IN THE ITAT AHMEDABAD BENCH ‘D’
TORRENT
FINANCE (P.) LTD.
v.
JOINT
COMMISSIONER OF INCOME-TAX
(Asstt.)
Special Range-9, Ahmedabad
IT
APPEAL NO. 1663 (AHD) OF 2001
[ASSESSMENT YEAR
1997-98]
AUGUST
25, 2006
Section 73 of the Income-tax Act, 1961 - Losses - In speculation business - Assessment year 1997-98 - Assessee company was carrying on business of dealing in shares and also held certain shares as stock-in-trade - In its return of income, assessee declared that it had incurred huge loss being business loss and share capital loss, and had earned certain dividend income from shares held by it as its stock-in-trade - Assessee claimed to set off dividend income against business loss on ground that it was also its business income - Whether since business loss of assessee was more than dividend income, assessee could not be said to be a company whose gross total income consisted mainly of dividend income, i.e., ‘income from other sources’ so as to exclude it from being treated as carrying on speculation business and as such Explanation to section 73 was applicable - Held, yes - Whether since dividend income was earned by assessee for holding shares and not by transfer thereof, it could not be treated to be an income from speculation business, and, consequently, business loss of assessee could not be set-off against dividend income - Held, yes
The assessee-company was carrying on the business of dealing in shares. In its return of income, the assessee declared certain loss being business loss and share capital loss. The assessee claimed that the dividend income arising from shares held as stock-in-trade, being its business income, should be set-off against the business loss. The Assessing Officer held that the loss incurred by the assessee, being speculative in nature was covered by the Explanation to section 73. The Assessing Officer further found that the assessee had not earned the dividend income out of sale and purchase of shares, but for holding certain shares. He, thus, rejected the claim regarding set-off on ground that the business loss could be set-off only against speculative profit, whereas the element of speculation in earning the dividend income was missing. The Commissioner (Appeals) upheld the order of the Assessing Officer.
In instant appeal, the assessee reiterated its claim by submitting that since its entire gross total income consisted of dividend income, its case would be covered by the exclusion provided in the Explanation and that dividend income, being a business income though assessable under the head ‘Income from other sources’, was to be set off against the business loss.
HELD
The Explanation to section 73 deems an assessee-company to be carrying on a speculation business if the business of the company consists of purchase and sale of shares of other companies. It, however, excludes a company whose gross total income consists mainly of income which is chargeable under various heads other than ‘Income from business or profession’. [Para 7]
The first contention of the assessee, that its gross total income consisted mainly of dividend income of Rs. 67,87,702 which was chargeable under the heads ‘Income from other sources’, could not be accepted as it ignored the business loss of Rs. 8,23,70,792 and that was more than the income. [Para 8]
In the instant case, the business loss was of Rs. 8,23,70,792 and the loss under the head ‘Capital gains’ was of Rs. 3,23,86,938 and income from dividend being the income under the head ‘Income from other sources’ was of Rs. 67,87,702. Therefore, the business loss exceeded the income computed under the two other heads and, consequently, the assessee could not be said to be a company whose gross total income consisted mainly of the income chargeable under the head ‘Interest on securities’, ‘Income from house property’, ‘Capital gains’ and ‘Income from other sources’ so as to exclude it from having treated as carrying speculative business. Accordingly, the first contention of the assessee was to be rejected. [Para 9]
The second contention, that dividend income was business income though assessable under the head ‘Income from other sources’ and, therefore, the loss on sale of shares should be set-off against the dividend income, could not also be accepted. The dividend is the income earned for holding the shares, whereas the loss is incurred on purchase and sale and by transferring the shares. The two transactions are altogether different. [Para 10]
In the instant case, the dividend income was received by the assessee in respect of the shares which might have also been sold and the loss wherefrom was deemed as speculative loss could not be set off against the dividend income, as the dividend income was earned by the assessee for holding those shares. [Para 11]
In view of catena of decisions of the Supreme Court & various High Courts, income from dividend would be business income if the shares are held as stock-in-trade and the loss incurred by the assessee in business transactions would be set off against the same. Explanation to section 73 deems an assessee to be carrying on speculation business to the extent to which the business consists of purchase and sale of such shares. It is only this part of the activity, i.e., purchase and sale of shares, which is held to be speculative in nature. The earnings of the assessee from those shares or other shares held by an assessee as stock-in-trade have not been so deemed to be income from speculation. Therefore, though it may be true that dividend income is the business income and is earning on account of the shares held by the assessee before the dividend was earned, and it would be a business income but it is not treated to be an income from speculation business because of the clear Explanation of section 73, which deems the loss arising out of carrying on a speculation business only to the extent to which the business consists of purchase and sale of such shares. The dividend is not earned by transfer of shares. It is earned by holding the shares on a particular day when the dividend was declared, and, therefore, the Commissioner (Appeals) was right in not allowing the set off of the dividend income against the speculation loss. Therefore, the contention of the assessee in that respect was liable to be rejected. [Para 15]
The assessee lastly contended, that gross dividend should not be assessed, but it should be deducted by the expenditure in earning the same. The said issue did not arise out from the order of the Commissioner (Appeals) though a contention in that regards was raised before the Assessing Officer. In any case, the expenditure had been incurred by the assessee in carrying on the business and, therefore, allowable under the head ‘Profits and gains of business or profession’ and no part thereof could be allowed against dividend income assessable under section 56. Therefore, the said contention of the assessee was also to be rejected. [Para 16]
In the result, the appeal was to be dismissed. [Para 19]