Calcutta High Court
Crochet Trade & Investment Pvt.Ltd vs Commissioner Of Income Tax on 26 July, 2018
Author: I. P. Mukerji
Bench: I. P. Mukerji
OD-16
ORDER SHEET
ITA No.1 of 2009
With
ITA No.332 of 2009
IN THE HIGH COURT AT CALCUTTA
Special Jurisdiction (Income Tax)
ORIGINAL SIDE
CROCHET TRADE & INVESTMENT PVT.LTD.
Versus
COMMISSIONER OF INCOME TAX, KOLKATA-II
BEFORE:
The Hon'ble JUSTICE I. P. MUKERJI
The Hon'ble JUSTICE AMRITA SINHA Date : 26th July, 2018.
Appearance:
Mr. J.P. Khaitan, Sr. Adv.
Mr. Sanjay Bhowmick, Adv.
Mr. Soumya Kejriwal, Adv.
Mr. B.K. Jain, Adv.
Mr. P.K. Bhowmick, Adv.
Mr. M.P. Agarwal, Adv.
RE: ITA 1 of 2009 The Court : On 1st April, 2010 this appeal under Section 260A of the Income Tax Act, 1961 was admitted by a Division Bench of this Court on the following substantial questions of law formulated by it:
" (i) Whether on a true and proper interpretation of the provisions of section 73 of the Income Tax Act, 1961, for the purpose of determination of the principal business of the assessee on the basis of funds deployed and income earned, the funds invested in shares held as capital assets, the income from which is assessable under the head "capital gains", have to be kept out of the consideration and the Tribunal was justified in law in holding that the principal business of the appellant was not that of granting of loans and advances ?
(ii) Whether the Tribunal was justified in law in upholding the treatment of the share trading loss of Rs. 11,30,266/- for the assessment year 2004-
05 and Rs. 18,45,594/- for the assessment year 2005-06 as speculation loss on the basis of the Explanation to section 73 and in denying set off of 2 such loss against the other income of the appellant and its purported findings in that behalf are arbitrary, unreasonable and perverse ?"
According to Section 73 of the said Act, if the assessee carries out speculation business, any loss suffered by him can only be set off against profits and gains of another speculation business and not against profits and gains from any other business.
Mr. Khaitan, learned Senior Advocate, for the appellant-assessee, reminds the Court that a business other than that described in the explanation to Section 73 is described as speculative where shares of other companies are bought and sold, by the assessee not as its principal business with a view to earning profit.
The explanation is to the effect that if the principal business of the assessee is of trading in shares or banking then his business would not be treated as speculation business. The appellant-assessee is engaged in the business of trading in shares as well as in advancing loans and making advances.
Mr. Khaitan further submitted that the correct legal position was that the principal business of an assessee was ascertained from its deployment of funds in a particular business. He submitted that the deployment of funds of his client for making loans and advances was far more than its deployment for share trading. In order to form an opinion whether an assessee carries out the business of loans and advances or trading in shares as its principal business is to ascertain the exact fund deployed for these activities. Mr. Khaitan contended and which submission was not contradicted either by Mr. Bhowmick or Mr. Agarwal, learned Advocates for the revenue, that only the fund employed for buying and selling of shares, that is the stock in trade of the assessee, was to be considered as the fund deployed for doing that business. Learned Counsel for the appellant-assessee further asserted that without contradiction that the assessee's main business was making of loans and advances and the stock in trade was a very small percentage of the total funds deployed. We hold accordingly.3
We find from the Chart set out at internal page 3 of the Tribunal's order dated 6th April, 2009 relating to the assessment year 2006-2007that the business of the assessee in respect of loans and advances grew continuously from 2006.
Mr. Khaitan referred to a Division Bench judgment of this Court in 'Commissioner of Income Tax vs. Savi Commercial P. Ltd.' reported at [2015] 373 ITR 243 (Cal) where the Court observed that income alone would not be taken into account for such purpose. On the facts of that case, this Court held that the principal business of the assessee was granting loans and advances.
We can safely say that the loss out of dealing with the said stock in trade of the appellant-assessee ought not to have been taken as arising out of a speculation business under Section 73(2) of the said Act.
We remand the matter back to the Tribunal by setting aside the order dated 14th August, 2008. We direct the Tribunal to determine the above questions involved in this appeal in accordance with the observations made above and also follow its own reasoning as quoted above in its order dated 6th April, 2009 relating to the assessment year 2006-2007, within three months of communication of this order, preferably.
The above appeal (ITA No.1 of 2009) is, accordingly, allowed. RE: ITA 332 of 2009 Learned counsel for the appellant, on instruction, submits that by virtue of the Central Board Direct Taxes dated 11th July 2018, his client does not want to prosecute this appeal.
Accordingly the same is dismissed as not pressed. Interim order, if any, is vacated.
Certified photocopy of this order, if applied for, be supplied to the parties upon compliance with all requisite formalities.
(I. P. MUKERJI, J.) (AMRITA SINHA, J.) CS