TMI Blog2011 (6) TMI 401X X X X Extracts X X X X X X X X Extracts X X X X ..... e Respondent. ORDER T.R. Sood, Accountant Member. In this appeal, assessee has raised the following ground: "The Ld. CIT(A)-I (hereinafter referred to as Assessing Officer) erred in treating the Appellant Company as Investment company for the provisions of Explanation to section 73 and not a company engaged in the business of granting of loans and advances where 68% of total income of the Appellant is of interest income and Bills Rediscounting charges income, thereby considered the loss incurred in trading of shares of Rs.14,43,240 as speculation loss." 2. Brief facts of the case are that original assessment was completed u/s.143(3) vide assessment order dated 30-12-1998 where the total income assessed was Rs.8,58,522. Later on, a revision order u/s.263 was passed on 14-3-2001 wherein it was observed that assessee has dealt in shares and, therefore, Explanation to sec.73 was attracted since assessee company was not covered by the exemption because the main income did not consist of "Interest on Securities, Income from House Property, Capital Gains or Income from Other Sources". Since this issue was not examined by the AO the assessment order was set aside and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee was mainly engaged in the business of providing of loans and advances and, therefore, Explanation to Sec.73 was not applicable. The assessee had received interest of Rs.15.70 lacs and bill discounting charges of Rs.22.21 lacs and this total amount of Rs.37.91 lacs constituted approximately 68% of the total income of the assessee and, thus, the main business of the assessee was of investments and granting loans and, therefore, Explanation to Sec.73 was not applicable. 5. After consider the submissions the AO observed that this was a complete turn around from the nature of business which was submitted earlier vide letter dated 2-7-1998 in which the business of the assessee was stated to be as under: "The assessee company is basically an investment company trading in shares. Besides it also received interest on loans given out of surplus to various parties. It has investments in shares on which it receives dividend. The company is also in the business of financial services in the area of corporate finance syndications and primary and secondary market sub-broking for which company receives commission and sub-brokerage." The above nature of business along with the main obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of Explanation to Sec.73 and, accordingly, he confirmed the order of the Ld. CIT(A) (AO). 7. Before us, Ld. Senior Advocate of the assessee submitted that the principal business of the assessee was of giving loans and advances. He argued that even bill discounting charges have to be treated as only granting of loans. In this regard, he referred to page 6 of the paper book, which is a copy of the details of bill rediscounting for Wipro Finance. He pointed out that the bills were drawn by some outside parties and Wipro Finance had provided the funds. In turn, Wipro Finance got these bills re-discounted from the assessee. He explained from the details that how a sum of Rs.10 lacs after 90 days would become a sum of Rs.10,55,982 and this amount of Rs.55,982 was only interest for the period of 90 days. The bills were never endorsed in favour of the assessee and assessee was basically providing funds to Wipro Finance by way of re-discounting which is only one of the methods of granting of loans. 8. He then referred to the commentary on the Income Tax Act by A.C. Sampath Iyengar, Volume Three Page 5001 wherein the authors have referred to Circular No.204 of the Board where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Sec.73 were not attracted. 11. On the other hand, Ld. DR strongly relied on the orders of the AO and Ld. CIT(A). 12. We have considered the rival submissions carefully and find force in the submissions of the Ld. Advocate of the assessee. Explanation to Sec.73 reads as under: "Explanation. Where any part of the business of a company ([other than a company whose gross total income consists mainly of income which is chargeable under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources"], or a company the principal business of which is the business of banking or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, 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." A plain reading of the above clearly shows that some exception has been carved out in the provision itself and the same is not applicable to a company whose income is chargeable under the heads "Interest on securities", "Income from house property", "Capital gains" and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bombay High Court in the case of Himalayan Tiles Marble (P.) Ltd. (supra) wherein it was observed by the Court at page 186 as under: "It was submitted that this was an isolated transaction. But in G. Venkataswami Naidu's case (supra), Gajendragadkar, J. (as he then was), speaking for the Supreme Court, has exposed the fallacy of this approach. It was further submitted that the acquisition or purchase of an actionable claim as subject-matter of the litigation cannot be trade or business. It was pointed out in connection with this branch of the argument and this seems to have impressed the Tribunal also that the memorandum of objects of the company did not permit it to trade in actionable claims. The fact that there was no such provision in the memorandum of objects appears to me to be irrelevant for the purpose of this decision, though if there had been such a provision it would have clearly decided the matter against the assessee. That the assessee embarked upon a venture different from his usual line of business or even embarked on a venture which in law it was not permitted to embark upon, cannot really affect the consideration of the question whether the venture embarked upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect, in the event of dis-honour, to a right of recovery from the person for what it is discounted." After the above observations and detailed discussion it was ultimately held that the rediscounting charges received by the assessee well as the amounts collected for delayed payments were held to be in the nature of interest under the Interest Tax Act. This decision has been followed by the Hon'ble Punjab Haryana High Court in the case of State Bank of Patiala (supra). The ld. CIT(A) has distinguished these decisions by observing that facts are different and these decisions had been rendered under the Interest Tax Act. However, this is not proper though these decisions are not directly on the point and were rendered under the Interest Tax Act, but the same is the case with the decision of the Hon'ble Madhya Pradesh High Court in the case of State Bank of Indore (supra) which was also rendered under the Interest Tax Act. As pointed out by the Ld. Sr. Advocate of the assessee, the decision in the case of State Bank of Indore (supra) is distinguishable because in that case the issue related to only amounts received on account of delay in payment beyond the dates of grace. Thus, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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