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Asian Financial Services Ltd. Versus Commissioner of Income Tax-3 Kolkata

2016 (3) TMI 685 - CALCUTTA HIGH COURT

Interpretation of the Explanation to section 73 - Tribunal held that the loss incurred in eligible transactions within the meaning of proviso (d) to section 43(5) not involving any purchase or sale of shares as such was speculation loss ? - Held that:- It would appear that the activities appearing in Clauses (a) to (e) are not to be deemed to be speculative transactions. Therefore, this comes within the category of deemed business which is however distinct and separate from any other business. N .....

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come arising out of business proper unless otherwise provided. The question however remains whether the explanation to Sub-Section (4) of Section 73 relied upon by Mr. Lodh provides otherwise. A plain reading of the explanation quoted above cannot be said to have provided otherwise. In that case the irresistible conclusion is that the assessee is entitled to set off such loss arising out of deemed business against the income arising out of business proper.

We are inclined to think tha .....

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n, Sr. Adv. Mr. S. Kejriwal, Adv. Mr. P. Jhunjhunwala, Adv. For the Respondent : Mr. M. K. Lodh, Adv JUDGMENT Girish Chandra Gupta J. The appeal is directed against a judgment and order dated 22nd May, 2015 passed by the learned Income Tax Appellate Tribunal, B Bench, Kolkata, pertaining to the assessment year 2009-10 allowing an appeal preferred by the revenue. The assessee, thus has come up in appeal. The questions raised by the assessee are as follows:- (a) Whether the Tribunal was justified .....

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ified in law in holding that the loss of ₹ 3,24,76,185/- incurred in eligible transactions within the meaning of proviso (d) to section 43(5) not involving any purchase or sale of shares as such was speculation loss ? (c) Whether and in any event, the appellant having earned profit in its business of purchase and sale of shares, the Tribunal should have directed the aforesaid loss in eligible transactions to be set off against such profit ? With regard to the first question, Mr. Khaitan su .....

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laim put forward by the assessee in respect of such expenditure. The assessing officer, according to him, did not take recourse to Rule 8D because that would have led to deduction of a very high amount. What he, therefore, did was to disallow a sum of ₹ 9,79,873/-which is aggregate of ₹ 56,162/- on account of service tax + ₹ 11,587/- on account of D-mat charges + ₹ 5,85,124/- on account of administrative expenses and ₹ 3,27,000/- on account of salaries and bonus. He .....

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s loss has to be treated as a business loss under the proviso to section 43(5) of the Income Tax Act. Once it is deemed to be a business loss on the basis of the proviso appended to section 43(5), the question of applying section 73 or the explanation thereto for the purpose of refusing the loss to be set off against the business income is palpably wrong. He submitted that the judgment of the Delhi High Court relied upon by the learned Tribunal does not lay down good law. According to him, the D .....

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the assessment year for which the loss was first computed. 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 trading in shares or banking) or the granting of loans and advances) consists in the purchase and .....

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ed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares." He submitted that a company dealing in purchase and sale of shares amongst others, which does not come within the exceptions carved out in the explanation itself, is hit by the mischief of the aforesaid explanation. He added that when the business consisting of purchase and sale of shares of other companies amounts to a speculation business, can it be said that .....

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ng assets"; in the present case by all accounts the derivatives are based on stocks and shares, which fall squarely within the Explanation to Section 73(4)." We have not been impressed by the submissions advanced by Mr.Lodh. How can it be said that Sub-section (5) of Section 43 is a general provision and the provision contained in Section 73 is specific in nature? On the contrary, we are inclined to think that the object of Sub-section (5) of section 43 is to define 'speculative bu .....

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referred to as "speculation business") shall be deemed to be distinct and separate from any other business." From a plain reading of the Explanation - 2, the following deductions can be made:- a) Speculative transactions carried on by an assessee may be of such a nature as to constitute a business; b) Such speculation business carried on by an assessee shall be deemed to be distinct and separate from any other business. We can thus arrive at a conclusion that speculation transacti .....

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commodity or scrips: Provided that for the purposes of this clause- (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdi .....

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sed stock exchange; [or] (e) an eligible transaction in respect of trading in commodity derivatives carried out in a [recognised association, which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013)] shall not be deemed to be a speculative transaction;" It would appear that the activities appearing in Clauses (a) to (e) are not to be deemed to be speculative transactions. Therefore, this comes within the category of deemed business which is .....

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