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M/s Vinamra Universal Traders Pvt Ltd, Asstt Commissioner of Income Tax Versus Deputy Commissioner of Income Tax, M/s Vinamra Universal Traders Pvt Ltd

2016 (3) TMI 490 - ITAT MUMBAI

Investment portfolio - treated as capital gains OR business income - Held that:- We find that the assessee has consistently been in the subsequent assessment years also has given the same treatment to the shares kept in investment portfolio. The very intention of the assessee at the time of purchase was decipherable from the act and conduct of the assessee. The assessee has maintained two portfolios. The profits/loss incurred in respect of trading portfolio has been treated as business income wh .....

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ecially when the assessee has clearly bifurcated the investment portfolio and trading portfolio and has consistently maintained the same. In view of the above, the profit on share transactions relating to investment portfolio of the assessee is ordered to be treated as capital gains and not as business income of the assessee. Appeal of the assessee is therefore allowed. - Decided in favour of assessee

Applacablity of provision of section 73 - whether assessee would deemed to be carryi .....

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s total income the normal provisions of the Act must be applied and it is only thereafter, that it has to be determined as to whether the gross total income so computed consists mainly of income which is chargeable under the heads referred to in the explanation. Consequently, in the present case the gross total income of the assessee was required to be computed inter alia by computing the income under the head of profits and gains of business or profession as well. Both the income from service c .....

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) Ltd [2012 (6) TMI 715 - BOMBAY HIGH COURT] - Decided in favour of assessee - ITA No. 3256/M/2012, ITA No. 3680/M/2012 - Dated:- 31-12-2015 - B. R. Baskaran, AM And Sanjay Garg, JM For the Appellant : Shri S D Mistry, AR For the Respondent : Shri G M Doss, DR ORDER Per Sanjay Garg, Judicial Member The above titled cross appeals one by the assessee and the other by the Revenue have been preferred against the common order dated 05.03.2012 of the Commissioner of Income Tax (Appeals) [hereinafter r .....

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ncome. The Assessing Officer (hereinafter referred to as the AO) during the assessment proceedings observed that the assessee had shown purchase/sale transactions of shares in 10 listed companies and had also shown investment in mutual fund units. Some of the shares in respect of the said 10 companies were sold during the year and the assessee had returned the profits earned as short term capital gains. The AO treated the above stated income from the from the sale and purchase transactions of sh .....

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Ld. CIT(A) confirmed the above findings of the AO. Being aggrieved, the assessee has come in appeal before us. 5. We have heard the rival contentions and have also gone through the records. The Ld. A.R. of the assessee has brought our attention to page 3 of the paper book which is scheduled forming the part of the balance sheet wherein the assessee has shown the shares of the above stated companies as investments. The Ld. A.R. of the assessee has further brought our attention to pages 4 to 9 of .....

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tention to page 10 of the paper book which is a chart showing that even in the subsequent years the AO has treated the shares of these companies as investments. He has further submitted that this was the first year of the incorporation of the company as the company was incorporated on 17.07.2007. He has further submitted that there were no common shares/companies in the investment portfolio and trading portfolio. The companies, shares of which were kept in investment portfolio were not there in .....

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s of the lower authorities. 6. After considering the submissions of the Ld. Representatives of the parties, we find that the assessee has consistently been in the subsequent assessment years also has given the same treatment to the shares kept in investment portfolio. The very intention of the assessee at the time of purchase was decipherable from the act and conduct of the assessee. The assessee has maintained two portfolios. The profits/loss incurred in respect of trading portfolio has been tr .....

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e investment portfolio, especially when the assessee has clearly bifurcated the investment portfolio and trading portfolio and has consistently maintained the same. 7. In view of the above, the profit on share transactions relating to investment portfolio of the assessee is ordered to be treated as capital gains and not as business income of the assessee. Appeal of the assessee is therefore allowed. 8. Now coming to the appeal of the Revenue i.e. ITA No.3680/M/2012. ITA No.3680/M/2012 (Revenue&# .....

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₹ 221,38,13,206/-, which had been set off against future and options income. He observed that since the assessee was a company, hence as per the provisions of explanation to section 73 of the Act, any loss incurred in share trading was required to be treated as speculation loss and therefore could not be set off against any other income. He accordingly treated the said loss as 'speculation loss' and denied its set off from the business income of the assessee from the other activit .....

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The Ld. CIT(A) , however, allowed the claim of the assessee while relying upon the various case laws and thereafter concluding as under: "As held in the case of Rajan Enterprise (P)ltd 41 ITD 469 (Mumbai)-para 9 In determining the income - one has to set off the loss against the profits of other sources under the same head under Sec.70 and thereafter against the income from other head u/s.71. It is only then one has to see whether the proviso to Sec.73 was applicable or not as the provision .....

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7) 50,03, 62 6 Income from Business (11,20,31,661 (11,20,3 1,665) Income from other source 19, 66, 73,974 Gross Total Income 8,46,42,309 • Perusal of the aforesaid facts clearly shows the Gross Total Income of the Assessee amounting to ₹ 8,46,42,309/- is mainly on Income from other sources of ₹ 19,66,73,974/-. • As per the ratio in the case of Rajan Enterprises Vs ITO in,TAT Mumbai Bench D & ACIT Vs. Concord Commercials P.Ltd 95 lTD 117 Mumbai ( Special Bench)- and CIT .....

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s Speculation Loss as the Appellant's case falls in the exceptional clause to the Explanation to Sec.73 i.e. being a Company whose Gross total Income mainly consists of income chargeable under the head "Income on Securities, Capital Gains and Income from Other Sources." • As such, provisions to Explanation to Sec.73 does not apply to the Appellant's case. • Loss of ₹ 22 1.38 crores in the purchase and sale of shares is therefore not a speculation loss under Expl .....

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ies and also gone through the records. At the outset, the Ld. AR of the assessee has brought our attention to the computation of income, as reproduced in the impugned order and stated that the assessee has incurred a loss so far as business income is concerned. The assessee had a positive income from other sources of ₹ 196673974/- He has further submitted that, in the gross tota1 income of the assessee, predominant positive income was under the head "income from other sources". H .....

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is chargeable under the heads of interest, securities, income from house property, capital gains & 'income from other sources'. The Ld. AR of the assessee has further pointed out that in the case of "HSBC Securities" (supra), the only positive income was "income from other sources whereas business income was negative i.e. losses. The Hon'ble High Court held that section 73 was not applicable to the facts of the case observing as under: "In the present case, s .....

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argeable income, as the respondent had suffered a business loss otherwise. In that view of the matter, the judgment of the Division Bench of this Court in the case of Darshan Securities (P.) Ltd.(supra) supports the respondent's case. In that case, during the relevant assessment year, the assessee had a loss of about ₹ 2.33 crores in the share trading and had dividend income of about ₹ 4.80 lacs. The Division Bench held in paragraphs 6, 7, 8 and 9 as under :- "6. The explana .....

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s only for the purposes of the section. The bracketed portion of the explanation, however carves out an exception. The exception is that the provision of the explanation shall not apply to 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 whose principal business is of banking or the granting of .....

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s of business or profession. 8. In our view, the submission which has been urged on behalf of the Revenue cannot be accepted. Leaving aside for a moment, the exception, which is carved out by the explanation to Section 73, the explanation creates a deeming fiction by which a company is deemed to be carrying on a speculation business where any part of its business consists in the purchase and sale of shares of other companies. Now, the exception which is carved out applies to a situation where th .....

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a bar to the setting off of a loss which arises in respect of speculation business against the profits and gains of any other business. Consequently, a loss which has arisen on account of speculation business can be set off only against the profits and gains of another speculation business. However, for Sub-Section (1) of Section 73 to apply the loss must arise in relation to a speculation business. The explanation provides a deeming definition of when a company is deemed to be carrying on a spe .....

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