TMI Blog2006 (2) TMI 498X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit and loss account, the details of which indicated that these charges represented the loss arising out of three sets of sale purchase transactions of bonds, which are as under : (A) Transaction set No. 1 (1) Sale of 6,00,000 bonds Rs. 6,34,24,020 @ Rs. 10,57,067 on 21-10-1989 (2) Purchase 6,00,000 Rs. 6,42,15,840 bonds @ Rs. 10,70,264 on 20-11-1989 Loss : Rs. 7,91,020 (B) Transaction set No. 2 (1) Sale of 6,00,000 bonds Rs. 6,25,17,840 @ Rs. 10,41,964 on 20-11-1989. (2) Purchase of 6,00,000 Rs. 6,28,53,120 bonds @ Rs. 10,47,522 on 2-12-1989 Loss : Rs. 3,35,280 (C) Transaction set No. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultimately settled otherwise than by actual delivery of scripts. The assessee further contended that in this case the bonds were delivered to the broker, the finance was availed by the Company, and at the end the said bonds were repurchased by making repayment of the funds availed together with the financial charges at a pre-determined rate. The assessee also submitted that the above transaction were similar to borrowal of funds from any Bank or financial institution against the pledge of securities, wherein funds are made available to the borrower and at the end of finance charges together with original fund is repaid. The Assessing Officer had rejected the contention of the assessee on the following grounds : "1.The bonds, which the assessee-company had purchased from M/s. Citi Bank came into possession only on 17-11-1989, as is evidence by letter No. 6185 dated 17-11-1989 of Citi Bank. Therefore, these bonds could not be said to have been delivered to M/s. Devesh Chaturvedi on the date of sale. 2.The learned Authorised Representative of the assessee on behalf of the assessee had admitted before the Assessing Officer during the course of oral hearing on 9-3-1993 that there w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Authorised Representative of the assessee submitted that since the bonds had remained in actual possession of M/s. Devesh Chaturvedi since 17-11-1989 till 26-3-1990, there was no occasion for delivery of the bonds to the above concern in the course of subsequent purchase and sale transactions carried on between 20-11-1989 and 2-12-1989. The learned Authorised Representative of the assessee contended that the assessee had not taken delivery of the shares from M/s. Devesh Chaturvedi while purchasing them back to the said broker on the same dates. It was argued that the relevant finance charges to the said broker in respect of funds borrowed and it was common practice adopted in the stock exchange either for borrowing or for lending money for short-terms. It was submitted that borrowal of funds from Banks or other institutions, involve lot of procedures and formalities, whereas borrowing funds from a broker in the above mode was simpler and faster. 2.1 The CIT(A) rejected the contention of the assessee and ultimately held that speculation loss which actually arose from these four transactions was Rs. 36,60,660 (Rs.16,98,000 plus Rs. 9,62,660) and not Rs. 31,75,440 as held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the parties at the time of entering into contract might have been to take actual delivery but this intention could not be effectuated for one reasoned order. The provisions of clause ( a ) to section 43(5) of the Act exclude the hedging transaction from speculation loss. The burden of proof is upon the assessee to show that the transactions are merely hedging transaction within the meaning of proviso ( a ) to section 43(5). In the absence of any concrete evidence produced on the part of the assessee, the transaction is held to be speculative transaction. 3.2 Let us analyse the fact of the case before us in this legal background. The stand of the learned Authorised Representative of the assessee was that the assessee had sold Rural Electrification Corporation Bond to M/s. Devesh Chaturvedi on 25-10-1989. The delivery, in respect of this sale transaction, was effected by Shangrila Investment Corporation Pvt. Ltd. on 17-11-1989. The necessary evidence on this aspects claimed to be filed before the CIT(A). Based on these facts, the CIT(A) had accepted the delivery against the aforesaid sale has been effected. What the CIT(A) has not accepted the delivery for the intermediary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .) Ltd. [IT Appeal No. 1143 (Mum.) of 2000] for the assessment year 1995-96. 6. Jt. CIT v. Indra Dham Traders (P.) Ltd. [IT Appeal No. 1153 (Mum.) of 2000.] 3.3 As per the system of stock exchange, the transaction can be settled in two ways - ( i ) by effecting delivery and payment or ( ii ) by carry forward the outstanding position of purchase and/or sale to next settlement period on payment, the necessary charges i.e., "carry forward charges". The assessee, in the instant case, has opted the second alternative. The assessee made payment of necessary carry forward charges. The payment of carry forward charges should be treated as "cost of purchase". It was a case of only postponement of payment and transaction in question was ultimately settled by delivery and in that situation transaction cannot be said to be speculative in nature. The ratio of the above cases is applicable to the facts of the assessee s case. In fact, the assessee has paid the amount in question to one M/s. Devesh Chaturvedi, share and stock brokers by way of finance charges for raising funds to enable the assessee to pay for its purchase and sale of shares of quoted Companies from Bombay Stock Excha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, the Assessing Officer is directed to allow financial charges amounting to Rs. 31,71,440. In the above background, the CIT(A) was not justified in coming to the conclusion that actual amount of speculation loss incurred by the assessee was Rs. 36,60,660 and not Rs. 31,71,440 as held by the Assessing Officer. The CIT(A)was also not justified in holding that transaction on sale of bonds on 21-10-1989 and they are re-purchased on 26-3-1990 is to be considered separately and profit amount to Rs. 4,55,220 in respect of the said transaction is to be assessed as business profit. In view of our discussion above, the order of the CIT(A) is set aside and the Assessing Officer is directed accordingly. 4. The next issue in this appeal is with regard to the computation of income under the head "Capital gains" from the purchase and sale of bonds. The Assessing Officer pointed out that M/s. Citi Bank when it sold relevant 6 lakhs bonds to the assessee-company indicated in the bill that the total sale consideration of Rs. 6,33,32,054 consisted of face value of the bonds of Rs. 6,13,20,000 and interest from 2-6-1989 to the date of purchase of Rs. 20,12,054, whereas when the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o earned interest of Rs. 27 lakhs from these bonds sometime in between the purchase and sale of these bonds. Evidently the fall in the value of bonds, when the assessee sold them was because of the fact that the interest content in the bonds was less. But the loss of Rs. 1,28,072 claimed by the assessee-company was in no sense a real loss and, in fact, had been amply compensated by the receipt of interest mentioned earlier. In view of the decision of the of the Hon ble Supreme Court in the case of Miss Dhun Dadabhoy Kapadia v. CIT [1967] 63 ITR 651, the loss or profit arising from transfer of a capital asset had to be worked out on commercial principles and in view of the same the above loss of the assessee-company should be ignored and computed at Rs. " nil ", as it had been more than compensated by the receipt of interest of Rs. 27 lakhs. We are not inclined to interfere in the well reasoned finding of the CIT(A). The same is upheld. 5. The next issue is with regard to computation of the interest income of the assessee, exempt under section 10(15)( iv )( h ) of the Act by the Assessing Officer at Rs. 6,87,946 after deducting from the interest received, the broken period ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
