TMI Blog2016 (7) TMI 539X X X X Extracts X X X X X X X X Extracts X X X X ..... he common work force with the help of which the business of proprietory trading as well as trading on behalf of the clients are conducted. Therefore it could be safely concluded that the entire business of the stock broker constituted as one single composite indivisible business and therefore income or loss cannot be artificially bifurcated. The provisions of Explanation to Section 73 of the Act would not be applicable in the instant case in the absence of speculation loss if consolidated business income is considered and accordingly we find no infirmity in the order passed by the ld CITA on this issue Alternatively, even if Explanation to section 73 is to be applied, we hold that the assessee’s case falls under the exception provided in the first limb of Explanation to Section 73 of the Act where the gross total income of the assessee comprises of income from other sources which is much more than the speculation loss of ₹ 1,02,12,277/- - Decided in favour of assessee - I.T.A. No. 2723/Kol/2013 - - - Dated:- 8-7-2016 - Shri N. V. Vasudevan, JM And Shri M. Balaganesh, AM For the Appellant: Shri K. K. Tripathi, JCIT, Sr. DR For the Respondent: Shri D. S. Dam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) Long term capital gain 60,336/- c) Interest Received 98,27,423/- d) Dividend Income 32,69,797/- 2,35,95,198/- The AO however, held that only the loss derived from share trading activity was in the nature of loss from speculation business under Explanation to Sec. 73 of the Act and disallowed a sum of ₹ 1,02,12,277/- in the assessment . 5. The Ld. CITA deleted the addition by observing from one angle as under:- 8. The AO's action of aggregating absolute numeric values' of all the sources; assessable under the head business was therefore not in conformity with either the decision of the Jurisdictional Calcutta High Court in the case of Parkview Properties (P) Limited (supra) or with the decision of the Bombay High Court in the case of Darshan Securities Pvt. Ltd (supra). It is settled legal proposition that a deeming provision like the Explanation to Sec 73 must be strictly construed and should not to be construed liberally. In the present case the AO invoked Explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 73 irrespective of section 43(5)(d). He also held that profit from intra day share trading amounting to ₹ 8,76,950/- would only be speculative profit and hence that is also available for set off with the loss incurred in share trading activity. The ld CITA also held that the share broking income derived by the assessee amounting to ₹ 60,12,948/- is also available for setting off of loss incurred in share trading . If these profit figures are considered and set off with loss on share trading of ₹ 1,02,12,277/- , there would be no resultant loss and hence the provisions of Explanation to Section 73 of the Act at all. 6. Aggrieved, the revenue is in appeal before us on the following grounds :- 3. That on the facts and circumstances of the case the Ld. CIT(A) has erred in law in deleting the addition of ₹ 1,02,12,277/- treated as deemed speculation loss u/s. 73 of the Income Tax Act, 1961 without considering the fact that the instant case is distinct from the case of CIT Vs. Park View Properties Pvt. Ltd. (261 ITR 473) cited upon by the Ld. CIT(A) and that the Ld. CIT(A). 4. That on the facts and circumstances of the case, the Ld. CIT(A) has e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares. Qua the stock exchanges; transactions involving purchase sales of shares were carried out by the assessee. Deliveries for shares transacted by the assessee were given and taken in the demat account of the assessee. Accordingly for taxation purposes transactions carried out in different capital market segments but involving underlying transactions of purchase sale of shares should have been regarded by the AO to be of the same character and no differentiation could be made by the AO. In the impugned order the AO observed that in the activity of purchase sale of shares (involving delivery of shares) the assessee had incurred loss of ₹ 1,02,12,278/ -. Entire such loss was treated by the AO to be loss incurred in speculation business within the meaning of Explanation to Sec 73. The assessee submits that the assessee conducted transactions in shares both in cash segment and futures segment. As per the prudent practice followed by share traders, the trading bets are hedged by the traders by taking contrary or opposite positions in cash and future segments. By simultaneously executing the trades in the shares/securities of the same company in cash and futures seg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refused its set off. 8. We have heard the rival submissions and perused the materials available on record. We find that the following facts are undisputed and indisputable:- (i) The assessee is a member of National Stock Exchange and conducts trading in listed shares and securities. (ii) The assessee s transactions on the platform of the said exchange are both on proprietary account and on behalf of its clients. (iii) Transactions in shares are both in cash and derivative segments and these are conducted both on proprietary and client s account. (iv) In Proprietary share trading , the assessee incurred loss of ₹ 1,02,12,277/- , whereas, in Proprietary derivative trading, the assessee earned profit of ₹ 97,70,575/-. In addition, the assessee also earned profit of ₹ 8,76,950/- in its intra day share trading and further earned share broking income of ₹ 60,12,947/-. We find that although in the assessee s books, such income was accounted under different accounting heads , each source was intrinsically related to the activity of purchase and sale of shares But for the activity of purchase and sale of shares securities, the assessee could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s plea and held the loss to be nonspeculation business loss. On appeal u/s 260A however the Delhi High Court held that even though in terms of clause (d) of Explanation to Section 43(5), the derivative transactions could not be considered to be speculative transactions ; yet under Explanation to Section 73 , the loss incurred in such transactions could be considered to be speculation business loss. The High Court noted that the derivatives were assets whose values were derived from the underlying assets. Derivatives were transacted where the underlying assets were shares of other bodies corporate. The High Court held that if the loss incurred in purchase and sale of underlying assets was hit by provisions of Explanation to Section 73 , then by equal measure, loss incurred in the derivative transactions where shares constituted the underlying assets, were equally hit by the Explanation to Section 73. The High Court accordingly held that loss incurred by the assessee in derivative transaction was liable to be assessed as loss of deemed speculation business even though for the purpose of section 43(5) the transactions in derivatives were not speculative transactions . At this sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 60,12,948) are set off with the loss incurred on share trading business, there would be only resultant gain from speculative business and hence there would be no scope to apply the provisions of Explanation to Section 73 of the Act in the absence of speculation loss. 8.5. We are in agreement with the arguments advanced by the ld AR that in the case of a stock broker, there is a common terminal, one membership of the stock exchange, common bank account and the common work force with the help of which the business of proprietory trading as well as trading on behalf of the clients are conducted. Therefore it could be safely concluded that the entire business of the stock broker constituted as one single composite indivisible business and therefore income or loss cannot be artificially bifurcated. 8.6. We also deem it necessary at this juncture to understand the intention behind the words used in the Explanation to Section 73. We find that the legislature has consciously not used the expression share trading or share dealing business in the said Explanation. The language consciously used by the legislature provides that where any part of the business of a company assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessable in terms of Section 73 of the Act. 8.8. From the aforesaid findings and the ratio laid down in the aforesaid judicial precedents relied upon, it could be safely concluded that the provisions of Explanation to Section 73 of the Act would not be applicable in the instant case in the absence of speculation loss if consolidated business income is considered. 8.8.1. Alternatively, even if Explanation to section 73 is to be applied, we hold that the assessee s case falls under the exception provided in the first limb of Explanation to Section 73 of the Act where the gross total income of the assessee comprises of income from other sources which is much more than the speculation loss of ₹ 1,02,12,277/- . Reliance in this regard is placed on the decision of the Hon ble Jurisdictional High Court in the case of CIT vs Middleton Investment Trading Co Ltd in ITA No. 196 of 1999 dated 15.1.2014 wherein it was held that:- The learned Tribunal held as follows: ... the net loss under the head profits and gains of business or profession would be ₹ 8,72,972/- whereas, the income shown by the assessee under the head income from other sources is to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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