ITAT ‘A’ Bench, Mumbai
Before N. V. Vasudevan (JM) and
R. K. Panda (AM)
ITA No. 4098/Mum./2007
A.Y. : 2004-05. Decided on : 30-11-2009
Counsel for assessee/revenue : Rajan R. Vora and Sheetal
Shah/Vikram Gaur
Explanation to S. 73 — Speculation business — Assessee
company earning income from the sale of shares — AO holding that income earned
was from speculation — On the facts held that income earned was in the nature
of capital gains.
Per R. K. Panda :
Facts :
The assessee was a public limited company engaged in the
business of investment, dealing in shares/ securities/bonds, etc. The assessee
during the impugned assessment year had shown income under the head capital
gain at Rs.22,98,229 the break-up of which was as under :
|
|
Rs.
|
|
Long-term capital
gains
|
41,85,744
|
|
Less :
|
|
|
Adjusted b/f
long-term capital loss
|
18,80,681
|
|
Less :
|
|
|
Short-term capital
loss
|
6,834
|
|
|
22,98,229
|
On being questioned the assessee explained that in the
current year no shares were purchased or sold as stock in trade. It was only
the shares held as investment that were sold during the year. However, the
Assessing Officer did not accept the contention of the assessee on account of
the reasons, amongst followings :
(a) The assessee had claimed deduction of entire expenses
on share dealings as business expenses though the transactions shown were
for sale of investments;
(b) In earlier years also the assessee had not shown any
stock in trade, even though, shares were acquired for resale;
(c) Memorandum of Association of the assessee company
showed that it was formed with the main objective of carrying on the
business of share trading along with other activities mentioned therein.
(d) As per Note in Part I of Schedule VI of the Companies
Act — for an investment company, shares take the character of stock in trade
and as such, shares shown as investment in the balance sheet could be
stock-in-trade also. The Companies Law does not differentiate between the
capital or revenue nature of transactions of investments and stock-in-trade.
Further, relying on a couple of decisions, the Assessing
Officer concluded that Explanation to S. 73 of the Act was applicable to the
transactions in question. He accordingly treated the net result of the profit
and loss of such transactions as arising out of speculation business. He
further did not allow any set-off of the brought forward long-term capital
loss of the preceding year against the income of the current year.
Before the CIT(A) the assessee submitted that the original
intention of the assessee at the time of entering into share transactions was
to earn dividend and hold them for appreciation in value. The shares were held
as investment and not as stock-in-trade. However, the CIT(A) held that the
claim of the assessee cannot be sustained on the following reasons :
(a) Although the appellant admitted that in the earlier
years as well as in the subsequent year, transactions in share trading were
carried out but not during the current year, in earlier years also no
stock-in-trade of shares was shown in the balance sheet. Shares were always
shown as investments only;
(b) All the expenses incurred on transactions in share
investments were claimed as business expenses in the Profit and Loss A/c.;
(c) The appellant had shown short-term capital loss of Rs.6,834. It means that it was engaged in frequent purchase and sale of shares during the year under consideration, which fact clearly proves the intention of the appellant for dealing in shares as stock-in-trade.
Held :
The Tribunal found merit in the submission of the assessee that the provisions of Explanation to S. 73 were not applicable to the facts of the present case for the reasons that :
a) In the assessment order passed u/s.143(3) of the Act for the A.Ys. 2005-06 and 2006-07, the Assessing Officer in the orders had considered the income from sale of shares as income from long-term capital gain/short-term capital gain and not as speculation business.
b) There is no purchase or sale of shares during the year and the assessee has sold the shares/units of mutual funds which were shown under the head investment.
c) The shares were held for a long period and no borrowed fund had been utilised by the assessee for purchase of shares/units.
As regards the Assessing Officer disallowing the expenses of Rs.4 lakhs out of the total expenses of Rs.6.16 lacs on the ground that the same could have been incurred for earning of speculation income, the Tribunal agreed with the assessee’s contention that the entire expenditure relates to maintaining the corporate entity of the assessee. Accordingly it held that no part of expenditure was disallowable.
