TMI Blog2009 (1) TMI 892X X X X Extracts X X X X X X X X Extracts X X X X ..... present case the assessee has failed to prove that its transaction fit into the ingredients set by Hon'ble Apex Court. 3. The issues in these appeals relate to a set of transactions undertaken by the assessee-company regarding purchase and sale of units of UTI 1964 for the period relating to assessment years 1992-93 and 1993-94. These matters travelled up to this Tribunal in ITA Nos.6667 and 6668/Mum/1996 and ITA 3919 and 3920/Mum/1997. By order dated 21-2-2005, the issues were remanded back to the AO with a direction to ascertain whether the business transactions belonged to the assessee or not, and if they belong to the assessee, then to allow the relief of setting off of business loss against business profit. The AO passed orders dated 29-12-2006 by which he disallowed the relief claimed by the assessee in respect of setting off of business loss against business profits. On first appeal, the assessee was granted relief by the learned CIT(A) and hence the revenue is in appeal before this Tribunal for both the assessment years. 4. The assessee is a non-banking finance company. It had undertaken transactions in units of the UTI 1964 during the periods relevant to asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions. The CBDT has instructed that 'all the ready forward transactions should be considered as constituting a class of business, and hence, inter se set off profits and losses should be made and only the net profits should be brought to tax. It was further stated that even if for the sake of argument these transactions were treated as illegal, then the Hon'ble Supreme Court in the case of CIT vs. S.C.Kothari 82 ITR 794 had held that where the business is illegal, the profits earned therein are required to be taken into account and brought to tax. However, if the business in which the loss was sustained was the same as the business in which the profit was derived, then the loss has to be taken into account while computing the profits of the business. The AO instead of rectifying the mistake apparent on the face of the records, altered the entire character of the transactions by treating these as 'deposits' and not as Ready Forward transactions. These were not accepted by the AO. Even after remanding the issues back to the AO by this Tribunal, by order dated 21-02-2005, the AO had come to the same conclusion as reached in the order dated 29-11-1994. Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved the following points: (i) It is seen that before the ld. ITAT the appellant had submitted that the transactions in sale and purchase of the units were ready forward transactions. There are two sets of inter-related and integrated transactions where one face is with ANZ Grindlays Bank and the other face is with customers. This was borne out by the Janakiraman Committee Report which had referred to them as ready forward transactions. (ii) The appellant's view is further supported by the Hon'ble Supreme Court in the case of BOI vs. Custodian reported in 10 SCC 488 (1997). The Supreme Court held that the Ready Forward Transactions (or as sometimes described as a buy-back transaction) have four ingredients: (a) there must be a present sale or purchase with the commitment to repurchase or for resale in future; (b) the contract must be between the same parties (c) it must be in respect of the same kind of securities and for the same quantum of securities and; (d) the transaction must be entered into on the same day or contemporaneously and the price of resale and repurchase would be fixed at the stage of first leg itself. From the classical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw or cannon of accountancy. In any event, interest paid on deposits is allowable as a deduction u/s.36(1)(iii): (a) money must have been borrowed. (b) it must have been borrowed for the purpose of business. (c) the assessee must have paid interest on the borrowed amount. Since all these conditions are satisfied, the amount paid is still deductible u/s 36(1)(iii) of the Act. (vi) The ITAT has treated this as business, and directed that if profits are taxable, then losses are allowable. The AO has gone outside the purview of directions by the ITAT. It must be appreciated that if the income is assessable in the appellant's hands, then legitimately the losses too would be allowable for offsetting against profits only in the appellant's hands. On the other hand, if the transactions do not belong to the appellant company, but to ANZ Grindlays Bank then both profits as well as losses have to be excluded from the computation of total income. (vii) Thus in the light of the above directions the AO's action of disallowing the losses on one leg of these transactions and taxing profits on the other leg of these integrated transactions is completely err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titute separate and distinct categories of financial instruments. The above view is supported by the decision of the Supreme Court in the case of Apollo Tyres Ltd. vs. CIT 225 ITR 273 (SC) wherein the Apex Court held that 'Units' do not constitute 'shares' as contemplated u/s 43(5) of the Income tax. Act, 1961 and therefore any transactions in units cannot be speculative in nature. In the case of CIT vs. Nirmal Trading Co. (82 ITR 782) the Calcutta High Court held that the letters of renunciation' issued to shareholders were neither 'shares' nor 'commodities'. and transactions in them could not be 'speculative transactions' Contemplated within the meaning of sec.43(5) of the Income tax Act. However, even if hypothetically or for the sake of argument, these transactions are considered to be 'speculative' in nature then in accordance with the provisions of sec.73(1) of the Income tax Act,the losses have to be set off against the profits as both are speculative in nature. (x) It must be appreciated that the RBI has treated them as Ready Forward Transactions and the CBDT has issued specific guidelines on assessment of b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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