Income Tax Appellate Tribunal - Kolkata
Longview Trade & Credit Pvt. Ltd., ... vs Ito, Ward 6(2), Kolkata, Kolkata on 30 August, 2017
आयकर अपील
य अधीकरण, यायपीठ - "D" कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL
KOLKATA BENCH "D" KOLKATA
Before Shri Waseem Ahmed, Accountant Member and
Shri S.S.Viswanethra Ravi, Judicial Member
ITA No.610/Kol/2017
Assessment Year:2008-09
Longview Trade & Credit बनाम / ITO Ward-6(2),
Pvt. Ltd., C/o D.J Shah & V/s . Aayakar Bhawan,a P-7,
Co. Kalyan Bhavan, 2 Elgin Chowringhee Square,
Road, Kolkata-20 Kolkata-69
[PAN No.AAACL 8780 D]
अपीलाथ /Appellant .. यथ /Respondent
अपीलाथ क ओर से/By Appellant Shri Miraj D Shah, Advocate
यथ क ओर से/By Respondent Shri Banibrata Dutta, Addl. CIT-DR
सन
ु वाई क तार
ख/Date of Hearing 29-06-2017
घोषणा क तार
ख/Date of Pronouncement 30-08-2017
आदे श /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the assessee is against the order of Commissioner of Income Tax (Appeals)-17, Kolkata dated 28.10.2016. Assessment was framed by ITO Ward- 6(2), Kolkata u/s 115WE(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') vide his order dated 30.12.2010 for assessment year 2008-09. The grounds raised by the assessee per its appeal are as under:-
"1. For the facts and circumstances of the case the appellate order passed was in violation of principals of natural justice hence is bad in law and be quashed.
2. For that in the facts and circumstances of the case Ld. Commissioner of Income Tax Appeals erred in confirming that the share loss of Rs.11,87,934/- is ITA No.610/Kol/2017 A.Y. 2008-09 Logview Trade & Credit Pvt. Ltd. Vs. ITO Wd-6(2) Kol. Page 2 covered by the explanation to section 73 of the IT Act 1961. The Commissioner of Income tax Appeals is not justified in doing so and thus the addition be deleted.
3. The appellant craves leave to produce additional evidences in terms of Rule 29 of the Income Tax (Appellate Tribunal)Rules 1963
4. The appellant craves leave to press new, additional grounds of appeal or modify, withdraw any of the above grounds at the time of hearing of the appeal."
Shri Miraj D Shah Ld. Advocate appeared on behalf of assessee and Shri Banibrata Dutta, Ld. Departmental Representative represented on behalf of Revenue.
2. Solitary issue raised by assessee in this appeal is that Ld. CIT(A) erred in treating the loss of ₹11,87,934/- as speculation in nature in pursuant to Explanation to Section 73 of the Act.
3. Briefly stated facts are that assessee is a private limited company and engaged in business of investment and financing. The assessee in the year under consideration has shown following income in its profit and loss account:-
Sl.No. Particulars Amount (Rs)
1. Profit from share trading 83,22,066
2. Loss from share trading 95,10,000
Net loss from share trading 11,87,934
3. Interest income 6,65,459
4. Consultancy income 7,20,000/-
From the above, the Assessing Officer opined that share trading loss is speculation in nature by virtue of the provision of Explanation to Section 73 of the Act. Accordingly, AO called upon the assessee to explain the reason for not treating the impugned loss from share trading as speculation in nature. In compliance thereto the assessee submitted that the income from interest and consultancy is actually the income from other source. Thus, the exception provided under the provision of Explanation to Section 73 of the Act i.e. if the income from other sources exceeds loss from share trading then it will be out of the rigorous provision of Explanation to Section 73 of the Act. However, AO disregarded the contention of assessee by observing that income from interest and consultancy was classified by the assessee under the head "business"
ITA No.610/Kol/2017 A.Y. 2008-09Logview Trade & Credit Pvt. Ltd. Vs. ITO Wd-6(2) Kol. Page 3 and therefore the stand taken by it is just to escape from the provision of Explanation to Section 73 of the Act. Accordingly, AO treated the loss of ₹11,87,934/- as speculation in nature and allowed to be carried forward to the subsequent years for setting of the same against the speculation profit only.
4. Aggrieved, assessee preferred an appeal before Ld. CIT(A).The assessee before Ld. CIT(A) submitted its business income and income from other source as detailed under:-
Income from shares (business income) Share loss (Rs.11,87,934) Interest Rs.6,65,459 Net business income form shares Rs.5,22,475 Income from interest &consultancy (under head Rs.7,20,000 income from other sources) as per assessee From the above, assessee justified that the income from other sources exceeds the business income therefore the Explanation to Section 73 of the Act is not applicable in the instant case. However, Ld. CIT(A) disregarded the contention of assessee by observing as under:-
"Decision: I have gone through the findings of the Assessing Officer and the submissions of the assessee carefully. The only issu9e in this case is the treatment of share loss of Rs.11,87,934/- as speculative income by invoking the explanation to section 73. The only disputed in this case is whether the income of the assessee under the head income from other sources is higher than the income under the head business income or not. The assessee claims that the income under the head other sources is higher than the income under the head business income and accordingly they do not fall within the purview of the explanation to section 73. The computation of income of the assessee, as per the assessee, is as follows:
Income from shares (business income)
Share loss (Rs.11,87,934)
Interest Rs.6,65,459
Net business income form shares Rs.5,22,475
ITA No.610/Kol/2017 A.Y. 2008-09
Logview Trade & Credit Pvt. Ltd. Vs. ITO Wd-6(2) Kol. Page 4
Income from interest &consultancy (under head Rs.7,20,000 income from other sources) as per assessee The assessee has argued that as the income from the head other sources (Rs.720000/-) exceeds the income under the head business income (Rs.522475/-) they are not hit by the provisions of explanation to section 73.
The assessee in para 15 of his written submission has stated that the computation of income made by the AO in the assessment order is as follows:
Income from business
Income from shares (Rs.11,87,934)
Income from Consultancy Rs.6,65,459
Income under the head income A Rs.5,22,475
from business
Income from other sources B Rs.7,20,000
The assessee has further argued that the computation income is incorrect because the consultancy income as required to be assed under the head income from other sources. It has been further submitted that even with this computation of the AO, to which they do not agree, Explanation to Section 73 is not applicable as the income under the head other sources still exceeds the income under the head income from business and profession. However, on perusal of the assessment order it is seen that the contention of the assessee regarding the computation of income claimed to have been made by the AO is incorrect. The AO in fact has assessed the entire income of the assessee under the head income from business and profession. The AO in his assessment order has commented on the interest income and the consultancy income as follows:
'The assessee has further claimed that interest income of Rs.665459/- and consultancy of Rs.720000/- are to be treated as in from other sources to save the company from the purview of explanation to Section 73 of the IT Act. However, in the IT return and computation of AYr. 2008-09 as reflected in AST Module, the interest and consultancy income have been shown as business income. No revised return / computation was filed by the assessee company.' The assessing officer has verified the return of the assessee and has given a definite finding that the assessee himself in the return of income has shown the interest income and the consultancy income as business income. The assessee has not challenged the findings of the AO before me by adducing the copy of the return of income or the computation of income. Therefore, the contention of the assessee is incorrect. The AO has assessed the entire receipt of interest and consultancy under the head business income of Rs.1202540/- as can be seen on page 6 of the assessment order. No income has been assessed under the head other sources. Therefore the contention of the assessee regarding the computation of income is found to be incorrect. The case of the assessee is ITA No.610/Kol/2017 A.Y. 2008-09 Logview Trade & Credit Pvt. Ltd. Vs. ITO Wd-6(2) Kol. Page 5 clearly hit by the provisions of explanation to section 73. The action of the AO in treating the share loss of Rs.11,87,934/- as speculative loss is hereby confirmed."
Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.
5. Before us Ld. AR for the assessee filed paper book which is running pages 1 to 76 and submitted that transactions of purchase and sale of shares are to be held as speculation business income only if it hit by Explanation to Section 73 of the Act. The implication of Explanation is that if an assessee incurs a speculation loss in a manner deemed in the Explanation such loss shall not be set off except against the profit and gain, if any, of another speculation business. However there are two exceptions provided under Explanation to Section 73 of the Act.
The first exception provided in Explanation to Section 73 of the Act is that in case gross total income consists mainly of income which is chargeable under the head "interest on securities, income from house property, capital gains and income from other sources" then Explanation to Section 73 of the Act will not be applied. 5.1 Second exception is that the provision of Explanation to Section 73 of the Act will not be applied to a company if the principal business of which is the business of trading in shares or banking are granting of loan and advances. Ld. AR further submitted that principal business has not been defined under the Act but it has to be understood after considering the objects and activities of assessee- company over a period of time. Then only it can be determined the principal business of the assessee. Ld. AR in support of assessee's claim with regard to the principal business of the assessee has relied on the order of Co-ordinate Bench of this Tribunal in the case of DCIT vs. Venkateswar Investment 93 ITD 177 (Kol). Ld. AR also submitted that there is an amendment under the provision of Explanation to Section 73 of the Act with effect from 01.04.2015 wherein an exception was granted to the company of which the principal business was trading in shares. Though this amendment was brought under the Statute with effect from 01.04.2015 but various courts have held that it is retrospective in nature. In this connection, Ld. AR has relied on the order of this Tribunal in the case of DCIT vs. Raima Equates Pvt Ltd.
ITA No.610/Kol/2017 A.Y. 2008-09Logview Trade & Credit Pvt. Ltd. Vs. ITO Wd-6(2) Kol. Page 6 in ITA No.1994/Kol/2013 vide order dated 11.08.2016. Thus, in view of above, the ld. AR stressed that the principal business of the assessee is granting of loan and share trading which is falling under the exception category. Therefore, this impugned loss cannot be treated as speculation in nature. Ld. AR in justifying the principal business of the assessee has produced a chart which is showing the income of the assessee in the earlier years as well as in the subsequent years. Such chart of the assessee is enclosed at page 23 of the paper book. However, same chart is also enclosed with the order for the sake of ready reference as ANNEXURE-1.
On the other hand, Ld. DR submitted that the consultancy income cannot be treated as income from other sources. He vehemently relied on the order of Authorities Below.
6. We have heard the rival contentions of both the parties and perused and carefully considered the material on record; including the judicial pronouncements cited and placed reliance upon. In the instant case AO has treated the loss from the share transactions as speculation loss by virtue of the provision of Explanation to Section 73 of the Act. However, Ld. AR before us justified that case of assessee is falling under the exception i.e. principal business of the assessee is trading in shares. In this regard, we find that assessee has been showing its income from share trading in all the years beginning from financial years 2005-06 to 2009-10. However, the income from consultancy for ₹7.20 lakh was shown only in the year under consideration. Similarly, the interest income has not been shown every year by the assessee. 6.1 In view of the above, it can be concluded that principal business of the assessee is of share trading and granting of loan and therefore it is outside the purview of provision of Explanation to Section 73 of the Act. Now, it is well settled that the amendment under the Explanation to Section 73 of the Act for treating the principal business of share trading under exception category with retrospective effect in nature as held by the Co-ordinate Bench of this Tribunal in the case of ITO Vs. ATN International Limited in ITA Nos. 1531 & 1532/Kol/2011. The relevant extract of the order is reproduced below:-
"3.7. We have heard the rival submissions. We hold that it is not in dispute that the principal business of the assessee is trading in shares. We find that the amendment was brought by Finance Act 2014 w.e.f. 1.4.2015 by insertion of the expression - principal business of which is the business of 'trading in shares' or banking ............ in Explanation to Section 73 of the Act. It would be pertinent to refer to the ITA No.610/Kol/2017 A.Y. 2008-09 Logview Trade & Credit Pvt. Ltd. Vs. ITO Wd-6(2) Kol. Page 7 recommendations of Wanchoo Committee Report of December 1971 pursuant to which the Explanation to Section 73 of the Act was inserted by the Taxation Laws (Amendment) Act, 1975 w.e.f. 01.04.1977, the relevant portion of which is extracted hereunder:-
"A tax avoidance device often resorted to by business houses controlling groups of companies is manipulation of results from dealings in shares of the companies controlled by them. In our opinion, such manipulation in share dealings for the purpose of tax avoidance can be checked effectively if the results of dealings in shares by such companies are treated for tax purposes in a manner analogous to speculation. No doubt, companies whose main business activities centre around investment in shares will have to be left out. Accordingly, we recommend that the results of dealings in shares by companies, other than investment, banking and finance companies, should be treated in a manner analogous to speculation business."
3.7.1. We find that in order to achieve the real objective of curbing tax avoidance methods resorted to by business houses controlling their group companies, the legislature by inserting an amendment to Explanation to Section 73 of the act by Finance Act 2014, has extended the exception carved out in the Explanation by putting all the companies, the principal business of which is the business of trading in shares into the exception. We find that the amendment brought in by the Finance Act 2014 in Explanation to Section 73 of the ITA Nos. 1531 & 1532/Kol/2011 ATN International Ltd, AY 2004-05 Act appears to be made in order to clarify the real intention behind the insertion thereof, by removing the obvious hardship caused to various assessees whose main business in trading in shares. The amendment has removed the anomaly and brought the ambit of the Explanation to Section 73 of the Act in line with the intention of the legislature by placing the companies whose principal business is trading in shares as part of the exception to Explanation to Section 73 of the Act, because such companies were not the companies for whom the Explanation was inserted.
3.7.2. We find that though this amendment is made effective only from Asst Year 2015-16 onwards, the real intention behind introduction of this amendment, in our opinion, is curative in nature. In our considered opinion, the amendment, if not held retrospective, would result in hardship to the assessee in the following manner:-
(a) The assessee engaged in trading of shares would be treated as speculation business upto Asst Year 2014-15. That assessee might be having losses eligible to be carried forward under the head 'speculation business'.
(b) The provisions of section 73 of the Act provides that the brought forward speculation loss could be set off only against speculation profits.
(c ) Pursuant to the amendment by Finance Act 2014 supra, the loss derived from the principal business of trading in shares would not be construed as speculative in nature. The logical corollary is profit derived thereon also would be treated only as normal business profits and not speculative profits.
(d) In this situation, the brought forward speculation loss could never be eligible to set off against the profits when there is absolutely no change in the business activities of the assessee (i.e trading in shares as its principal business) . That loss would get ITA No.610/Kol/2017 A.Y. 2008-09 Logview Trade & Credit Pvt. Ltd. Vs. ITO Wd-6(2) Kol. Page 8 lapsed for no fault of the assessee thereby creating genuine hardship to the assessee. We feel that the insertion in Explanation to Section 73 of the Act by the Finance Act 2014 should be looked into from this perspective which would create genuine hardship to the assessee if not held to be curative in nature. Hence we hold that the said amendment should be given retrospective ITA Nos. 1531 & 1532/Kol/2011 ATN International Ltd, AY 2004-05 effect only. In our considered opinion, the amendment would not serve its object in the instant case unless it is construed retrospective in operation."
In this view of the matter, and after considering the totality of the facts, we hold that the principal business of the assessee is of share trading. Therefore, the impugned loss cannot be treated as speculative by virtue of the provision of Explanation to Section 73 of the Act. We reverse the order of lower authorities and direct the AO to delete the same. Hence, this ground of assessee' appeal is allowed.
7. In the result, assessee's appeal stands allowed.
Order pronounced in open court on 30/08/2017
Sd/- Sd/-
( या%यक सद'य) (लेखा सद'य)
(S.S.Viswanethra Ravi) (Waseem Ahmed)
Judicial Member Accountant Member
*Dkp-Sr.PS
)दनांकः- 30/08/2017 कोलकाता / Kolkata
आदे श क त
ल प अ े षत / Copy of Order Forwarded to:-
1. अपीलाथ /Appellant-Longview Trade & Credit Pvt. Ltd. C/o D.J.Shah & Co.
Kalyan Bhavan 2 Elgin Road, Kolkata-20
2. यथ /Respondent-ITO Ward-6(2), AayakarBhawan, P-7, Chowringhee Sq. Kol-69
3. संबं,धत आयकर आयु-त / Concerned CIT
4. आयकर आयु-त- अपील / CIT (A)
5. .वभागीय %त%न,ध, आयकर अपील य अ,धकरण कोलकाता / DR, ITAT, Kolkata
6. गाड2 फाइल / Guard file.
By order/आदे श से, /True Copy/ Sr. Private Secretary, Head of Office/DDO आयकर अपील य अ,धकरण, कोलकाता