By C. N. Vaze
Shailesh Kamdar
Jagdish T. Punjabi
Bhadresh Doshi Chartered Accountants
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Section 73 read with Sections 56 and 72 – Where assessee earns positive income, falling under head ‘Income From Other Sources’, in form of dividend income and interest income, assessee would fall within purview of exception carved out in Explanation to section 73 and therefore would be entitled to claim set-off of loss arising out of trading in Futures and Options/derivatives against such other income.
Facts
During the year under consideration, the assessee had earned dividend income of Rs. 14.64 lakh and interest income amounting to Rs. 39,236. In the return so filed it had also declared loss of Rs. 3.93 crore arising out of trading in Futures and Options/derivatives and had claimed set-off of the same against such other income.
The AO disallowed the set-off claimed by the assessee on the grounds that the case of the assessee was covered by Explanation to section 73. The CIT (A) upheld the order of the AO.
Aggrieved, the assessee preferred an appeal before the Tribunal.
Held
A bare reading of the Explanation to section 73 clarifies that where any part of the business of a company other than the investment company or banking company or finance company relates to the purchase and sale of shares, such company shall for the purpose of this section be deemed to be carrying on a speculative business to the extent the business consists of purchase and sale of shares. However, the Explanation also states that if the gross income of the company consists mainly of income which is chargeable under the heads – interest on securities, income from house property, capital gains and income from other sources then this Explanation is not applicable.
In the instant case, the AO himself had admitted in the assessment order that the only positive income earned by the assessee was Rs. 14.64 lakh on account of the dividend which was claimed as exempt. It is also noticed that an interest income of Rs. 39,236 was received by the assessee.
The dividend income and interest income come under the definition of ‘income from other sources’ as per the provisions of section 56. The assessee is having the income only under the head ‘income from other sources’. Profit or loss on account of share trading is not to be considered as income of the assessee while computing the gross total income. If the said loss is to be considered as income of the assessee, then it will be adjustable u/s. 72 which is exactly prohibited by the provisions of section 73. Moreover, section 72(1) prohibits inclusion of the speculation loss for computing the income. In the instant case, for computing the gross total income, the only positive income is under the head ‘income from other sources’. Therefore, the assessee would not be deemed to be carrying on speculative business for the purpose of section 73(1).
In view of the aforesaid, the assessee was entitled to claim set-off of loss in question against other income.
