Remember | Register | Forgot Password?
Bookmark This Page   RSS Feeds  Follow On Twitter

 

Search for Lawyers          
    

Home > Judiciary > Taxation > Section 73 of the Income-tax Act, 1961



Please Wait ..


Section 73 of the Income-tax Act, 1961

Posted on 06 September 2009 by Nirav Pankaj Shah

Court



Brief



Citation



Judgement

[2009] 119 ITD 163 (MUM.)

IN THE ITAT MUMBAI BENCH ‘C’

Priyasha Meven Finance Ltd.

v.

Income-tax Officer,* Circle 4(2)(3), Mumbai

R.S. SYAL, ACCOUNTANT MEMBER

AND SUSHMA CHOWLA, JUDICIAL MEMBER

IT APPEAL NO. 6686 (MUM.) OF 2005

[ASSESSMENT YEAR 2002-03]

JULY 7, 2008

Section 73 of the Income-tax Act, 1961 - Losses - In speculation business - Assessment year 2002-03 - Whether phrase ‘any part of business’ as appearing in Explanation to section 73 should not be read in a restrictive sense so that company doing business of purchase and sale of shares as well as some other business activities, should go out of mischief of Explanation to section 73 - Held, yes - Assessee was a share-broker having brokerage income and was also trading in shares in its own name - For relevant assessment year, it filed return showing share trading loss suffered from sale and purchase of shares and claimed same to be set-off against its brokerage income [regular business income] on plea that its business of share broking consisted of two components, viz., (i) sub-brokerage, and (ii) trading in share transactions, and that both transactions were to be treated as composite business - Assessing Officer held that insofar as trading in shares was concerned, it was a speculative business and treated loss suffered from this activity as a speculative loss and, accordingly, did not allow set-off of loss-in-question from regular business income of assessee - Commissioner (Appeals) following judgment of Calcutta High Court in case of CIT v. Arvind Investment Ltd. [1991] 192 ITR 365/58 Taxman 216, upheld order of Assessing Officer - Whether Commissioner (Appeals) was justified - Held, yes
Words and phrases : ‘any part of the business’ as appearing in Explanation appended to section 73 of the Income-tax Act, 1961

Circulars and Notifications : CBDT Circular No. 204, dated 24-7-1976


FACTS

The assessee was a share broker having brokerage income and was also trading in shares in its own name. For the relevant assessment year 2002-03, it filed the return of income showing share trading loss suffered from sale and purchase of shares and claimed the same to be set-off against its brokerage income [regular business income] on the plea that its business of share brokering consisted of two components, viz., (i) sub-brokerage, and (ii) trading in share transactions, and that both transactions were to be treated as a composite business. The Assessing Officer held that insofar as trading in shares was concerned, it was a speculative business and, hence, he treated the loss suffered from this activity as speculative loss and, accordingly, did not allow set-off of the loss-in-question from the regular business income of the assessee.

On appeal, the Commissioner (Appeals) following the judgment of the Calcutta High Court in the case of CIT v. Arvind Investment Ltd. [1991] 192 ITR 365/58 Taxman 216 confirmed the action of the Assessing Officer.

On second appeal, the assessee, referring to the Explanation appended to section 73, submitted that in order to cover the purchase and sale of shares under this Explanation it should be a distinct activity or different from the main business; and that in any case the CBDT Circular No. 204, dated 24-7-1976 contains the object of the Explanation to section 73 and if considered in totality, the Explanation to section 73 could not be invoked against the assessee.

HELD

The assessee was engaged in the business of share brokering and the main activity in its line of business was that of earning brokerage income from sale and purchase of shares for the customers. Insofar as the instant loss from sale and purchase of shares was concerned, the same had occurred due to trading transactions of shares entered into by the assessee on its
own account and not on behalf of customers. Therefore, the question for consideration arose as to whether such loss could be considered as speculative or non-speculative. On a bare perusal of the Explanation to section 73, it becomes clear that where any part of the business of a company, other than those specified therein, consists of the purchase and sale of shares of other companies,
such company shall be deemed to be carrying on a speculation business to the extent to which it consists of purchase and sale
of shares. The assessee had vehemently argued that this Expla-

nation would be attracted only where ‘any part’ of the business of a company consisted of the purchase and sale of shares and not otherwise. It, therefore, argued that since its activity of purchase and sale of shares was incidental to that of a share brokering, both of them should be considered as a composite business. However, the business of a share broker is to make purchase and sale of shares on behalf of the customers and to earn brokerage therefrom. There is no stipulation or requirement for the broker to be directly engaged in the purchase and sale of shares at his own. Without making any purchase and sale of shares on his own account, a broker can very well carry on his business of brokerage from sale and purchase of shares on behalf of the customers. Therefore, to contend that both these activities were tied as a single indivisible rope was wholly incorrect. [Para 6]

The Calcutta High Court in the case of Arvind Investment Ltd. (supra) has held that the Explanation to section 73 applies to the case of the assessee whose entire business consists of dealing in shares. It also observed that it would cover cases not only where the part of business of a company consists of purchase and sale of shares but also where the entire business of the company is of purchase and sale of shares. In reaching this conclusion, the Circular No. 204 was also considered and thereafter the positive conclusion was drawn that the Explanation to section 73 is attracted even to the entire business of purchase and sale of shares and the loss incurred in it would be a speculative loss. It was further held that the phrase in the Explanation to section 73 ‘to the extent to which the business consisted of purchase and sale of such shares’ also does not indicate that the Legislature had several other actual and existing non-speculative activities of business in mind. It merely indicates that the business activity which consists of purchase and sale of shares will be treated as speculation business. If the entire business activity of a company consists of purchase and sale of shares of other companies, then the entire business will be treated as speculation business. But, if apart from purchase and sale of shares, the company has other business activities, then those other activities would not be treated as speculation business. [Para 7]

It was, therefore, to be held that the phrase ‘any part of the business’ should not be read in a restrictive sense so that company doing business of purchase and sale of shares as well as some other business activities, should go out of the mischief of the Explanation to section 73. [Para 8]


Further, the object of section 73 projected through the Circular No. 204 cannot override and control the un-ambiguous language of the Explanation to section 73. It is settled position, in law, that where the words in a statute are clear and do not admit of two possible views then secondary rules of construction should be kept at a bay. Adverting to the language of the Explanation to section 73, it is manifest that its scope has not been combined only to curb the cases which are devices resorted to by business houses controlling group of companies to manipulate and to reduce their taxable income, but it extends generally to the cases of the companies which are not covered in the exceptions given in this Explanation. Though the object given in the circular is to curb devices to manipulate and control group of companies, yet the circular has clearly stated that the business of purchase and sale of shares by companies which are not investment or banking companies or companies carrying on business of granting loans and advances would be treated on the same footing as speculation business. Therefore, the Circular No. 204 cannot be read to control the language of the Explanation to section 73 for giving it restrictive meaning as had been suggested by the assessee. [Para 9]

Whereas in some of the orders decided by the Tribunal the Circular No. 204 has been considered and a view has been canvassed that loss in trading of shares incurred by the registered share broker cannot be considered as speculative, on the contrary, the Commissioner (Appeals) had also considered an order passed by the Delhi Bench of the Tribunal in the case of SRJ Securities Ltd. v. Asstt. CIT [2003] 86 ITD 583 in which the loss emanating from the sale and purchase of shares was held to be a speculative loss. It, therefore, transpires that two diagonally opposite views have been expressed by the co-ordinate Benches of the Tribunal as regards loss from business of sale and purchase of shares by a share broker. The ordinary rule of leaning in favour of the assessee is not unexceptionable. If the judgment of a superior Court taking one view has not been brought to the notice of the lower Court and in absence of which, a contrary view has been expressed by the lower court, then that cannot have precedence over the view which is in consonance with that of superior precedent, even if it is not in favour of the assessee. The Benches, which have held that the Circular No. 204 is applicable and loss from purchase and sale of shares by a share broker is not a speculative loss, did not have the benefit of judgment of the Calcutta High Court in the case of Arvind

Investment Ltd. (supra), as the same was not referred to by the revenue. The assessee conceded that there was no direct judgment of any High Court in its favour apart from the orders passed by the Tribunal. Judicial discipline requires that the view expressed by the High Courts should be followed by the lower courts. When a particular point has been decided by one High Court and there is no contrary decision of any other High Court, the Tribunal, being a subordinate authority cannot afford to ignore the ratio of the decision of the High Court. Since the Commissioner (Appeals) had relied on direct judgment of the Calcutta High Court and no contrary view of other High Court had been brought to the notice of the Tribunal by the assessee, the same was binding on the Tribunal. Therefore, the assessee was caught within the ambit of the Explanation to section 73. [Para 10]

Therefore, the loss suffered by the assessee in the trading of shares was only speculative loss and could not be set-off against non-speculative income, i.e., brokerage income of the assessee. [Para 13]

CASE REVIEW

CIT v. Arvind Investment Ltd. [1991] 192 ITR 365/58 Taxman 216 (Cal.) (para 8) followed.

Asstt. CIT v. Concord Commercial (P.) Ltd. [2005] 95 ITD 117 (SB) (Mum.) (para 12) distinguished.

CASES REFERRED TO

CIT v. Sun Distributors & Mining Co. Ltd. [1993] 68 Taxman 223 (Cal.) (para 3), CIT v. Arvind Investment Ltd. [1991] 192 ITR 365/58 Taxman 216 (Cal.) (para 3), SRJ Securities Ltd. v. Asstt. CIT [2003] 86 ITD 583 (Delhi) (para 3), Asstt. CIT v. Concord Commercial (P.) Ltd. [2005] 95 ITD 117 (SB) (Mum.) (para 4), ITO v. GDB Share & Stock Broking Services Ltd. [2004] 3 SOT 569 (Kol.) (para 4), Swamini Leasing & Investment (P.) Ltd. v. Jt. CIT [IT Appeal No. 2150 (Mum.) of 2000] (para 4) and CIT v. Park View Properties (P.) Ltd. [2003] 261 ITR 473 (Cal.) (para 5).

Firoze B. Andhyarujina for the Appellant.

Sangam Srivastava for the Respondent.






*In favour of revenue.



Tags :- section 73 income act1961




You need to be logged in to post comment

0 Comments for this Judiciary













Quick Links




Browse By Category



Subscribe to Judiciary Feed
Enter your email to receive Judiciary Updates: