TMI Blog2010 (11) TMI 450X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010 - G.D. Agarwal, Mahavir Singh, JJ. Anil Kumar, DR, for the Appellant P.M. Mehta, AR, for the Respondent ORDER Mahavir Singh: This appeal by Revenue is arising out of the order of Commissioner of Income-tax (Appeals)-I, Ahmedabad in appeal No. CIT(A)-1/7 [1] Inv/110/99-2000 dated 25-07-2000. The assessment was framed by DCIT, Co Circle-7(1)(Inv), Ahmedabad u/s.143(3) of the Income-tax Act, 1961 (hereinafter referred to 'the Act') vide his order dated 30-05-1999 for assessment year 1996-97. 2. The only issue in this appeal of the Revenue is as regards to the applicability of Explanation to section 73(1) of the Income Tax Act, in regard to the determination of speculation loss. For this, Revenue has raised the following ground No.1. "The Ld. C.I.T. (A) has erred in law and on facts in deciding that deeming provisions of Explanation to Section 73(1) of the Act are not applicable to this case and determination of speculation loss is incorrect to the extent assessee's investment in shares is included as stock-in-trade." 3. The brief facts leading to the above issue are that the assessee is a private limited company filed its return of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the business consists of dealing in shares the same may be treated as losses in speculation business except for certain companies falling under exceptions. As has been discussed above the assessee company does not form part of any exception and part of the business of it consists of dealing in shares. Therefore, the losses on account of dealing in shares are treated as losses under speculation business which cannot be set off against any other income other than the income from speculation business. In absence of any speculation profit in this year the losses of Rs.54,65,063/- on account of the speculation business is allowed to be carried forward for possible set off in the subsequent eight years." 4. Aggrieved, the assessee preferred appeal before the CIT(A). The CIT(A) allowed the claim of the assessee vide para-10 to 12 of his appellate order as under: "10. Now, to examine whether the appellant is a financial company as is being claimed by them, it may be relevant to look at the financial profile of the company as it emerges from the various documents filed by the appellant: Assessment Year. Funds available. Application of funds Investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany whose principal business is making loans and advances and, therefore, the deeming provisions of Explanation to section 73(1) shall not be applicable to the appellant's case. I also hold that the Assessing Officer's determination of speculation loss is incorrect to the extent he has included the appellant's investment in shares as their stock-in-trade and interest attributable thereto. However, the Assessing Officer is at liberty to recomputed the appellant's income/loss from their dealings in shares after allocating reasonable amount of interest, administrative and other expenses attributable to this activity of the appellant and if, the final figure is still a loss, the said loss shall not be treated as speculation loss and shall be allowed set off against other incomes of the appellant." Aggrieved now the Revenue is in appeal before us. 5. We have heard the rival contentions and gone through the facts and circumstances of the case. From the facts of the case, it is noticed from the profit and loss account of the assessee-company as appearing on assessee's paper book page 27, the income from share activity is worked out as under:- Trading in shares 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow as under:- (a) That the principal business of the Company is giving or loans and advances on which interest is earned 51.29% (b) Investments in stock and shares by way of share Holdings on which dividends are earned 37.75% 89.04% (c) Stock of shares shows share trading activity 10.16% Total 99.20% II. Profit and Loss Account:- It reveals the following gross income from the various sources. III. Income a) By way of dividend from stock holdings as investments Amount 1385950 Percentage 9.26% b) Capital Gains on sale of debentures 1200000 8.01% c) Interest on loans and advances 9610776 64.23% d) Profit on trading of shares 566800 3.79% e) Consultancy Fees 2200000 14.70% 14963226 100.00% 6. From the above balance-sheet, it is clear that loan and advances are to the tune of Rs.7,31,19,570/- as against the stock of shares at 1,44,96,223/-. The investments made by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee stated that the Assessing Officer has treated the income from loans and advances as income from business and he has not doubted this activity by holding the interest income as income from other sources. The Assessing Officer's case is only that income from granting of loans and advances and even investment in this activity is less than that of trading-in-shares and hold that the assessee's activity of granting of loans and advances is not the principal business. Therefore, now we have to consider the decision of Special Bench of Ahmedabad Tribunal in the case of Gujarat Gas Financial Services Ltd v. ACIT (2008) 307 ITR (AT) 370 (Ahd) but we find that this decision of the Special Bench is not relevant to the facts of the case as there the question considered under the Interest Tax Act was whether the income arising from leasing activity can be considered to be interest on loans and advances and charged to interest tax or not. But in view of Explanatin-1 to Section 73 of the Act the question would arise whether the business of granting of loans and advances carried out in a manner that amount to business with the systematic, regular and organized the course of activity so tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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