applicable thereon. 3.8. Now what is left is only loss incurred on share trading of Rs.2,96,91,090/- and applicability of Explanation to Section 73 of the Act to the same. We have already held hereinabove that the gross total income mainly consists of income from house property, income from capital accounts and income from other sources for the assessee and thereby, the case of the assessee falls in the first exception carved out in Explanation to Section 73 of the Act. This view is further fortified by the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. HSBC Securities and Capital Markets India Pvt. Ltd., reported in 208 Taxman 439 (Bom). In this regard, it would be relevant to state the composition of gross total income in the case before the Hon'ble Bombay High Court referred to supra as reproduced in para 4 of the High Court order which is as under:- (i) Business Profit - Rs.(-)1,72,31,711/- (ii) Income from other sources - Rs. 7,02,000/-     Rs.(-)1,65,29,711 ....

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....incipal business is of banking or the granting of loans and advances. 7. The submission which has been urged on behalf of the Revenue is that in computing the gross total income for the purpose of the explanation to Section 73, income under the heads of profits and gains of business or profession must be ignored. Alternatively, it has been urged that where the income from business includes a loss in the trading of shares, such a loss should not be allowed to be set off against the income from any other source under the head of profits and gains of business or profession. 8. In our view, the submission which has been urged on behalf of the Revenue cannot be accepted. Leaving aside for a moment, the exception, which is carved out by the explanation to Section 73, the explanation creates a deeming fiction by which a company is deemed to be carrying on a speculation business where any part of its business consists in the purchase and sale of shares of other companies. Now, the exception which is carved out applies to a situation where the gross total income of a company consists mainly of income which is chargeable under the heads "Interest on securities", "Income fro....

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....al income so computed consists mainly of income which is chargeable under the heads referred to in the explanation. 9. Consequently, in the present case the gross total income of the assessee was required to be computed inter alia by computing the income under the head of profits and gains of business or profession as well. Both the income from service charges in the amount of Rs. 2.25 crores and the loss in share trading of Rs. 2.23 crores, would have to be taken into account in computing the income under that head, both being sources under the same head. The assessee had a dividend income of Rs. 4.7 lacs (income from other sources). The Tribunal was justified, in coming to the conclusion that the assessee fell within the purview of the exception carved out in the explanation to Section 73 and that consequently the assessee would not be deemed to be carrying on a speculation business for the purpose of Sec. 73(1)." 9. In the circumstances, the appeal is dismissed but with no order as to costs. 3.10. Hence, the ratio laid down by the Hon'ble Jurisdictional High Court becomes squarely applicable to the facts of the facts of the instant case before us. 3.11. T....