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TMI Blog2006 (10) TMI 177X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Act, 1961 ('Act'). In response to the same, the first contention of the assessee was that the nature of transactions in shares was not speculative in terms of section 43(5) of the Act which defines speculative transaction inasmuch as all the transactions were supported by the delivery. Secondly, it was contended that major loss was on account of diminution in the value of stock which could not be considered as speculative loss. The Assessing Officer rejected the first contention by holding that the case of assessee falls within the ambit of Explanation to section 73 which, by deeming fiction, considers the dealing in shares as speculative business unless the case of assessee falls within the exceptions provided therein. It was further held that none of the exceptions applied to the case of assessee. The second contention of the assessee was rejected in view of the decision of the Tribunal in the case of Prudential Construction Co. Ltd v. Asstt. CIT [2000] 75 ITD 338 (Hyd.). Consequently, the entire loss of Rs. 53,22,770 was assessed as speculative loss which could not be set-off against the other business income of the assessee. The Assessing Officer was also of the view tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the expression "income chargeable to tax" has been employed by the Legislature and according to these provisions, it is the positive income which is charged to tax. It was emphasised by him that unless there is a positive income, question of charging the same to tax simply does not arise. Therefore, the loss computed under any head of income would not fall within the ambit of the expression "income chargeable" and consequently the same will have to be ignored while working out the applicability of the first exception. 4. To substantiate his argument, he drew our . attention to the return Form No.1 which is required to be used for declaring the income in the case of company. He invited our attention to Sr. No. 18 which refers to gross total income as per Schedule F-2. Schedule F refers to the incomes computed under various heads i.e., "a - Income from house property, b - Income from business or profession, c - Capital gains, and d - Income from other sources" and then gross total income is mentioned which is the total of Items "a" to "d". He then refers to various schedules under which income chargeable under various heads has to be computed. Schedules "A" to "D" prescribe th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has been held that decision of non-jurisdictional High Court has only a persuasive value and is not binding. Therefore, the decision of the Hon'ble Calcutta High Court cannot be applied to the present case inasmuch as the Hon'ble Calcutta High Court did not consider the expression "income chargeable" used by the Legislature for attracting the first proviso in the Explanation to section 73 of the Act. He also distinguished the decision of the Tribunal, Mumbai Benches, in the case of Yucca Finvest (P.) Ltd v. Dy. CIT [2006] 101 ITD 403, by giving the similar reasoning inasmuch the Tribunal followed the decision of the Hon'ble Calcutta High Court. On the other hand, he relied on the decision of the Tribunal, Mumbai Benches, in the case of Associated Capital Market Management (P.) Ltd [IT Appeal No. 1103 (Mum.) of 2001], copy of which is placed before us. He drew our attention to para 6 of the order to point out that the facts of the present case and the facts in that case for assessment year 1996-97, are almost similar. He then referred to para 9 to point out that the revenue had relied on the decisions of the Hon'ble Calcutta High Court in the case of Eastern Aviation & Industries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e question for our consideration is, whether the case of assessee falls within the scope of the first exception provided in the Explanation to section 73 of the Act. It would be appropriate to refer to the provisions of the Explanation to section 73 as under: "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 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." Perusal of the above Explanation shows that where any part of the business of a company consists in the purchase and sale of shares of other companies, then such company shall be deemed to be carrying on speculative business, to the extent of which the business consists of the purchase and sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C refers to 'Capital Gain - (i) Short-term' (Schedule C-17 A or as the case may be E.2.3.v.) (ii) long-term (C-17B or as the case may be E.2.4.v.); 1D refers to 'Income from other sources' (Schedule D-9 or as the case may be E.2.5.v.). Schedules E-l to E-3 provide setting off of any loss under any head against the income under any other head and then computes the net income chargeable to tax under various heads. If any loss remains to be set off, then E-3 provides for carry forward of unabsorbed losses to next years. As per Schedule E-2, it is only the positive income which forms part of gross total income as per Schedule F-2. Therefore, the gross total income as per Schedule F-2 is the same as provided in section 80B(5) of the Act. 12. Now let us examine the scope of the expression 'Gross total income'. After going through the scheme of the Act, we find that gross total income consists of only positive income and the losses arising from any source does not enter into the computation of gross total income. As noted earlier the income of an assessee has to be computed under various heads specified under section 14 of the Act. Computation of income under such heads may result into p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies or not. Let us now explain with the help of two Examples. Example I: For instance, assessee-company incurs loss of Rs. 5 lakhs in purchase and sale of shares and earns positive income of Rs. 3 lakhs from other business activities, income of Rs. 1.50 lakhs by way of rent from house property and income of Rs. 1 lakh by way of interest. As per the decision of the Special Bench in the case of Concord Commercials (P.) Ltd, the loss under the head "Profits and gains from business" would be computed at Rs. 2 lakhs. This loss will have to be set-off against the rental income chargeable under the head "Income from house property" and interest income chargeable to tax under the head "Income from other sources". Thus, income by way of rent from house property would be wiped out and income under the head "Income from other sources", would be reduced to Rs. 50,000. As a consequence thereof, there would be neither loss nor profit under the head "Income from business". Thus, the gross total income would come to Rs. 50,000 which is chargeable to tax under the head "Income from other sources" and consequently, the first exception would apply since the gross total income mainly consists of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e no income under any of the heads. Thus, the gross total income would be "Nil' and consequently, the first exception would not apply. As a result thereof, the deeming provisions of the Explanation to section 73 of the Act would be attracted and consequently, the loss arising from trading in shares would be deemed to be loss arising from speculative business, which cannot be set-off against the other business income. However, the assessee would be entitled to carry forward the same in the subsequent year as per the law. 15. The contention of assessee's Counsel that loss on account of valuation of closing stock of shares should not be considered as speculative loss is covered against the assessee by two decisions of the Tribunal namely, Prudential Construction Co Ltd.'s case and Paharpur Cooling Towers Ltd's case and therefore, is rejected. 16. In view of our legal findings given in the preceding paras, the issue whether 'income' would include 'loss' loses its significance vis-a-vis the Explanation to section 73 of the Act. 17. The only question which remains for our consideration relates to allocation business expenses towards speculative loss. The Learned counsel for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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