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Income Tax Appellate Tribunal, KOLKATA BENCH “B” KOLKATA
Before: Shri N.V. Vasudevan & Shri Waseem Ahmed
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the Revenue is arising out of order of Commissioner of Income Tax (Appeals)-VI, Kolkata in appeal No.123/CIT(A)-VI/Cir-6/10-11/Kol dated 31.01.2013. Assessment was framed by DCIT, Circle-6, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 29.12.2010 for assessment year 2008-09.
DCIT Cir-6, Kol. v. M/s J.M. Textiles (P) Ltd. Page 2 2. Issue raised by Revenue in this appeal is that Ld. CIT(A) erred in law in holding that loss on account of purchase and sale of share of ₹29,59,702/- is not covered by Explanation to Sec. 73 of the Act.
Briefly stated facts are that assessee is a Private Limited Company and registered with Reserve Bank of India as Non-Banking Finance Company. Assessee is engaged in trading of share and also deals in investment of share and securities. During the year under consideration, assessee has incurred a loss of ₹29,59,702/- from delivery based transactions i.e. non-speculation loss. On the other hand the assessee has gained a profit of Rs. 19,41,219/- from non-delivery based i.e. speculation profit. The AO treated the loss arising from delivery based transactions as speculation loss in terms of the provision of explanation to section 73 of the Act. However the assessee submitted that the loss from delivery based transactions is out of the purview of the explanation to section 73 of the Act for the following counts as enumerated below : 1) Companies carrying on business of granting loans or advances are outside the purview of section 73 of the Act. 2) The major income of the company is from interest on the loans & advance. 3) The company’s principal business is of granting loans and it is registered as NBFC with RBI.
However, the AO disregarded the claim of the assessee by observing the following facts:- 1) As per profit & loss account- the components of interest income is as under : a) Interest on fixed deposits Rs. 33,69,024.00 b) Interest on loans Rs. 4,56,233.00 c) Interest on TDS Rs. 11,747.0 In view of above the AO found that the business income of the assessee from granting the loans is just Rs. 4,56,233/- only 2) Value of the shares held as Investment at the year end is Rs. 17,79,50,000/- and held as stock in trade Rs. 2,69,07,895/- DCIT Cir-6, Kol. v. M/s J.M. Textiles (P) Ltd. Page 3 3) Whereas the loans and advances are appearing just Rs. 3,40,00,236/- 4) Besides above the turnover of sales of shares is Rs. 30,60,52,377/- and whereas the total interest income is Rs. 38,37,004.00 only.
In view of above the AO held the loss arising from delivery based transactions of Rs. 29,59,702/- is speculation loss. The same was added back with the income of the assessee and allowed to be carried forward for future adjustment with speculation profit. The set off of such loss against income from non-delivery based transaction in shares was also rejected by the AO.
Aggrieved, assessee preferred appeal before Ld. CIT(A) who deleted the addition made by AO by observing in para-11 to 13 which reproduced as under:- “11. The Assessing Officer has observed that the assessee earned Rs.19,41,219 profit on non-delivery share trading and incurred a loss of Rs.29,59,702 on delivery based share transaction. Based on this finding the assessing officer held that the loss for the purpose of explanation to Section 73 was to be considered at Rs.29,59,702/-. There is no bar in the provisions of the IT Act 1961 to set off delivery based loss with non-delivery profit. Therefore, the loss on delivery based shares can be set off against the non- delivery profit of shares and derivatives. Therefore, the loss on shares is held to be Rs.10,18,483 (Rs.29,59,702 – Rs.19,41,219)
Both the shares transactions are to be consider as a composite business even for the purposes explanation to Section 73 and even in that situation the set off of non-delivery profit and the loss on shares delivery based would be Rs.10,18,483 (Rs.29,59,702 – Rs.19,41,219). The assessee is a NBFC holding a license from the Reserve Bank of India. The appellant has submitted that the principal business is lending as the interest income was Rs.38,37,004 and loss on shares of Rs.10,18,483 and therefore, the interest income being 3.76 items the loss on shares the Principal business of the assessee is to be considered to be that of business of banking or the granting of loans and advances. In these facts the explanation to Section 73 of the IT Act 1961 does not apply to the assessee as held by the Hon'ble Calcutta High Court in appeal no of 2008 Commissioner of Income Tax, Kolkata-II Vs Shree Salasar Properties & Finance (P) Ltd. and Hon'ble ITAT “A” Bench Kolkata in the case of M/s Sonal Tie up (P) Ltd., (supra). The interest income amounting to Rs.33,69,024/- from fixed deposits even, if is treated as income from other sources and even then the income from other sources being higher than the share loss the explanation to Section 73 of the IT Act 1961 does not apply to the assessee.
In view of the above it is held that the explanation to Section 73 of the IT Act 1961 does not apply to the share loss incurred by the assessee and the DCIT Cir-6, Kol. v. M/s J.M. Textiles (P) Ltd. Page 4 assessee falls in the exceptions provided by it. This ground of appeal is allowed.”
Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us on the following grounds:- “
1. Whether on the facts and circumstances of the case, Ld. CIT(A) erred in law in holding that the share loss of Rs.29,59,702/- is not covered by the Explanation to Section 73 of the IT Act, 1961.
2. Whether on the facts and circumstances of the case, Ld. CIT(A) erred in law in holding that delivery based share loss could be set off with non delivery based share profit.
3. Whether on the facts and circumstances of the case, Ld. CIT(A) erred in law in holding that the nature of business of the assessee will be determined on the basis of income earned instead off on the basis of deployment of fund.”
Shri M.D. Shah, Ld. Authorized Representative appearing on behalf of assessee and Shri Nongothung Jungio, Ld. Departmental Representative appearing on behalf of Revenue.
We have heard rival submissions of both the parties and perused the materials available on record. Ld. DR vehemently supported the order of Assessing Officer whereas Ld. AR supported the order of Ld. CIT(A). Ld. AR submitted that as far as the provision of IT Act is concern, the loss arising from speculation business cannot be set off against the non speculation profit. However, vice-versa is very much possible in terms of the provision of IT Act. In the instant case, assessee has claimed the loss arising from non-speculative transaction against the income of speculative transaction and this set off is very much valid under the IT Act. However, AO is treating the loss arising from non-speculation business as speculation business then it means the gain of amounting to ₹19,41,219/- from speculation profit and loss of ₹29,59,702/- from Non-speculation business, both are falling under the same category of income and relied on the order of Ld. CIT(A). From the aforesaid discussion, we find that AO has treated the loss arising from the delivery based transaction as speculation loss and disallowed the set off of the same from the gain declared by assessee from speculation profit for an amount of ₹19,41,219/-. Therefore, the calculation of AO is totally incorrect. Besides the AO treated the non- speculation loss of Rs. 29,52,702/- as speculation loss by virtue of the provisions of DCIT Cir-6, Kol. v. M/s J.M. Textiles (P) Ltd. Page 5 explanation of section 73 of the Act. The AO has applied the turnover and investment in capital criteria to categories the loss from the non speculation business as speculation business in the instant case in terms of exclusion clause provided in the explanation to section 43 of the Act. The AO also did not consider the criteria laid down in the explanation to section 73 of the Act for the company whose principal business is of granting of loans and advances. The reason for considering these criteria was that the income from interest was less than the income from shares held as stock and investment. The decision of Hon’ble jurisdictional High Court in the case of CIT Vs M/s Shree Salasar Properties and Finance Pvt. Ltd. in of 2008 dated 12.01.2009 has held that the income composition criteria is to be considered to determine the principal business. The relevant extract of the order is reproduced below : “It appears that the Commissioner of Income Tax (Appeals) as extensively dealt with the matter and duly invoked section 73 of the Income Tax Act, 1961 and interpreted the same in the light of the decision in the case of K.P.Vargeese Vs. Income Tax Officer [1981] 24 CTR (SC)358, (1981) 131 ITR 597 (SC)] where the Hon'ble Supreme Court laid down the proposition regarding the rule of interpretation, which is stated hereinbelow: ‘The language of such a provision should be construed having regard to the object and purpose which the legislator had in view in enacting that provision and in the context of the setting in which it occur” It appears that the Court held in a catena of decision that the interpretation of the statutory provision must conform to the object that for which it was introduced, and if this principle is applied to the facts of this case, it must be held that the explanation to Section 73 of the Income Tax Act, 1961 cannot be invoked as there is no device or manipulation by any controlling group of companies to reduce their taxable income.
The Tribunal after taking into consideration of all these facts and the fact which could reveal that the company has derived its major income by way of interest. Therefore the fact of principal business of the company being that of granting of loans and advances does not remain in doubt and therefore it was held that the assessee’s principal business would fall in exempted category and should not hit by the explanation to section 73 of the Income Tax Act, 1961. On this ground the appeal was allowed and the learned Tribunal also after dealing with the matter in question came to the conclusion that the fact, as has been dealt with by the Commissioner of Income Tax, is correct and uphold the decision of the Commissioner of Income Tax (Appeals).
After considering all these facts and the decisions, we do not find that there is any illegality or irregularity in the said order under appeal. We also do not find DCIT Cir-6, Kol. v. M/s J.M. Textiles (P) Ltd. Page 6 that there is any substantial question of involved in the matter in the given facts. Accordingly, the appeal is dismissed.”
In view of the above, we hold that the loss from delivery based transactions is a non speculative loss and its set off against the income of speculation gain is allowed. In view of above, we do not find any reason to interfere in the order of Ld. CIT(A) hence, ground raised by Revenue is dismissed.
In the result, Revenue’s appeal is dismissed. Order pronounced in the open court 13/01/2016 Sd/- Sd/- (N.V.Vasudevan) (Waseem Ahmed) (Judicial Member) (Accountant Member) Kolkata, *Dkp �दनांकः- 13/01/2016 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-DCIT, Cir-6,Room No.6, 6th Floor, Aayakar Bhawan, Aayakar Bhawa, P-7, Chowringhee Square, Kolkata-69 2. ��यथ� / Respondent-M/s J.M.Textiles, C/o DJ Shaw & Co. Kalyan Bhawan, 2, Elgin Road, Kolkata-20 3. संबं�धत आयकर आयु�त / Concerned CIT Kolkata 4. आयकर आयु�त- अपील / CIT (A) Kolkata 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड� फाइल / Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, कोलकाता ।