2014 (8) TMI 1149 - AT - Income Tax

Loss on account of trading in shares - Speculation loss - Held that - A perusal of the assessment order clearly shows that the assessee has income from share trading which is a loss the assessee has income from other sources under the head interest income to the extent of Rs. 2, 77, 243/- so also under the head service charge to the extent of Rs. 1, 50, 000/- total of which far exceeded the share trading loss. As the assessee s income from other sources is far exceeding the share trading loss the said loss on account of the purchases and sales of shares is not hit by the provisions of Explanation to Sect ion 73 of the Act and consequently the same cannot be treated as speculation loss. Losses incurred on the share trading transactions - Held that - As it is not iced that the assessee is having only share trading business and the assessee is a Company which is dealing in shares of other Companies in view of the decision of the Hon ble jurisdictional High Court in the case of Arvind Investments Ltd. (1990 (3) TMI 5 - CALCUTTA HIGH COURT) the assessee s business is liable to be treated as speculation business. In these circumstances the Assessing Officer is directed to treat the assessee s business from share trading as speculation business and al low the assessee benefit of set off of speculation income of Rs. 50.28 crores against the speculation loss of Rs. 66.40 crores.

Summary

Issues:
1. Interpretation of Explanation to Section 73 of the Income Tax Act regarding share trading losses for the assessment year 2000-01.
2. Treatment of share trading losses and income as speculation loss for the assessment year 2001-02.

Issue 1:
The appeal (ITA 1501/Kol/2009) concerned the interpretation of the Explanation to Section 73 of the Income Tax Act for the assessment year 2000-01. The assessee contested the order of the ld. Commissioner of Income Tax (Appeals) regarding the treatment of the share trading loss. The assessee argued that as the income from other sources exceeded the share trading loss, the Explanation to Section 73 did not apply. The ITAT Kolkata, after considering the submissions, held that since the income from other sources far exceeded the share trading loss, the provisions of Explanation to Section 73 were not applicable. Consequently, the share trading loss could not be treated as speculation loss, and the appeal of the assessee was allowed.

Issue 2:
In the appeal for the assessment year 2001-02 (ITA 1502/Kol/2009), the assessee, a share broker, challenged the disallowance of share trading losses amounting to &8377;66.40 crores. The Assessing Officer had held that the Explanation to Section 73 applied to this loss. The assessee contended that the entire business, being exclusively share trading, should be deemed a speculation business. The ITAT Kolkata examined the facts and referred to the decision of the jurisdictional High Court, which stated that a business activity solely involving purchase and sale of shares would be considered a speculation business. As the assessee's business was limited to share trading only, it was deemed a speculation business. Therefore, the Assessing Officer was directed to treat the share trading business as speculation business and allow the set off of speculation income against speculation loss. Consequently, the appeals of the assessee for both assessment years were allowed.