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TMI Blog2010 (11) TMI 422X X X X Extracts X X X X X X X X Extracts X X X X ..... of purchase and sale of some of the shares. In respect of some of the shares there was no delivery either at the time of purchase or at the time of sale. The details of the transaction in respect of which there was no delivery (speculation) and in the transactions where there was delivery are as follows: "Opening stock Rs.50,64,040 Add: Purchases (as per statement) i) Trading Rs.19,02,40,519 ii) Speculation Rs.1,49,41,295 Rs.20,51,81,814 Less: Closing stock (as per stt) Rs.1,10,43,487 Rs.19,41,38,327 Sales (as per statement) i) Trading Rs.18,91,74,491 ii) Speculation Rs.1,42,43,557 Rs.20,34,18,048 It can be seen from the above that the purchases of shares where there was no delivery was Rs.1,49,41,295/- and in respect of sales of shares where there was no delivery was Rs.1,42,43,557/-. Thus, there was a loss of Rs.6,97,738/- on account of trading in shares in which the assessee had neither taken delivery at the time of purchase nor given delivery at the time of sale. According to the A.O. the above transactions were speculative tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned. In this regard, the learned counsel for the assessee relied on the decision of the Hon'ble Calcutta High Court in the case of CIT v. Arvind Investments Ltd.(192 ITR 365)(Cal.). 8. The learned Departmental Representative, on the other hand, relied on the order of the CIT(A) and submitted that to the extent there was actual delivery of shares at the time of purchase and sale and where in those transactions there was no loss then the profit arising out of such transaction have to be considered as normal business profits. It was only where there was a loss, arising out of the purchase and sale of shares irrespective of the fact that there was delivery or not, the loss has to be considered as speculative loss. In this regard, the learned Departmental Representative also submitted that the heading of section 73 shows that it applies only to losses in speculative business and the entire scope of section 73 is only when there is a loss. In this regard he also referred to the legislative history behind enactment of explanation to Section 73. 9. We have considered the rival submissions. The provisions of Sec.73 reads as follows: "73. Losses in speculation busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of shares of other companies and in the course of such business the Assessee earns profit and there is actual delivery at the time of purchase and sale, then such profit is normal business profit. But if there is a loss in such transactions, even though there is actual delivery, the same will be treated as a speculative loss. 11. When s. 73 was introduced, it did not have the Explanation. The Explanation was inserted only w.e.f. 1st April, 1977, by the Taxation Laws (Amendment) Act, 1975. The object of this provision was to curb the devise sometime resorted to by business houses controlling groups of companies to manipulate and reduce the taxable income of companies under their control. The Explanation applies only to a company. It does not apply to assessable entities other than companies. Even amongst companies, it is not applicable to a case of a company whose gross total income consists mainly of income chargeable under the head interest on securities, house property, capital gains and other sources. It is not also applicable to a company whose main business is that of banking or the granting of loans and advances. It is only in the case of other companies that the Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative income after setting off speculation loss of Rs.27,61,505 brought forward from AY 96-97 to 98-99. The AO treated the income from sale of shares as normal business income and did not allow set off as claimed by the Assessee. The Hon'ble Court held that set off claimed had to be allowed. The Hon'ble Court held that explanation to Sec.73 applies to a business carried on by an Assessee which is a company of purchase and sale of shares and therefore both profit as well as loss in such business have to be treated as speculative income or loss. The Hon'ble Court held that full effect must be given to the deeming fiction created by the Explanation and when there is profit one cannot refuse to apply the deeming fiction. 14. In view of the above, we are of the view that the claim of the assessee has to be accepted and the addition made by the A.O. has to be deleted. We order accordingly. Ground Nos. 2 and 3 of the assessee are allowed. 15. Ground Nos. 4 and 5 raised by the assessee read as under: "4. The learned CIT(A) has erred in disallowing professional fees of Rs.3,50,000/-. 5. Learned CIT(A) has failed to appreciate that assessee is permitted by its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies Rs.29,739 Total Rs.4,31,814 21. The dividend income from mutual funds and dividend income on shares, did form part of the total income of the assessee. The A.O. was of the view that the disallowance under section 14A of the Act should be made on account of the expenditure incurred in earning the income which did not form part of the assessee's total income. 22. On perusal of the records, the A.O. noticed that the assessee had paid professional fees of Rs.33,2,675/-. These payments were made in connection with the professional advises for making investments and trading in shares and securities. The A.O. thereafter noticed that the investments of the assessee in mutual funds and shares were substantial. The A.O. was, therefore, of the view that the expenses incurred by the assessee on account of professional fees for advise of capital market related matter, portfolio related matters and research connected with investment in shares, mutual funds and securities had to be allocated in the ratio of turnover. The total expenditure on account of professional fees for the advice on capital market research on various shares and securities and portfolio related advice w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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