Income Tax Appellate Tribunal - Mumbai
Asstt. Cit vs Sonall Share & Stock Brokers (P.) Ltd. on 23 September, 2005
Equivalent citations: [2006]6SOT218(MUM)
ORDER
Salil Kapoor, JM This appeal filed by the revenue is directed against the order of Commissioner (Appeals)-IV, Mumbai dated 16-5-2002 for assessment year 1996-97. The proceedings arise out of assessment completed under section 143(3) of the Income Tax Act, 1961.
2. There are three grounds of appeal raised by the revenue but effectively the only grievance is that the Commissioner (Appeals) has erred in deleting the pro rata allocation of expenditure relating to speculation business.
3. The assessee had declared loss in share trading transactions at Rs. 2,93,732 which was increased by the assessing officer to Rs. 13,16,949. He held that the expenditure of Rs. 24,28,801 incurred by the assessee during the year is to be divided for earning brokerage income and also for making sale and purchase of shares on pro rata basis and as such he allocated proportionate establishment expenses to the trading of shares. Thereby the loss had increased to Rs. 13,16,949 as against Rs. 2,93,732 declared by the assessee, which is treated as speculation loss as per Explanation to section 73.
4. The Commissioner (Appeals) observed that provisions of section 73 lays down that if the assessee's business consist any purchase and sale of shares, the said business would be speculative business and loss on account of such speculative business would be deemed to be speculation loss and same is allowed to be set off against only speculation profit and nowhere in the Act it is provided that the expenditure should be allocated with respect to such transaction. He also observed that the share trading activity of the assessee is deemed to be speculation business and as such there cannot be any further deeming provision and it cannot be deemed by the assessing officer that these transactions would amount to transaction under section 43. He also observed that when the language employed by the Act is clear, then there is no question of interpreting the provisions in any manner except by giving them their plain and obvious meaning Manish Plastics v. Commissioner of Commercial Taxes(1995) 99 STC 293 (Kar.). He also referred to the decision of the Apex court in the case of State of Tamil Nadu v. M.K. Kandaswami (1975) 36 STC 191(SC) in which it is held that while interpreting the provisions, a construction which would defeat its purpose should be avoided and court should refrain from adopting a construction which would offset or impair the purpose in introducing the provision in the statute. He also agreed to the case of M. Rangaswami v. CWT(1996) 221 ITR 39 (Mad.). He deleted the addition made by the assessing officer.
5. Learned DR Shri Manoj Kumar stated before us that there is no dispute that Explanation to section 73 is applicable to this case. He further stated that the Explanation to section 73 has been taken into account by the Id. Commissioner (Appeals), in isolation ignoring the basic provisions of section 73. According to him the case of M. Rangaswami (supra), was not applicable as the same was of Wealth Tax Act. He relied on the case of Sind National Sugar Mills (P.) Ltd v. CIT(1980) 121 ITR 742 (Bom.).
6. On the other hand, Shri Atul Jasani, learned Counsel for the assessee stated that these ' transactions are not of speculative nature as provided in section 43(5) but these are deemed to be speculative transactions due to the Explanation to section 73. According to him the deemed provisions cannot be further expanded to the extent that the expenses are also apportioned to the said transactions. Shri Atul Jasani also stated that Explanation to section 73 clearly states that such deeming provision is applicable only to the extent of such business which consist of purchase and sale of shares and as such there is no scope of apportioned of expenses to such business. He further referred to the case of Rajasthan State Warehousing Corporation v. CIT.(2000) 242 ITR 450 (SC) in which it is held that if the business is one and indivisible, the expenditure cannot be apportioned and part relating to income which is exempt cannot be disallowed. He also referred to the case of CIT v. Central Bank of India (2003) 264 ITR 522 (Bom.). As per the Counsel, the same analogy and principal should be applied in this case also and no expenses should be apportioned to speculative business.
7. Shri Atul Jasani also stated that the case of Sind National Sugar Mills, cited supra, is not applicable to the facts of this case as that case was not covered by Explanation to section 73.
8. We have heard the rival submissions and have perused the records. Admittedly the sale and purchase transaction of the shares done by the assessee are covered by the Explanation to section 73 and are deemed as speculative business. Section 73(1) provides that no loss computed in respect of speculated business, carried on by the assessee shall not be set off except against profits and gains, if any, of another speculation business. Explanation to section 73 provides that speculation business shall be to the extent to which the business consist of the purchase and sale of such shares. Section 73(1) provides that loss computed of a speculation business shall not be set off against gains of any business other than speculation and the Explanation to section 73 provides what constitute the speculation business. In our opinion, section 73(1) requires loss to be computed in respect of speculation business and in computing the said loss, the expenses in6urred on purchase and sale of such shares has to be taken into account. It is not the case of the assessee that no expenses have been incurred on purchase and sale of shares. The claim of the assessee is that expenses incurred on sale and purchase of shares are not to be taken into account while considering the loss on deemed speculation business. We are of the view that section 73(1) provides for computation of loss of speculation business and Explanation to section 73 provides what will be deemed to be speculation business. The explanation cannot be read in isolation.The basic provision is contained in section 73(1) and explanation is there to explain that particular transaction shall be deemed to be speculation business. It explains that deemed speculation business will be to the extent of purchase and sale of shares and will not extend to any other business. The explanation does not mean that only loss any purchase and sale of shares is to be considered and the expenses incurred in connection with such purchase and sale should be ignored. The case law referred by the assessees is not relevant as it refers to the nonapportionment of expenses in case of exempt income, whereas section 73(1) itself provide for the computation of loss in respect of speculation business. In our view the only logical interpretation will be that loss has to be computed in respect of speculation business and the explanation should be read alongwith the basic provision. In view of the above discussion the findings of learned Commissioner (Appeals) are vacated and the order of the assessing officer is upheld.
9. In the result, the appeal is allowed.