LAXMI VISHANJI KARANI, ,HYDERABAD vs. ASST. COMMISSIONER OF INCOME TAX, CIRCLE-4(1), HYDERABAD

Since the second ground raised by both the assessees are with respect to levy of interest U/s. 234C and 234D of the Act which is consequential in nature and hence devoid of merit.

The brief facts of the case are that both the assessees Dr. Vishanji Khimji Karani and Dr. Laxmi Viishanji Karani are engaged in medical profession as Doctors filed their return of income for the relevant assessment year 2013-14 on 25/08/2013 and 24/09/2013 declaring taxable income of Rs. 25,08,040/- and Rs. 23,93,590/- respectively. Subsequently, the case was taken up for scrutiny and the assessment was completed on 3/2/2016 u/s. 143(3) of the Act wherein the Ld. AO disallowed the claim of set off of loss from trading in shares amounting to Rs. 4,54,863 and Rs. 1,21,806/- in the hands of Dr. Vishanji Khimji Karani and Dr. Laxmi Viishanji Karani respectively by holding that the loss in the case of the assessees is arising from speculation business.

Before the Ld. AO both the assessees had submitted that they were purchasing and selling equity shares through their stockbroker on actual delivery basis. However, the Ld. AO opined that any activity pertaining to purchase and sale of shares has to be treated as ‘speculation business’. While arriving at such a conclusion the Ld. AO relied on Explanation 2 to section 28, sub-section 3 of section 73 and section 43(5) of the Act. The Ld. AO further relied on the decision in the case of Pahapur Cooling Toers vs. CIT reported in 256 ITR 202.

Both the assessees carried the matter on appeal before the Ld. CIT (A). On perusing the issue, the Ld. CIT(A) was also of the view that even the delivery-based transactions of purchase and sale of shares will not have any effect on the provisions of section 73 of the Act. The Ld. CIT (A) further examining the statement issued by M/s. Kotak Securities limited towards the transactions pertaining to the purchase and sale of equity shares on behalf of the assessee observed that they do not correlate with the bank receipts and payments of the assessees with respect to every purchase and sale transaction of equity shares. Further, the Ld. CIT (A) opined that even if it is held that the loss arising out of purchase and sale of equity shares are not from speculation business, it cannot be set off against the professional income of the assessee. With the above observation the Ld.CIT(A) upheld the order of the Ld. AO.

Before me the Ld. AR submitted that both the assessees are Doctors attached to different hospitals earning professional income. It was further submitted that both the assessees from their tax paid funds traded in listed equity shares through stockbroker M/s. Kotak Security Limited based on their advice. The Ld. AR further submitted that the assessees had not indulged in any forward trading of shares. It was further submitted that both the assessees had purchased and sold shares through the stockbroker on actual delivery basis and the accounts have been settled on a periodically. It was therefore pleaded that the addition made by the Ld. AO is erroneous and therefore the same may be deleted. The Ld DR on the other hand relied on the orders of the Ld. Revenue Authorities and argued in support of the same.

I have heard the rival submissions and carefully perused the material on record. From the facts of the case it is apparent that both the assessees are purchasing and selling equity shares through the stockbroker M/s. Kotak Security Limited. Accounts were settled between the assessees and the stockbroker on a periodic basis. The purchase and sale of shares are made on behalf of the assessees by the stockbroker on actual delivery. Such transactions cannot be held to be speculation in nature. Only when transactions are made without delivery it can be said to be speculative in nature. In the case of the assessee the stockbroker treats the assessee as debtor for the purchase of equity shares made on behalf of the assessee and creditor for the sale of the equity shares held by the assessee which may be kept in the possession of the stockbroker. Provisions of section 43(5) of the Act clearly specify that where transactions are entered between parties with respect to purchase and sale of commodities or stock otherwise than by actual delivery then the transaction shall be treated as ‘speculative’ in nature. On verifying the statement issued by the stockbroker M/s. Kotak Security Limited with respect to the transactions made on behalf of the assessee, I do not find the transaction to be speculative in nature because the purchase and sale of shares are on delivery basis, may be the possession is with the stockbroker. Further, once it is held that the transactions are not speculative in nature, then the gain arising out of such trading transactions shall be subject to be taxed only under the head ‘income from business’ in the case of the assessee. Since income from business and income from profession falls under the same head, set off of loss from one source of income with another source of income under the same head is allowable as per the provisions of section 70 of the Act. Further in the case of the assessee provisions of section 73 will not be applicable for the reasons discussed herein above. Therefore, I hereby set aside the orders of the Ld. CIT (A) on this issue and further direct the Ld. AO to treat the loss incurred by the assessees with respect to trading in equity shares as loss from business and set off the same against the income earned by the assessees from their profession.

Before parting, it is worthwhile to mention that this order is pronounced after 90 days of hearing the appeal, which is though against the usual norms, I find it appropriate, taking into consideration of the extra-ordinary situation in the light of the lock-down due to Covid-19 pandemic. While doing so, I have relied in the decision of Mumbai Bench of the Tribunal in the case of DCIT vs. JSW Ltd. In and 6103/M/2018 for AY 2013-14 order dated 14th May 2020.

In the result, both the appeals of the assessees are partly allowed. Pronounced in the open Court on 08th July, 2020.