Main object is carry out infrastructure projects – Amendment in object clause as do business in futures and options – Amended clause to be considered

15. Pr.CIT-1 vs. Triforce Infrastructure (India) Pvt. Ltd [ Income tax Appeal no 888 of 2016 Dated: 11^th December, 2018 (Bombay High Court)]. 

[DCIT-1(3) vs. Triforce Infrastructure (India) Pvt. Ltd; dated 12/06/2015 ; ITA. No 1890/Mum/2014, Bench : SMC  AY: 2007-08 ,  Mum.  ITAT ]

Main object is carry out infrastructure projects –  Amendment in object clause  as do business in futures and options – Amended clause to be considered

The assessee had in its return of income declared nil income. During assessment proceedings, the A.O noted from the Profit & Loss Account that the assessee was in receipt of speculation gain, dividend income and gain on Options aggregating to Rs. 6.11 lakh. Against the above, the expenditure claimed was Rs.42.45 lakh. Out of the above, expenditure claimed as loss on futures was Rs.42.40 lakh. The A.O in assessment proceedings u/s. 143(3) of the Act disallowed the loss on account of futures and options on the ground that the object clause of Memorandum of Association (MOU) did not authorise the company to do business in futures and options.

Being aggrieved with the asst  order, the assessee filed an appeal to the CIT(A). The CIT(A) while allowing the appeal reproduced clauses 21 and clause 68 of the MOU. In fact, clause 68 was introduced into the MOU w.e.f. 30^th December, 2005. It was further held that clause 21 could itself permit the assessee to deal with the shares, futures and options. Nevertheless, on 31^st December, 2005 clause 68 of the MOU specifically enabled the assessee to do business in futures and options i.e. before starting the business in futures and options. As the relevant assessment year is 2007-08, the CIT(A) allowed the assessee’s appeal holding that loss incurred in futures and options as well as trading in shares is a part of its business loss.

Being aggrieved with the order of the CIT(A), the Revenue filed an appeal to the Tribunal. The Tribunal find that the main business of the assessee is to carry out infrastructure projects for which the assessee company collected share application money also. As per the assessee, due to unfavourable circumstances, the assessee did not get any infrastructure contract, therefore, he decided to deploy the available surplus funds, collected for infrastructure activity, in the stock exchange market. The assessee furnished all these details to the A.O regarding the receipt of share application money, loss incurred in future and options transactions, share business along with the details of business expenditure incurred by the assessee. The A.O without providing due opportunity to the assessee, as has been claimed, in the same breath, assess the income from speculation business of shares and gains in the future options transactions. The Tribunal dismissed the Revenue’s appeal upholding the order of the CIT(A).

Being aggrieved with the order of the Tribunal, the Revenue filed an appeal to the High Court. The Court find that the view taken by the CIT(A) as well as the Tribunal, cannot be faulted with. The losses on futures and options was incurred post 30^th December, 2005 i.e. after clause 68 was introduced in the MOU by an amendment. This appeal is in respect of A.Y. 2007-08 when clause 68 of the MOU was in existence. This entitled the assessee to do business in Futures and Options. In the above view, the question as proposed does not give rise to any substantial question of law. The appeal is dismissed.