TMI Blog1985 (9) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... ow: "Without prejudice to the above, the Commissioner (Appeals) erred in upholding the application of Explanation to section 73 of the income-tax Act, 1961, to the appellant's case and in treating the loss as 'speculation loss' on the facts and in the circumstances of the case." 3. Dr. D. Pal, the learned representative for the assessee, urged before us that the short issue that is raised in this appeal is whether the case of the assessee is hit by the Explanation to section 73 of the Income-tax Act, 1961 ('the Act') or the case of the assessee is saved by one or the other of the two exceptions stated in the said Explanation. He took us through the said Explanation to section 73 which reads as below: "Explanation : Where any part of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Commissioner (Appeals) the assessee's case was that it was a company whose principal business was the business of granting of loans. The other ground now taken before us by Dr. D. Pal, viz., that the assessee also came under the first exception envisaged in section 109(ii) was not taken before the Commissioner (Appeals). The Commissioner (Appeals) considered the contention taken before him with reference to the amount of money invested in the share dealing business and money-lending business carried on by the assessee and came to the conclusion that the money-lending business was not the principal business of the assessee. Consequently, the assessee did not come under the exception and was hit by section 73. In this view of the matter, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness of the assessee was to deal in shares (clause 20). He urged that the above fact shows that the main object of the assessee was money-lending and not share dealing. In this connection, he referred to the decision in the case of CIT v. J.K. Eastern Industries (P.) Ltd. [1965] 55 ITR 376 (Cal.). He urged that though the memorandum of association of a company is not always conclusive of the nature of business carried on by the company, yet if a particular object stated in the memorandum is translated into practice, that object has to be taken as acted upon. In other words, what is stated in the memorandum is not material but what the company actually does in practice is material. He then referred to the profit and loss account of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or profession' becomes much more than that chargeable under the head 'Income from other sources'. Consequently, the case of the assessee goes out of section 109(ii). In this connection, he pointed out that if the argument of the assessee is to be accepted, then the net loss of Rs. 40,221 from business should be set off against the other source of income of Rs. 28,125 so that the net result would be a loss and under such circumstances it cannot be said that the assessee was having mainly income from sources other than those chargeable under the head 'Profits and gains of business or profession' or 'Salaries'. 8. Next, Shri A. Singh contended before us that the assessee did not come even under the second exception as its principal business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness because of the provisions of section 73(1). 9. We have considered the contentions of both the parties as well as the facts on record. As stated at the outset of this order, the only question that is raised in this appeal is whether the case of the assessee is or is not saved by the exceptions enacted in the Explanation to section 73. In our opinion, the case of the assessee does not come under section 109(ii). The income chargeable under the head 'Profits and gains of business or profession' becomes less than the income chargeable under the head 'Income from other sources' only after the set off of the loss suffered in share dealing business. If the assessee is not entitled to such set off, then the assessee will not come under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 28-2-1978. Similarly, as on the last date of the previous year under consideration, the amount invested in the share business was more than three times the amount invested in the money-lending business. Hence, it is evident that the assessee was not engaged principally in the business of granting loans. Thus, we come to the conclusion that the assessee was not saved by either of the two exceptions enacted in the Explanation to section 73 and, therefore, the revenue authorities were quite justified in treating the loss from the share dealing business as speculation loss and in refusing to set off the same against the income earned from money-lending business. For the above reasons, we uphold the order of the Commissioner (Appeals). 11. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
