Calcutta High Court
Aryasthan Corporation Ltd. vs Commissioner Of Income-Tax on 10 October, 2001
Equivalent citations: [2002]253ITR401(CAL)
JUDGMENT Arun Kumar Mitra, J.
1. In pursuance of the direction given by this court on an application under Section 256(2) of the Income-tax Act, 1961, the Tribunal has referred the following question for the opinion of this court:
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the appellant was not an investment company within the meaning of Section 109(ii) of the Income-tax Act, 1961, for the assessment year 1982-83, though the income from sources for the relevant previous years exceeded the income from the business of dealing in shares ?"
The assessment year is 1982-83 and the previous year ended on December 31, 1981.
2. The Assessing Officer while making the assessment under Section 143(3) of the Income-tax Act for the assessment year 1982-83 observed that the assessee's principal business was dealing in shares. The Assessing Officer observed that on December 31, 1980, the assessee had taken on lease the house properties from Woodland Oil Company and S. Valotia and Brothers for office premises at an annual rental of Rs. 22,966 and Rs. 1,980, respectively, as tenant. A part of such properties was sublet to Thomas Duff Company Ltd. The annual rent received from them amounted to Rs. 18,000 and Rs. 6,000, respectively. During the accounting period ending on December 31, 1980, the lease rent paid to the landlord was amounting to Rs. 24,000. The Assessing Officer came to the conclusion that the assessee was neither an investment company within the meaning of Section 109(ii) of the Income-tax Act, 1961, nor a banking company nor an assesses having the principal business of granting loans and advances, still the assessee was deemed to have carried on a speculation business as per the provision of Explanation to Section 73 of the Act. When computing the total income, the Assessing Officer found that the assessee incurred loss in share dealing to the tune of Rs. 4,50,779.
3. The Commissioner of Income-tax (Appeals), however, held that the assessee was an investment company within the meaning of Section 109(ii) and, therefore, its loss arising in share dealing could not be considered as speculation loss by invoking the provisions of Section 73(1) read with the Explanation thereto.
4. In the appeal preferred by the Revenue, the Tribunal decided the issue in favour of the Revenue with the following observations :
"Section 109(ii) gives the meaning of 'investment company', i.e., a company whose gross total income consists mainly of income which is chargeable under the heads 'Interest on securities', 'Income from house property', 'Capital gains' and 'Income from other sources'. The gross total income as computed by the Income-tax Officer for the assessment year 1982-83 comprises two sums-
(i) Speculation loss from share dealing of Rs. 4,50,779 ; and (ii) income from 'other sources' at Rs. 24,000. It is not known on what basis the Commissioner of Income-tax (Appeals) observed that the assessee is an 'investment company' in terms of Section 109(ii). In our opinion, from the facts found by the authorities below, the only irresistible conclusion that can be drawn is that the assessee does not satisfy the conditions envisaged in Section 109(ii) as its gross total income computed for the assessment year 1982-83 is not comprised mainly of income chargeable under the heads 'Interest on securities', 'Income from house property', 'Capital gains', and 'Income from other sources'. We, accordingly, by setting aside the Commissioner of Income-tax (Appeals) order restore the Income-tax Officer's order treating the loss computed at Rs. 4,50,779 as speculation loss in view of the provision contained in Section 73(1) read with the Explanation thereto."
5. It is submitted by Mr. Bagchi, appearing for the assessee, that the Tribunal was wrong in coming to the conclusion that the assessee was not an investment company within the meaning of Section 109(ii) of the Act. Such contention of Mr. Bagchi cannot be accepted. Enunciation of the provisions of Section 109(ii) clearly shows that the instant speculation loss from share dealing amounts to Rs. 4,50,779 and the income from other sources amounts to Rs. 24,000. Now the Explanation to Section 73 runs in the manner as follows :
"Explanation.- Where any part of the business of a company (other than a company whose gross total income consists mainly of income which is chargeable under the heads 'Interest on securities', 'Income from house property', 'Capital gains' and 'Income from other sources' or a company the principal business of which is the business of banking or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this Section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares,"
The only dispute in this case is whether the assessee-company in the year under reference is an investment company within the meaning of Section 109(ii) of the Act and whether the Explanation to Section 73 of the Act is applicable.
6. The dispute is fully covered by a judgment of this court reported in Eastern Aviation and Industries Ltd. v. CIT [1994] 208 ITR 1023, which observes as follows (page 1027) :
"It is by now well-settled that the words 'income' or 'profits and gains' should be understood as including losses also so that in one sense 'profits and gains' represent 'positive income' whereas 'losses' represent 'negative income'. In other words, 'loss' is 'negative profit. Both positive and negative profits are of revenue character. Both must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee. Reference, in this context, may be made to the decision of the Supreme Court in CIT v. Harprasad and Co. P. ltd, . The Supreme Court in the case of CIT v. J. H. Gotla , in construing the word 'income' in Section 16(3) of the Indian Income-tax Act, 1922, held that the word 'income' would include loss."
7. In view of the above fact and in view of the decision reported in Eastern Aviation Industries Ltd.'s case , it is held that the assessee in the instant case cannot be said to be "a company whose gross total income consists mainly of income which is chargeable under the heads 'Interest on securities', 'Income from house property', 'Capital gains''and 'Income from other sources', since business loss here exceeds income computed under the head 'Income from other sources' and, as such the Explanation to Section 73 is clearly applicable.
8. We, therefore, find no infirmity in the order of the Tribunal and answer the question in the affirmative, that is, in favour of the Revenue and against the assessee.