TMI Blog2006 (5) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... planation to section 73 is part of section 73 and by fiction makes purchase and sale of other companies by a company itself speculation business. As the Explanation creates a fictional solution, it is required to be construed in a narrow sense. There is no indication that business as per the Explanation can be given a meaning different from meaning given under the main section. Further the Explanation uses terms gross total income , income under the heads like Interest on securities , Income from house property , etc. etc., making it absolutely clear that part of business means part of such business where income is computable under the head Business . The Explanation provides for set off and adjustment of income/loss of particular type of business mentioned in the Explanation. Having regard to clear language, there is no need in my view to speculate what is the import of word business in the Explanation. There is no question drawing any sort of presumption, either in favour of carrying business or against it. The ld AM is right in holding that even capital assets held by company were business asset. This is the position when word business is considered in a wider sense. Every trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earning of dividend was required to be reduced in accordance with the provisions of section 57(1) from the dividend income declared by the assessee and deduction under section 80M could be allowed only in respect of net amount. During the year the assessee has claimed bank charges and interest totalling at Rs. 35,89,515/-. Out of these amounts the learned Assessing Officer proportionately attributed a sum of Rs. 6,60,295/- to the dividend income and accordingly held that the dividend income eligible for deduction under section 80M was net amount of Rs. 1,31,15,555/- only. This resulted into short deduction of 80M as compared to the amount claimed by the assessee to the extent of Rs. 66,673/-. 3. During the course of hearing before the learned CIT (Appeals), the assessee argued that the assessee had paid interest on packing credit loan availed by the assessee for the purpose of export. There was no nexus whatsoever of this loan amount with the investment in shares on which dividend income had been earned by the assessee. Considering this fact the learned CIT (Appeals) held that allocation made by the Assessing Officer was not correct. He, therefore, directed the Assessing Officer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss. Facts of the case leading to this ground of appeal briefly are that the assessee disclosed certain loss on sale of TISCO shares. The learned Assessing Officer asked the assessee to show cause as to why the loss should not be treated as speculation loss. From the particulars furnished by the assessee the Assessing Officer noticed that the assessee had purchased TISCO shares on 2-2-1996 and sold on 5-2-1996. The entire transaction of sale and purchase had taken place within the same settlement period that indicated that actual delivery of the shares had not taken place. The assessee also did not furnish any documents regarding the actual delivery of the shares, such as distinctive numbers of shares received and sold. The learned Assessing Officer, therefore, asked the assessee as to why the loss could not be treated in the nature of speculation loss and not allowed to be set off against normal long-term capital gain of the assessee. The learned Assessing Officer also invoked Explanation to section 73. According to him the assessee was neither doing business of banking or granting loans and advances. Gross income of the assessee was also not mainly on account of heads of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to section 73 was that the assessee should have derived income mainly from business. It was not the requirement that the assessee should be trader in shares. The learned CIT (Appeals), therefore, wrongly construed the provisions of Explanation to section 73. Alternatively, the learned DR argued that the facts showed that the assessee was trading in shares. Most of its purchases and sales were within a very short span of time. The learned A.R. of the assessee argued that these were isolated transactions and it was not part of regular business income of the assessee. The assessee had claimed deduction of short-term capital loss against long-term capital gain and that was clearly permissible. In support of his contention the learned A.R. of the assessee has placed reliance on the judgments in the case of Saroj Kumar Mazumdar v. CIT [1959] 37 ITR 242 (SC); CIT v. S.S. Thiagarajan [1981] 129 ITR 115 (Mad.) and G. Venkataswami Naidu Co. v. CIT [1959] 35 ITR 594 (SC). The learned A.R. argued that the burden to prove that a particular transaction was in the ordinary course of business lay upon the revenue. For that purpose he relied upon the judgments in 37 ITR 633 (SC) (sic) and CIT v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany'. The expression 'business' has been defined for the purposes of Income-tax Act under section 2(73) in the following manner:- 'business' includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture; Apparently the term business is of wider import than the term trade . Business includes trade and much more. In the case of Mazagaon Dock Ltd. v. CIT [1958] 34 ITR 368, Hon'ble Supreme Court have held that the term business in a fiscal statute, must be construed in a broad rather than a restricted sense. In the case of Dr. P. Vadamalayan v. CIT [1969] 74 ITR 94, Hon'ble Madras High Court held that the definition being inclusive and not exhaustive, is indicative of extension and expansion and not restriction. It is settled legal position that business is not synonymous with trade. Lord Hallsbury have explained this aspect in the following words:- business is a wider term than, and not synonymous with trade; and means practically anything which is an occupation as distinguished from a pleasure . Anything which occupies the time, attention and labour of a person with the object of making profit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on at all. In such exceptional cases, it may be argued that the transaction did not represent any part of the business of the company. On the facts and circumstances of the assessee's case it is not possible to say that the transactions are non-business transactions. It is not the case of the assessee that separate funds were invested in purchase and sale of shares. The Annual Report, Notes on Accounts, Minutes of meeting of Board of Directors, Resolution of the Board of Directors there is nothing brought to our notice to support the contention that the shares were non-business assets of the assessee. The assessee's transactions do not cease to be a business transaction for the reason only that the assessee purchased the shares as an investment even if we accept the contention of the assessee that the sale within a short span of time was due to unforeseen circumstances. In this view of the matter, we are of the view that provisions of Explanation to section 73 have been rightly applied by the Assessing Officer. The learned CIT (Appeals) erred in taking the case of the assessee out of the Explanation to section 73 for the reason only that the assessee was not trading in shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rade which is not the case of revenue. Accordingly, it is not possible for me to agree to the proposition canvassed in the proposed order that purchase and sale of shares by a company would fall within the ambit of Explanation to section 73 irrespective of the fact whether such shares are purchased as a trader or as an investor. Purchase of shares as an investor, in my considered opinion, is completely outside the ambit of the Explanation to section 73 of the Act. Hence, it is held that loss on sale of shares was not speculative loss and consequently has to be assessed as short-term capital loss. 13. Except as stated above, I agree with the rest of the proposed order. REFERENCE UNDER SECTION 255(4) OF INCOME TAX ACT, 1961 The aforesaid appeal filed by the revenue has been heard by us in ITAT, Delhi Bench G , Delhi. As after consideration of the appeal there has arisen a difference in opinion between us, we hereby state the point on which we differ, for further hearing by one or more of the other Members of the Tribunal:- Whether, on the facts and in the circumstances of the case, the loss arising to the assessee amounting to Rs. 4,90,500/- is to be treated as speculation loss withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 73 which relates to cases where the assessee is not an investment company. In case of non-investment companies, if there is a business carried on of banking or the granting of loans and advances and there is purchase and sale of shares, loss will be deemed as from speculation. The appellant has not done any such business. The Assessing Officer has tried to hold that the sale of shares was an adventure in the nature of trade but it is only a presumption in the case of the appellant. The appellant has not been doing any business of banking or advancing of loans. Merely on account of the fact that there is a transaction which has resulted in loss, it cannot be termed as business carried on by the appellant. The finding of the Assessing Officer that section 73 was applicable in the case of the appellant is not based on correct appreciation of facts and law. The rejection of set off of loss which was short-term capital loss by the Assessing Officer was not correct. The Assessing Officer is directed to allow relief admissible in this regard. 17. The revenue being aggrieved has brought the issue in appeal before the Appellate Tribunal. The learned D.R. argued that for application of Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s speculative. He also accepted that shares of TISCO were purchased by the assessee as an investment and sold as such. All the same, the question was whether Explanation to section 73 was applicable in the case or not. The learned Accountant Member further observed that decisions cited by the assessee were not applicable as they all pertained to dealings of individual. Here in the case of company carrying out business activity as its main source of income, the normal presumption would be that all transactions carried on by an assessee were pail of business carried on by the assessee. Therefore, transaction carried on by the assessee would not cease to be business transaction merely because the assessee purchased these shares as an investment and sold them within a short span of time due to unforeseen circumstances. On the facts of the case, transaction of sale purchase was business transaction. Although shares were not held by the assessee as trading asset, the shares were business asset. The learned Accountant Member drew an adverse inference against the assessee for not filing annual report, notes on account, minutes of meeting of Board, Resolution of Board of Directors etc. to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business activities of assessee-company. A company can be said to carry on the business partly in shares only where shares are purchased as stock-in-trade and not otherwise. If shares are purchased by a company by way of investment, then loss arising from the sale of such shares, in my opinion, would be a capital loss and can never be considered as business loss. There cannot be any dispute that the scope of the word 'business' is much wider than the word 'trade' but where the Legislature says about carrying on business in purchase and sale of shares, it only means trading in shares. There is no other way in carrying on business of purchase and sale of shares as stock-in-trade. No doubt, even a solitary transaction may be considered as business provided it is by way of adventure in the nature of trade which is not the case of revenue. Accordingly, it is not possible for me to agree to the proposition canvassed in the proposed order that purchase and sale of shares by a company would fall within the ambit of Explanation to section 73 irrespective of the fact whether such shares are purchased as a trader or as an investor. Purchase of shares as an investor, in my ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon judgment of the Hon'ble Calcutta High Court reported in 192 ITR 365 (Cal.) We, therefore, reject these grounds of the appeal taken by the assessee. 23. The learned D.R. also relied on the decision of Delhi Bench of the Tribunal in the case of Dy. CIT v. Frontline Capital Services Ltd. [2005] 96 TTJ (Delhi) 2012 wherein it has been observed as under: Insofar as provisions of Explanation to section 73 are concerned, the language is quite clear. It has to be applied to all cases other than excluded category, where any part of the business of a company consist in purchase and sale of shares of other companies. The sum and substance of Dr. Shikha's argument was that if company involved in purchase and sale of share and company is not one falling under the excluded category, then business of sale and purchase of shares in the hands of such a company will only be speculation business for purposes of section 73 of the Income-tax Act. Speculative loss arising to such a company can only be adjusted against speculation profit. Dr. Shikha completely supported proposed order of learned Accountant Member. She pointed out that Hon'ble Judicial Member did not appreciate that purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lanation has no application where shares sold were held as an investment and capital gain accrued to assessee on transfer of shares. The learned counsel accordingly supported proposed order of Judicial Member. 25. I have given careful thought to the submissions of parties and examined them in the light of material available on record. I have also considered relevant statutory provisions. Section 73 with Explanation which was invoked and applied in this case is as under: 73.(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 it 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her transaction of purchase and sale of shares of TISCO can be treated as business and, therefore, a speculation business in terms of Explanation to section 73 of the Income-tax Act. In order to resolve above controversy, I would like to refer to certain decisions relevant on the issue before me: (a) In G. Venkataswami Naidu Co's case their Lordships of the Supreme Court held that in reaching the conclusion that the transaction was an adventure in the nature of trade, the Tribunal had to find primary evidentiary facts and then apply the legal principles involved in the expression adventure in the nature of trade used by section 2, sub-section (4). It was patent that the clause in the nature of trade postulated the existence of certain elements in the adventure which in law would invest it with the character of a trade or business, and that would make the question and its decision one of mixed law and fact. (b) In Calcutta Discount Co. Ltd v. ITO [1961] 41 ITR 191 (SC) the assessment years involved were 1942-43, 1943-44 and 1944-45. Their Lordships of the Supreme Court observed that the question whether sales of certain shares were by way of changing the investments or by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the sale had not been effected in the course of the assessee's business, it could not be held that the conclusion of Tribunal was not correct. (e) In CIT v. Guest Keen Nettlefold Ltd. [1978] 115 ITR 205 (Cal.), the assessee, a sterling company, had a controlling interest in an Indian company. The Indian company with the permission of the authorities concerned made a rights issue of capital. The assessee, in order to maintain its controlling interest, had to subscribe to the rights issue and for that purpose obtained an overdraft from an Indian bank. For the purpose of liquidating the said overdraft, the assessee sold a part of the shares, which resulted in a surplus. The ITO sought to tax the surplus as business income of the assessee. The AAC and the Tribunal held c that the assessee was never a dealer in shares and the purpose of acquiring the shares was to retain control over the Indian company. On a reference, the conclusion of the Tribunal was upheld by the Hon'ble High Court which found that the transaction was not an adventure in the nature of trade. The Hon'ble High Court observed that in determining whether a transaction was an investment or an adventure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery of scripts and as such cannot be treated as 'speculative transaction' as defined in section 43(5). The opening words of the Explanation to section 73 are 'where any part of the business of a company.' Any is a word which excludes limitation or qualification. A restricted meaning should not be given to the phrase any part of the business . The object of Circular No. 204, dated July 24, 1976, is to curb devices to manipulate and reduce the taxable income of a company under the management of a controlling group of persons. But the circular has clearly stated in paragraph 19.1 that 'the business of purchase and sale of shares by companies which are not investment or banking companies or companies carrying on business of granting loans and advances will be treated on the same footing as speculation business'. The phrase in the Explanation to section 73 'to the extent to which the business consisted of purchase and sale of such shares' also does not indicate that the Legislature had several other actual and existing non-speculative activities of business in mind. It merely indicates that the business activity which consists of purchase and sale of shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no presumption that a single transaction or isolated transactions are adventure in the nature of trade . Adventure in the nature of trade posulates existence of certain elements of adventure which in law is vested with character of a trade or business. The question has to be decided on consideration of different circumstances including frequency of sales, nature of assets sold, price received as compared with cost and several other factors. Adventure in nature of trade pre-supposes transaction being in nature of revenue transaction. Purchase and sale of capital asset per se cannot be business. Further in spite of inclusion of adventure or concern in nature of trade in the definition of business under section 2(73) of Income-tax Act, it is not possible to hold that every transaction of purchase and sale would be an adventure in nature of trade and, therefore, business transaction as understood in Explanation to section 73 of the Income-tax Act. The revenue has to consider facts and circumstances of the case and establish that the transaction or transactions were carried with intention to carry trade. Several other factors, right from the beginning at the time of purchase, till t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness as per the aforesaid sub-section means computed business (speculation) which shall be set off against profits and gains, if any, of another speculation business. The word business as far as this subsection is concerned, can have no other meaning except business as computed under the Statute. Sub-section (2) of the section also starts with words, any loss computed in respect of speculation business . Therefore, there can be no doubt that this sub-section also uses word business in the context of computed business. Sub-section (3) of the section provides for preference in adjustment/set off to speculation loss over unabsorbed depreciation. The provision without any doubt relates to computation of business income and, therefore, business here cannot have meaning other than business computed as per provisions of Income-tax Act. Sub-section (4) talk of carry forward of speculation for a certain period. It thus specifically referred to speculative loss computed as per other provisions of section 73. Thus in all the sub-sections of section 73, business has to be understood as computed business income under the provisions of the Act. The word business is not required to be understood ..... X X X X Extracts X X X X X X X X Extracts X X X X
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