TMI Blog2019 (5) TMI 1603X X X X Extracts X X X X X X X X Extracts X X X X ..... business activity in sale and purchase of shares of other companies for the purpose of this section. Such is the mandate in case of Standipack P Ltd V CIT [ 2012 (10) TMI 131 - CALCUTTA, HIGH COURT] . In view of this we reverse the orders of the lower authorities and hold that explanation to section 73 does not apply to the assessee company - Decided in favour of assessee. - ITA No. 2911/Del/2016 - - - Dated:- 28-5-2019 - Smt Beena A Pillai, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Assessee : Shri V P Guta Anuvav Kumar, Adv For the Revenue : Ms. Naina Soin Kapil, Sr. DR ORDER PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the assessee against the order of the ld CIT(A)-5, Delhi dated 01.04.2016 for the Assessment Year 2012-13. 2. The assessee has raised the following grounds of appeal:- 1. For that the Commissioner of Income Tax (Appeals) erred on facts and in law in not holding that the disallowances made in the assessment are based on presumptions and assumptions and are contrary to the facts, wholly arbitra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee was treated as speculative business and not capital loss as claimed by the assessee. Accordingly, the loss declared by the assessee of ₹ 6329449/- claimed by the assessee was treated as loss from speculative business activity. The order u/s 143(3) of the Act was passed on 09.02.2015. 4. The assessee aggrieved with the above order preferred the appeal before the ld CIT(A)-5, New Delhi who confirmed the finding of the ld AO as under and therefore, the assessee is in appeal before us. 4. Ground nos. 1 2 are general in nature and require no separate adjudication. The appellant has challenged the view of the AO that the losses incurred on share transactions during the year are speculative in nature. During the appeal proceedings, the learned A/R stated that the AO has completely relied on his predecessor's reasoning for the A.Y. 2007- 08 to reject the claim of capital losses as reported by the appellant and treating the same as speculative losses. He stated that the similar issue involved in 2007-08 has been decided in its favour by my predecessor in his order dated 17.09.2014 and the revenue's further appeal in this regard has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital Loss as gain/loss from speculative business within the meaning of Explanation to Section 73 of the Act. In this connection reference is drawn to Paragraph 3 of the assessment order dt 09/02/2015 for AY 2012-13 passed u/s 143(3) by the Assessing officer wherein he has relied completely on reasons quoted in the assessment order passed u/s!47 r.w.s 143(3) for assessment year 2007-08 for categorization of Capital gain/loss as income/loss from speculative business. In this connection, we wish to submit that against the order dt 05/12/2012 u/s 147 for assessment year 2007-08 your appellant preferred an appeal before CIT (A) - VIII, New Delhi and Ld. CIT(A)-VIII vide his order dated 17/09/2014 had allowed our appeal and given full relief to us by holding that the transactions carried out by your appellant Company cannot be held as speculative business. It is important to mention here that the aforesaid finding of Ld. CIT (A) has become final as Hon'ble ITAT, Delhi has rejected the department appeal against the aforesaid order of CIT (A) - VIII, New Delhi for Assessment Year 2007-08. Since, Assessing Officer has made the aforesaid re-categorization of capital gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 banking or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. As is evident from a plain reading of the above statutory provision of section 73, It is apparent that if any of the following conditions are satisfied the provisions of Explanation to section 73 will not be attracted (i) If the gross total income of the company includes income mainly from the heads, i.e., 'Interest on securities', 'Income from house property', 'Capital gains' and 'Income from other sources'. (ii) The principal business of the company is the business of banking or the grant/ of loans and advances. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, clearly falls in the first exempted category of the companies which are not hit by provisions of Explanation to section 73, i.e., the companies' main income is from Hose Property, Capital Gain and Interest Income. It is further submitted that your appellant Company was incorporated under the Companies Act, 1956 on 29.07.1994. The main objects of the company as incorporated in its Memorandum of Association inter- alia include to carry on the business of an investment company and to invest in, acquire, sell, transfer, subscribe for, hold and otherwise deal in and invest in any shares, bonds, stocks, obligations issued and guaranteed by any company or companies constituted and carrying on business in India or elsewhere. The Reserve Bank of India, registered the company as Non Banking Financial Company (NBFC) on 20.08.1998. The Company is mainly engaged in the activity of financing making investments in the shares, securities, mutual fund units and other securities of various Companies. Your good-self will kindly appreciate that your Appellant Company is an approved Non Banking Finance Company (NBFC) whose main business is Financing Inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd advances, investment in shares etc therefore, Explanation to section 73 is not applicable. It is submitted that if any one of the aforesaid two conditions is satisfied, the company will not fall into the clutches of the provisions of Explanation to section 73. The word OR written in between the two conditions suggests that either first or second condition needs to be satisfied for excluding a company from the purview of Explanation to section 73. Your good-self will kindly appreciate that your Appellant Company satisfies both the aforesaid conditions as explained herein below: A. That the appellant Company is having income mainly under the heads 'Income from Other Sources' (Interest Income) and 'Income from Capital Gains'. The Company is in the business of giving loans and advances, investment in shares, mutual funds, units etc therefore, clearly satisfying the aforesaid first condition of Explanation to section 73 of the Act. B. That from a perusal of second condition, your good-self will kindly observe that the second condition provides exemption to the following two type of Companies, First, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rward to subsequent years (as speculative business loss) against set off of income from speculative business . 5. The issue involved in the present appeal is whether the appellant's case falls in the excluded category under Explanation to section 73. As per the Explanation to section 73, substituted by the Finance Act, 1987 with effect from 1-4-1988, which was applicable for the assessment year under appeal, the investment companies were not as such excluded from the operation of Explanation to section 73. Generally the said Explanation is applicable to any company whose part of the business consists in the purchase and sale of shares of other companies. The companies which are excluded from the operation of Explanation to section 73, with effect from 1- 4-1988 are as under : Company whose gross total income consists mainly of income which is chargeable under the head- i) Interest on securities; (ii) Income from house property (iii) Income from capital gains; iv) Income from other sources; (v) A company the principal business of which is the business of banking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Explanation to Section 73 as it is neither in the business of banking nor in the business of granting loans and advances. 5.3. Thus as discussed above, since the gross total income of the appellant does not mainly consist of business income nor it is engaged in the business of banking or of granting of loans or advances, it is not covered under Explanation of section 73. In the case of CIT v. Arvind Investments Ltd. [1991] 192 ITR 365, the question referred to the Hon'ble Calcutta High Court was whether on the facts and circumstances of the case the Tribunal was correct in holding that the Explanation to section 73 of the Income-tax Act, 1961 has no application in the case in view of the fact that the entire business of the assessee was in share dealing and while answering the same in the negative i.e., in favour of the Revenue, it was held by the Hon'ble Calcutta High Court that the Explanation to section 73 introduces a legal fiction and if the business of a company which does not fall within the excluded categories, consists of purchase and sale of shares of other companies, then such a company shall be deemed to be carrying on speculation busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s such u/s 73. Undoubtedly there are certain decisions which have held that the transactions in derivatives and futures and options which are done through recognized stock exchange are not speculative transactions within the meaning of section 43(5)(d) and hence these losses cannot be treated as speculative losses. Assuming but not admitting that the appellant incurred speculative losses u/s 43(5), even then the appellant's case is distinguishable, as it has traded in shares of JK Tyre and Industries Ltd., JK Paper Ltd. and JK Sugar Ltd. Moreover the appellant's issue has not been decided on merits by the Hon'ble ITAT which has dismissed the revenues appeal only on technical grounds. It may also be mentioned that the Delhi ITAT in the case of Frontline Capital Services Ltd. (96 TTJ 201) has held that insofar as provisions of Explanation to section 73 are concerned, the language is quite clear. It has to be applied to all cases, other than excluded category, where any part of the business of a company consists in the purchase and sale of shares of other companies. The categories of cases to be excluded have been specified by the statute itself and there is no need on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est income and therefore, provision of section 73 does not apply to the company. Further he stated that the company is a non banking financial company registered with the Reserve Bank of India and is mainly engaged in the activity of financing 6. the learned departmental representative vehemently supported the order of the learned AO and the learned CIT A. He further submitted that the assessee is not covered by the exception to section 73 of the income tax act. He referred to the order of the learned CIT A who considered all these arguments. He therefore submitted that the order of the learned CIT A deserves to be upheld. 7. We have carefully considered the rival contention and perused the orders of the lower authorities. During the year the assessee has incurred the loss from business of INR 2 445/ , short-term capital loss of INR 6 327004/ , long-term capital loss of ₹ 11446874/ and the dividend income of INR 1252106/ . The computation of the total income is placed at page number 10 of the paper book which shows that the assessee has earned the shortterm capital loss of INR 6 327004. According to the AO the same is a spe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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