TMI Blog2005 (11) TMI 438X X X X Extracts X X X X X X X X Extracts X X X X ..... eals) failed to appreciate the fact that during the year under review your petitioners have been engaged in only one business, namely, that of buying and selling of shares. Even the memorandum and articles of association of the company (a copy of which was also filed before the Commissioner (Appeals) categorically specifies that the principal business of the company is that of an investment company. That the learned Commissioner of Income-tax (Appeals) therefore failed to appreciate the fact that since your petitioners were an investment company and by his own admission, the Explanation could not be invoked in your petitioner s case. That the learned Commissioner of Income-tax (Appeals) failed to appreciate the fact that the Explanation could be invoked only in the case of companies which were carrying on the business of an investment company along with some other business and the Explanation could not be invoked in the case of companies whose entire business itself is that of an investment company . This is evident from the opening lines of the Explanation to section 73 which reads as under : where any part of the business of a company That the learned Commissioner of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a part of the business of an assessee comprises of purchase and sale of shares of companies and not of a company. The word used is companies and not simply company . So, plurality of transactions and plurality of companies is a pre-condition for attracting the provisions of the Explanation to section 73. On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) ought to have appreciated that the profit/loss from share trading business also includes dividend income earned in respect of such shares. As the entire dividend income of Rs. 1,373,200 had been earned by your petitioners on shares of Cable Cor poration of India Ltd., the interest expenditure of Rs. 1,296,966 ought to have been first set off against the dividend income of Rs. 1,373,200 and only the remaining interest deficit of Rs. 1,923,766 (i.e., Rs. 3,296,966 minus Rs. 1,373,200) ought to have been considered as attributable to the business of share dealing. That the learned Commissioner of Income-tax (Appeals) ought to have borne in mind the general commercial principles in order to arrive at the real and true profits of the business. It is patently unfair and unjust to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome of the assessee is dividend income i.e., income from other sources because business income is Rs. 12,68,257 ; dividend income is Rs. 13,73,200, and thus the dividend income is more, and hence the Explanation to section 73 cannot be invoked. Therefore, the loss in trading in shares cannot be treated as speculation loss, which mean that it is an ordinary business loss which can be set off against the normal income under the head Other sources . In the assessment the Assessing Officer treated the loss of Rs. 20,38,420 as speculation loss and taxed the dividend income of Rs. 13,73,200 separately. Before the Commissioner of Income-tax (Appeals) the same contentions were raised, that is, the main source of income is income from other sources and, hence the Explanation to section 73(1) cannot be invoked in the case of the assessee. The Commissioner of Income-tax (Appeals) also rejected the contention of the assessee by observing as under : The appellant s contention is that they are not covered by the provisions of the Explanation to section 73. In this connection it would be relevant to refer to the hon ble Calcutta High Court decision in the case of CIT v. Arvind Investments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08 ITR 1023 (Cal), where it was held that Explanation to section 73 was clearly applicable. The appellant has relied on the Income-tax Appellate Tribunal Mumbai Bench decision in the case of Laxmi Feeds and Exports Ltd. [1997] 62 ITD 315. The said decision has been perused by me. It is seen that the facts of the appellant s case are quite different being a case of solitary transaction of purchase and sale. In fact in that case the assessee had subscribed for one lakh equity shares of face value of Rs. 10 in a public issue and after having been allotted the said shares the same was sold subsequently at a loss. In the appellant s case there has been frequent sale and purchase of shares though of a single company. Such purchase and sale is clearly not covered by the ratio of the decision referred to. In view of the same, the action of the Assessing Officer, in rejecting the appellant s claim has to be upheld. The appeal is dismissed. It is how the assessee is in appeal against the above order of the Commissioner of Income-tax (Appeals). Before us the learned counsel for the assessee raised several contentions in support of his argument that he is not hit by the Explanation to sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to section 73 deems sale and purchase in shares as speculation transactions then a strict consideration of the position is needed. 5. Assuming that the case of the assessee falls in the main part of the Explanation, nevertheless, it would fall in the exception carved out in the Explanation. The said Explanation provides that if a company where 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 , then the provisions of the Explanation would not be applicable. The assessee has been assessed under the head Income from other sources , i.e., on dividend income of Rs. 13,73,200. Thus, the G.T.I. of the assessee consists of income, which is chargeable under the residuary head. Therefore, the case of the assessee is covered by the exception. 6. The learned Authorised Representative further submitted that assuming that the provisions of sections 70 to 72 are to be applied before determining whether the Explanation to section 73 applies, even then the case of the assessee would fall in the exception. It is so because the assessee has positive income under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n money borrowed for acquiring the shares which are held as stock-in-trade had to be adjusted in computing the dividend income chargeable under section 56.Summarising the arguments learned counsel for the assessee submitted that the orders of the Commissioner of Income-tax (Appeals) in treating the loss of Rs. 20,38,420 as speculation loss be reversed or in the alternative such loss should be reduced by setting off the interest paid on money borrowed. On the other hand, the learned Departmental Representative submitted that for invoking the Explanation to section 73, it is not necessary that the assessee should be dealing in more than one business or that if he is dealing only in trading of shares then the Explanation cannot be invoked. According to him, the interpretation of the words part of the business of the assessee means that he should have some other business also so as to make the trading in shares as a part of the business is not correct. The whole of business consisting of trading in shares would include part also. For their proposition he relied on the decision of the hon ble Calcutta High Court in CIT v. Arvind Investments Ltd. reported in [1991] 192 ITR 365. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions, then the single speculative transaction will not constitute separate or distinct business. On the other hand, the learned Departmental Representative submitted that the Explanation to section 73 is invoked to deem certain transactions in shares as speculative, if the conditions laid down therein are satisfied. Thus, according to the learned Departmental Representative the nature, scope and object of two sections are different, they operate in different fields. The learned Departmental Representative then relied on the decision of the hon ble Calcutta Income-tax Appellate Tribunal in Paharpur Cooling Towers Ltd. v. Deputy CIT [2003] 85 ITD 745 (Kol), wherein it was held that the thrust of the Explanation to section 73 is on business rather on the nature of transaction. He further submitted that in CIT v. Sun Distributors and Mining Co. Ltd. [1993] 68 Taxman 223, the hon ble Calcutta High Court held that it is not necessary that sale and purchase of shares had to be made in the same year. It was clearly emphasized that the business was more important than the transaction for deciding the applicability of the Explanation to section 73. Referring to the contention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elves are clear. He quoted from CST v. Modi Sugar Mills Ltd. [1961] 12 STC 182 (SC) ; [1961] AIR 1961 SC 1047 as under (page 190) : In interpreting a taxing statute, equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions. The court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed : it cannot imply anything which is not expressed ; it cannot import provisions in the statutes so as to supply any assumed deficiency. The hon ble Supreme Court has held that the rules of interpretation could be put into service only where the language of the statute was ambiguous or capable of more than one meaning. He relied on CIT v. Gwalior Rayon Silk Mfg. Co. Ltd. [1992] 196 ITR 149 (SC), CIT v. Sodra Devi [1957] 32 ITR 615 (SC) and Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345 (SC). Referring to the alternative argument of learned counsel for the assessee that if the losses are to be treated as speculation loss, the interest of Rs. 32,96,966 must be allocated towards earning out dividend income also and only the net amount of di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with by the Special Bench of the Income-tax Appellate Tribunal in Asst. CIT v. Concord Commercials P. Ltd. [2005] 95 ITD 117, 140 (Mumbai), in para. 21 to para. 24 as under : 21. But the Explanation has provided two exceptions. The first exception is available in the case of 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 . The second exception is in the case of a company whose principal business is the business of banking or the granting of loans and advances. 22. The first category of exception is identified by the composition of its gross total income. The words used in the statute ( . . . . 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 ) provide thrust on the composition of the gross total income of that company. If the gross total income of the company mainly consists of income falling under the abovementioned heads, the Explanation to section 73 does not apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come shown in the form of loss. In other words, if income from dividend is Rs. 100 assessed under the head Other sources and loss from trading in shares is shown as Rs. 50 lakhs still as per learned counsel for the assessee, the Explanation cannot be invoked, as the case would not fall in the exception. In other words, a positive figure, howsoever small it may be, is always more than any negative figure howsoever large it may be. He also relied on the decision of the Income-tax Appellate Tribunal (Mum.) in Associated Capital Market Management P. Ltd. On the other hand, the learned Departmental Representative had relied on the decision of the hon ble Calcutta High Court in Eastern Aviation and Industries Ltd. v. CIT [1994] 208 ITR 1023 ; CIT v. Park View Properties P. Ltd. [2003] 261 ITR 473 (Cal) and CIT v. Arvind Investments Ltd. [1991] 192 ITR 365 (Cal) and also on the decision of the Income-tax Appellate Tribunal, Mumbai in Deputy CIT v. Aakrosh Investment and Leasing P. Ltd. [2004] 90 ITD 287 for the proposition that absolute figures have to be compared for determining as to whether the assessee company s main income is from business or under other four residuary sources. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty , Capital gains and Income from other sources . Further, the Explanation to section 73 of the Income-tax Act, 1961, 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 bank ing 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. The words income or profits and gains should be understood as including losses also, so that in one sense profits and gains represent positive income whereas losses represent negative income . In other words, loss is negative profit . Both positive and negative profits are of revenue character. Both must enter into the computation, wherever it becomes material, in the taxable income of the assessee. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g was a speculation business carried on by the assessee under section 73(1). The Commissioner (Appeals) and the Tribunal reversed the order of the Assessing Officer holding that the main source of income of the assessee consisted of income from interest on securities and income from house properties. On a reference : Held, that there was a loss in share dealing account amounting to Rs. 8,98,799. If the same was treated to be a negative profit, then the income from other sources and dividend income being Rs. 5,73,701 was less. Therefore, the main income consisted of the business of share trading which was the main object of the assessee. The business income computed after setting off the loss in share trading assessed at Rs. 3,33,670 did not represent the business income since it was arrived at after applying the benefit of Explanation to section 73, viz., setting off the speculative income. The test of the Explanation was not satisfied in the case of the assessee. Therefore, both the Commissioner (Appeals) and the Tribunal proceeded on an erroneous view of the proposition of law in respect of section 73. The hon ble Calcutta High Court had another occasion to consider the conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... negative profit was less than the positive income (absolute figure) from dividend. Thus, income from other sources was Rs. 10,18,914 whereas business loss was Rs. 97,358. It held in para. 48 as under (page 150) : 48. In the case of Eastern Aviation and Industries Ltd. v. CIT [1994] 208 ITR 1023 (Cal), the assessee had a share trading loss of Rs. 12,90,145 and a speculation loss of Rs. 7,95,447. The positive income from other sources was Rs. 3,87,603. In Aryasthan Corporation Ltd. v. CIT [2002] 253 ITR 401 (Cal) also, the facts were identical where the business loss was higher than positive income from other sources. But in the assessee s case, the dividend income is higher than the business loss. Income from other sources by way of dividend was Rs. 10,18,914 whereas income from business was a loss of Rs. 97,358. Even when business loss is treated as negative profit, the negative profit was less than the positive income from dividends. Therefore, on the facts of the present case, the above two decisions of the Calcutta High Court are not applicable to issue. From this it follows that the decision of the hon ble Calcutta High Court can be applied to find out whether the Expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Bom). The hon ble Income-tax Appellate Tribunal, Panaji Bench in ITO v. Dilip Shirodkar [2005] 274 ITR (AT) 6, also expressed the view that once an higher authority than the Tribunal has expressed a view, the Tribunal has to respectfully follow the same even though that decision may be of a non-jurisdictional High Court. It observed as under (page 17) : In the hierarchical judicial system that we have, better wisdom of the court below has to yield to higher wisdom of the court above and, therefore, once an authority higher than this Tribunal has expressed an opinion on that issue, we have to respectfully follow the same. Such a High Court being a non-jurisdictional High Court does not alter the position as laid down by the hon ble Bombay High Court in the matter of CIT v. Smt. Godavaridevi Saraf [1978] 113 ITR 589. Admittedly, there is a difference between binding nature of a decision of the non-jurisdictional High Court and having a respectful persuasive value. For the purposes of rectification under section 154 or 254, the view of a non-jurisdictional High Court may not be a binding precedent. Further, the decision of a non-jurisdictional High Court may not always have a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an + 100) when sign of both incomes are -ve , the assessee will be said to be deriving income mainly from other sources (as -100 is more than 1,00,000). When any interpretation gives an absurd result, it has to be avoided. Thus, this interpretation of the phrase gross total income consists mainly of income which is chargeable under the head . . . in the Expla nation to section 73, which gives contrary results when sign of the two incomes are reversed i.e., with negative signs of the incomes, the GTI is mainly from other sources and with +ve sign of two incomes, the GTI is mainly from trading is unfair, irrational and unreasonable. Thus, such interpretation needed to be avoided. In our considered view if Rs. 1,00,000 is more than Rs. 100, then it is always more irrespective of the sign attached to it. Thus, it is the absolute figures of the two incomes divorced from sign , i.e., irrespective of whether it is +ve income or loss , has to be considered for comparison for deciding as to whether the case falls in the first exception of the Explanation to section 73 or not. Further, we are of the view that loss is always chargeable to tax as it is liable to be adjusted agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tta High Court as under (headnote) : Sub-section (2) of section 73 of the Income-tax Act, 1961, restricts the scope of section 72 which provides for carrying forward and setting off of business losses. If any loss computed in respect of a speculation business has not been wholly set off, such loss may be carried forward and set off against profits and gains of any speculation business in the following assessment years. The Explanation to section 73 introduces a legal fiction. The section applies only to a company. It does not apply to individuals, firms, Hindu undivided families or associations of persons. The Explanation also does not apply to an investment company or a company whose principal business is banking or money lending. If the business of a company which does not fall within the excluded categories consists of purchase and sale of shares of other companies, then such a company shall be deemed to be carrying on speculation business for the purpose of section 73 to the extent to which the business consists of the purchase and sale of such shares. The provisions of the Explanation to section 73 have to be contrasted with the provision of section 43(5), which defines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We respectfully follow the above decision of the hon ble Calcutta High Court in this regard. Further, another argument of learned counsel for the assessee is that to attract the Explanation the assessee should have dealt in shares of more than one company as plural word companies has been used in the Explanation. We do not accept this proposition. If the assessee is dealing in the shares of one company only still the Explanation can be invoked. We are of the view that singular is included in plural. If a plural word is used, singular automatically comes within its ambit. We beneficially refer to section 13 to the General Clauses Act, 1897. It reads as under : 13. Gender and number. In all Central Acts and Regulations unless there is anything repugnant in the subject or context, (1) words imparting the masculine gender shall be taken to include females and (2) words in the singular shall include the plural, and vice versa. No contrary legislative intent has been demonstrated in the present case. The hon ble Justice G. P. Singh in Principles of Statutory Interpretation, eighth edition of 2001, on page 867 observed as under : Contrary intention to exclude the oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, as rightly pointed out by the learned Departmental Representative, it was held on the facts, that the assessee was not doing speculation business. In CIT v. Sun Distributors and Mining Co. Ltd. [1993] 68 Taxman 223 (Cal), on which the learned Departmental Representative relied held that for the Explanation to attract, it is not necessary that the sale and purchase of shares have to be in the same year. Inferring from this, it is quite clear that a company can deal in the shares of one company and still the Explanation to section 73 can be attracted. Further, in the case of Paharpur Cooling Towers Ltd. v. Deputy CIT [2003] 85 ITD 745 (Kol), it is held that even if loss is on account of falling value of stock, it is still in the nature of loss incurred from that business. Para. 17 of that order reads as under (page 760) : 17. We are also of the considered view that even if the loss is only on account of fall in value of stock, it is still in the nature of loss incurred from that business. A careful perusal of Explanation to section 73 indicates that this Explanation lays down that the expression speculation business , under the specified circumstances, will cover the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . . What is relevant here is trading in shares of companies . Here also, we are of the view that plural will include singular as per section 3 of the General Clauses Act referred to above i.e., the word companies would include company . That is it is immaterial whether an assessee deals in the shares of a single company or in shares of several companies. No contrary Legislature intent has been demonstrated and in fact there is none. Therefore, this argument of learned counsel for the assessee is rejected. Regarding the argument of learned counsel for the assessee that section 28(2) provides that where the assessee carries single transaction then it will not be deemed to be speculation business and for it to constitute speculative business, there should be multiple transactions or plurality of transactions. We are of the considered view that the provisions of section 28(2) would not be applicable to the present case. The question presently involved is to determine whether the assessee is having income mainly from other sources so as to attract the Explanation to section 73. It has rightly been pointed out by the learned Departmental Representative that where a transaction is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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