^ /^:^^^[];;^tNIP?^^^^^^^^^^ QSWSISX :%?:.1& BEFORETHEHQN'BI..BHl©Hg<auRTOFCHHATTISG»R ATBn-ASPUR Tax.CweMconwJm/Wmantto. ^^^^^^^^^^^ ADDellant •.-•....-^."'^s^-" ^»^y Assistant- Cortimissioner of lncomeTax,Circle-1,Bhilai(©;G.) .%' s« Resbondent VERSUS UnivebSleepers <P)l-td., MIG-11, Padmanabhpur, Dyrg :(C.G.)':;;..-:1;.:,::,,;;•,:•.::::-.'^ INCOME TAXAPPEALU/S. 2150 AOFINGOMETAXAGT. 1961. '.^'^^M^fe^^ W9w!SttSM HIGH COURT OF CHHATTISGARH AT BILASPUR D.B. HON'BLE SHRI DHIRENDRA MISHRA. & HON'BLE SHRI R.N. CHANDRAKAR. J J Tax Case (Income Tax Appeal) No. 33 of 2008 Appellant Respondent Versus Assistant Commissioner of Income Tax, Circle-1, Bhilai (CG) Univeb Sleepers (P) Ltd., MIG-11, Padmanabhpur, Durg (CG) Present: Mr. Rajeev Shrivastava, counsel for the appellant/revenue. Mr.Ashok Patil, counsel forthe respondenVassessee. ORAL JUDGWIENT (6'"0ctober,2010) PerDhirendra Mishra, J Revenue's appeal under Section 260A of the Income Tax Act, 1961 (in short "the Act") against the impugned order of the Income Tax Appellate Tribunal, Bilaspur Bench, Bilaspur (for brevity "the Tribunal") has been admitted for hearing on the following substantial question of law: "Whether the Tribunal was right in law holding that the speculation loss could be set-off against the regular business income as business loss while overlooking the explanation to Section 73 of the Income Tax Act, which specifically bars such set-off in a case such as that of the assessee?" 2. Briefly stated, facts of the case are that the assessee-company is engaged in the business of manufacturing concrete sleepers. The assessee filed its return of income for the assessment year 2004-05 declaring total income of Rs.50,26,220/-, which included income from business of manufacturing of concrete sleepers and loss on account of share trading. The matter was taken up for scrutiny and the Assessing Officer (in short "AO"), referring to Section 73 of the Act, made an addition of Rs.22,70,267/- in assessee's income by disallowing speculation loss and assessed the total income at Rs.74,30,815/-. The appeal preferred by the assessee was further dismissed and the Commissioner, Income Tax (Appeals) {in short "CIT(A)"} confirmed the order ofthe AO. However, learned Tribunal allowed appealof the assessee by the impugned order. 3. Shri Rajeev Shrivastava, leaned counsel for the appellant/revenue, would argue that there is no dispute that principal business of the assessee- company is manufacture of concrete sleepers. AO as also CIT(A), on close scrutiny of the record, arrived at a finding of fact that gross total income of the assessee consists mainly of income derived frommanufacture of concrete sleepers and its principal business is not that of banking or granting of loans or advances. Its GTI did not consist mainly of income chargeable under the heads "Interest on securities", "Income from house property", "Capital gains", and "Income from other sources", and its case falls within the ambit of Explanation to Section 73 of the Act. Accbrdingly, both the forums treated the loss from share trading activity of the assessee as speculation losses as per provisions of Explanation to Section 73 of the Act. However, the Tribunal set aside the orders passed by the AO and affirmed by CIT (A), by relying upon the decision of Mumbai Special Bench of the Tribunal in the case of ACIT Vs. Concord Commercials (P) Ltd. and held that the revenue has failed to establish that the assessee has adopted a device to reduce the taxable income by indulging in trading in shares of group of companies. Reliance is also placed on the decision of the M.P. High Court in the matter of C.I.T. Vs. Intermetal Trade Ltd. 4. On the other hand, Shri Ashok Patil, learned counse] for the assessee, supporting the impugned order, argued that Section 73 of the Act is to be interpreted in such a manner, which furthers the object of the provision, which is to curb the device sometimes resorted to by the business houses controlling group of companies to manipulate and reduce the taxable income of companies under their control, as clarified in para 19.2 ofthe Circular No.204 dated 24.7.1976 issued by the Central Board of Direct Taxes. Since the revenue has not come up with a case that the assessee has adopted a device to reduce the taxable income by indulging in trading in shares of group of companies, the Tribunal has rightly allowed the set off to the assessee and the same does not call for interference. 5. We have heard learned counsel for the parties and perused the assessment order, order passed by CIT(A) as also the impugned order. 6. AO repelling the arguments advanced by the assessee held that Circular No.204 of CBDT is only a continuation of explanations to the Taxation "(2005)951TD117 2 (2006) 204 CTR (MP) 567 : (2006) 285 ITR 536 (MP) ss^t^^si '^i^." •'vsss&' "^ ! ^ Laws (Amendment) Act, 1975. Para19.2 does not define the scope of the amended Section 73 and the same is neither restrietive nor exclusive. The deeming provision of Section 73 has an ovemding effect on Section 43(5) and Section 28(Explanation 2). It has been further held that the assessee does not fall in the category of company specified in Explanation to Section 73 of the Act. Challenge to the provision under Section 73 of the Act on the ground of the same being violative of the Constitution for being discriminatory in nature, can be considered only by an appropriate forum. 1 7. CIT(A) affirming the order of the AO, observed as under: "A close scrutiny of the record reveals that the appellant is not such a company whose gross total income consists mainly of income which is chargeable under the head interest on securities, income from house property, capital gain and income from other sources. It is further revealed that the appellant is a company whose principle business is not that a banking or granting of loans and advances, yet in the instant case, the appellant has debited loss on account of share trading to the extent of Rs.22,70.267/- and set off the same against the business of manufacturing of concrete sleeper. By every argument, the case of the appellant squarely falls under the provisions as laid down Explanation to Section 73 of the Act. There is no material to show that the principle business of the assessee is of banking or granting of loans and advances. Also the appellant's GTI did not consist of mainly of interest on securities, income from house property, capital gain or income from other sources. This being the fact, the only inescapable conclusion can be derived that the case of the appellant will be under the ambit of Explanation to Section 73 and thereby the AO has rightly invoked the provisions of Explanation to Section 73 and treated the loss from share trading activity as speculation loss." 8. Relevant portion of Section 73 of the Act is reproduced hereinunder: "73. Losses in speculation business. - (1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business. (2) xxxx xxxx xxxx (3) xxxx xxxx xxxx (4) xxxx xxxx xxxx [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.] 9. Learned Tribunal has allowed the appeal of the assessee with the following observations in para 9.1 ofthe order: "9.1 If the plain meaning of the Explanation is applied without looking at the object stated in the Circular, it is tantamount to denying the set off of genuine loss incurred in share trading against other business income. The provision devoid of a condition commensurate with the objectstated in the circular is vulnerable to being struck down as unconstitutional being offensive to Article 14. Thus, in our considered opinion, the onus is upon the revenue to prove that the assessee has adopted a device to reduce the taxable income by indulging in trading in shares of group of companies which has not been discharged in the instant case. 10. In the matter of Concord Commercials Pvt. Ltd.\ the assessee was doing the business of trading in purchase and sale of shares. After necessary adjustment, the gross total income of assessee was worked out at a particular sum, which entirely consisted of dividend chargeable under the head of "Income from other sources". Considering the above fact, the Tribunal held i ;^::^;s^^^^^^^^^^ "SS!wyis59SS& ^?^.- that the provisionof Explanation to Section 73 will not be appliGable and set offof losses incurred in sale and purchase ofshares against other incomewas held to be justified. 11. tn the case of Intermetal Trade Ltd. , the main business of the assessee-company was trading in metal and shares. Considering that the main source of income of the assessee company was not from "Interest on securities", "Income from house property", "Capital gains", and "Income from other sources" and also considering that loans and advances were given by the assessee only to the persons, who were either closely related to the Director or who had trading activities with the assessee, it was held that the assessee does not fall within any of the excepted categories of companies specified in Explanation to Section 73 of the Act and it was held that the loss suffered by the assessee in share business was in the nature of speculation loss and it could not be set off against the profit earnedfrom non-speculative business. 12. In the instant case also, the AO as well as CIT(A) have recorded a finding of fact that the business of the assessee company does not fall within the category of company as mentioned in Explanation to Section 73. It has been categorically held that it is not a company whose gross total income consists mainly of income which is chargeable under the head of "Interest on securities", "Income from house property", "Capital gains", and "Income from other sources". The assessee company's principal business is also notthat of banking or granting of loans and advances. 13. For the aforesaid reasons, we are of the considered opinion that case of the assessee squarely falls within the four corners of Explanation to Section 73 ofthe Act. In these circumstances, the loss suffered by the assessee in the business of share trading cannot be set off against the income derived from its main business - construction of sleepers - as the assessee was carrying on the business of trading in shares and the same can be deemed to be a speculation business by virtue of deeming provisions as per Explanation to Section 73 of the Act. 14. On the basis of aforesaid discussions, the appeal succeeds and the same is allowed. tmpugned order of the Tribunal is set aside and that of the Ap^nd_CIT(A^arejestored^ Sd/- Dhirendra Mishra Jadge Sdi- R.N. Chandrakar Judge ^