ASSISTANT COMMISSIONER OF INCOME TAX vs. UNIVEB SLEEPERS P LTD

Shri Rajeev Shrivastava, leaned counsel for the appellant/revenue, would argue that there is no dispute that principal business of the assessee- company is manufacture of concrete sleepers. AO as also CIT(A), on close scrutiny of the record, arrived at a finding of fact that gross total income of the assessee consists mainly of income derived frommanufacture of concrete sleepers and its principal business is not that of banking or granting of loans or advances. Its GTI did not consist mainly of income chargeable under the heads "Interest on securities", "Income from house property", "Capital gains", and "Income from other sources", and its case falls within the ambit of On the other hand, Shri Ashok Patil, learned counse] for the assessee, supporting the impugned order, argued that Section 73 of the Act is to be interpreted in such a manner, which furthers the object of the provision, which is to curb the device sometimes resorted to by the business houses controlling group of companies to manipulate and reduce the taxable income of companies under their control, as clarified in para 19.2 ofthe Circular No.204 dated 24.7.1976 issued by the Central Board of Direct Taxes. Since the revenue has not come up with a case that the assessee has adopted a device to reduce the taxable income by indulging in trading in shares of group of companies, the Tribunal has rightly allowed the set off to the assessee and the same does not call for interference.

We have heard learned counsel for the parties and perused the assessment order, order passed by CIT(A) as also the impugned order.

AO repelling the arguments advanced by the assessee held that Circular No.204 of CBDT is only a continuation of explanations to the Taxation "(2005)951TD117 2 (2006) 204 CTR (MP) 567 : (2006) 285 ITR 536 (MP)

CIT(A) affirming the order of the AO, observed as under: "A close scrutiny of the record reveals that the appellant is not such a company whose gross total income consists mainly of income which is chargeable under the head interest on securities, income from house property, capital gain and income from other sources. It is further revealed that the appellant is a company whose principle business is not that a banking or granting of loans and advances, yet in the instant case, the appellant has debited loss on account of share trading to the extent of Rs.22,70.267/- and set off the same against the business of manufacturing of concrete sleeper. By every argument, the case of the appellant squarely falls under the provisions as laid down Explanation to Section 73 of the Act. There is no material to show that the principle business of the assessee is of banking or granting of loans and advances. Also the appellant's GTI did not consist of mainly of interest on securities, income from house property, capital gain or income from other sources. This being the fact, the only inescapable conclusion can be derived that the case of the appellant will be under the ambit of Explanation to Section 73 and thereby the AO has rightly invoked the provisions of Explanation to Section 73 and treated the loss from share trading activity as speculation loss."

Relevant portion of Section 73 of the Act is reproduced hereinunder:

Losses in speculation business. - (1) Any loss, computed in respect of a speculation business carried

Learned Tribunal has allowed the appeal of the assessee with the following observations in para 9.1 ofthe order: "9.1 If the plain meaning of the Explanation is applied without looking at the object stated in the Circular, it is tantamount to denying the set off of genuine loss incurred in share trading against other business income. The provision devoid of a condition commensurate with the objectstated in the circular is vulnerable to being struck down as unconstitutional being offensive to Article 14. Thus, in our considered opinion, the onus is upon the revenue to prove that the assessee has adopted a device to reduce the taxable income by indulging in trading in shares of group of companies which has not been discharged in the instant case.

In the matter of Concord Commercials Pvt. Ltd.\ the assessee was doing the business of trading in purchase and sale of shares. After necessary adjustment, the gross total income of assessee was worked out at a particular sum, which entirely consisted of dividend chargeable under the head of "Income from other sources".

In the instant case also, the AO as well as CIT(A) have recorded a finding of fact that the business of the assessee company does not fall within the category of company as mentioned in Explanation to Section 73. It has been categorically held that it is not a company whose gross total income consists mainly of income which is chargeable under the head of "Interest on securities", "Income from house property", "Capital gains", and "Income from other sources". The assessee company's principal business is also notthat of banking or granting of loans and advances.

For the aforesaid reasons, we are of the considered opinion that case of the assessee squarely falls within the four corners of Explanation to Section 73 ofthe Act. In these circumstances, the loss suffered by the assessee in the business of share trading cannot be set off against the income derived from its main business - construction of sleepers - as the assessee was carrying on the business of trading in shares and the same can be deemed to be a speculation business by virtue of deeming provisions as per Explanation to Section 73 of the Act.

On the basis of aforesaid discussions, the appeal succeeds and the same is allowed. tmpugned order of the Tribunal is set aside and that of the Ap^nd_CIT(A^arejestored^ Dhirendra Mishra Jadge i- R.N. Chandrakar Judge ^