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Yucca Finvest (P.) Ltd. Vs. Deputy Commissioner of - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(2006)101ITD403(Mum.)
AppellantYucca Finvest (P.) Ltd.
RespondentDeputy Commissioner of
Excerpt:
1.1 the grounds of appeal that follow are all independent and without prejudice to each other. 1.2 that the learned commissioner of income-tax (appeals) has erred in confirming the action of the assessing officer regarding invoking of the provisions of explanation 1 to section 73 in the case of your petitioners and has consequently erred in treating the loss incurred on sale of shares as a speculation loss. 1.3 that the learned commissioner of income-tax (appeals) erred in holding that explanation 1 to section 73 was applicable in the case of your petitioners who were solely carrying on the business of an investment company. this being despite the fact that the learned commissioner of income-tax (appeals) has himself stated in the third para of page 3 of the appeal order that the.....
Judgment:
1.1 The grounds of appeal that follow are all independent and without prejudice to each other.

1.2 That the Learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer regarding invoking of the provisions of Explanation 1 to Section 73 in the case of your petitioners and has consequently erred in treating the loss incurred on sale of shares as a speculation loss.

1.3 That the Learned Commissioner of Income-tax (Appeals) erred in holding that Explanation 1 to Section 73 was applicable in the case of your petitioners who were solely carrying on the business of an investment company. This being despite the fact that the Learned Commissioner of Income-tax (Appeals) has himself stated in the third para of page 3 of the appeal order that the Explanation did not apply to an investment company.

1.4 That the Learned Commissioner of Income-tax (Appeals) failed to appreciate the fact that during the year under review your petitioners have been engaged in only one business namely that of buying and selling of shares. Even the Memorandum & Articles of Association of the Company [a copy of which was also filed before the Commissioner (Appeals)] categorically specifies that the principal business of the company is that of an investment company.

That the Learned Commissioner of Income-tax (Appeals) therefore failed to appreciate the fact that since your petitioners were an investment company and by his own admission, the Explanation could not be invoked in your petitioner's case.

1.5 Thai the Learned Commissioner of Income-tax (Appeals) failed to appreciate the fact that the Explanation could be invoked only in case of companies which were carrying on the business of an investment company along with some other business and the Explanation could not be invoked in the case of companies whose entire business itself is that of an "Investment Company". This is evident from the opening lines of the Explanation to Section 73 which reads as under: 1.6 That the Learned Commissioner of Income-tax (Appeals) failed to appreciate the fact that in any case Explanation 1 to Section 73 did not apply to it since its gross total income consisted mainly of dividend income which is chargeable under the head "Income from other sources". As against dividend income of Rs. 13,73,200 earned by your petitioners during the year under review, the profit earned by it on sale of shares held as Stock-in-Trade amounted to Rs. 12,68,257 only (i.e., Rs. 415,81,112 minus Rs. 403,12,855.

1.7 That the Learned Commissioner of Income-tax (Appeals) erred in not applying the principle laid down by the Bombay Tribunal in the case of Laxmi Feeds & Exports Ltd. v. Asstt. CIT [1997] 62 LTD 315 [a copy of which was also filed before the Commissioner (Appeals) in the course of the appeal hearing] to the case under review stating that the facts of your petitioners case were different from that of the above mentioned case. The Learned Commissioner (Appeals) has distinguished the two cases on the ground that in that case there was a solitary transaction of purchase and sale whereas in the case under review there are frequent purchase and sale of shares, though of a single company. The Learned Commissioner of Income-tax (Appeals) failed to appreciate the fact that the Bombay High Court has clearly and specifically held that both plurality of transactions and plurality of companies is a pre-condition for invoking the provisions of Explanation to Section 73. Since your petitioners had dealt in the shares of only one company, namely Cable Corporation of India Ltd., the Learned Commissioner (Appeals) ought to have held that the ratio of the Bombay Tribunal was directly applicable to the facts of the case under review and as such Explanation 1 to Section 73 could not be invoked in your petitioner's case.

1.8 That the Learned Commissioner of Income-tax (Appeals) ought to have appreciated that the Explanation being a deeming provision should be strictly construed. Your petitioners place reliance on several judgments which have upheld the principle that a deeming provision must be strictly construed. This argument was also advanced in the case of Laxmi Feeds & Exports Ltd. (supra) and after due consideration the Honourable Bombay Tribunal, accepting the aforesaid argument had observed as under: The Explanation to Section 73 is attracted only when a part of the business of an assessee comprises of purchase and sale of shares of companies and not of a company. The words used is "companies" and not simply "company". So, plurality of transactions and plurality of companies is a pre-condition for attracting the provisions of Explanation to Section 73.

1.9 On the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeals) ought to have appreciated that the profit loss from share trading business also includes dividend income earned in respect of such shares. As the entire dividend income of Rs. 13,73,200 had been earned by your petitioners on shares of Cable Corporation of India Ltd., the interest expenditure of Rs. 12,96,966 ought to have been first set off against the dividend income of Rs. 13,73,200 and only the remaining interest deficit of Rs. 19,23,766 (i.e., Rs. 32,96,966 minus Rs. 13,73,200) ought to have been considered as attributable to the business of share dealing.

1.10 That the Learned Commissioner of Income-tax (Appeals) ought to have borne in mind the general commercial principles in order to arrive at the real and true profits of the business. It is patently unfair and unjust to expect an assessee who has incurred a loss in his business during the year to pay tax on the dividend income earned by him particularly when such dividend income has also been entirely earned from the business of share dealing.

2. In brief the assessee is aggrieved against the order of CIT(A) as confirming the order of Assessing Officer who has treated this loss of Rs. 20,38,420 in trading of shares as speculation loss by invoking Explanation to Section 73 and thus did not allow the set off of this loss against "income from other sources" at Rs. 13,73,200.

3. The facts of the case are that the assessee's business is finance and leasing. It is incorporated with the object of buying and selling of shares and other financial activities. Return of income was filed on 28.11.1996 on a total loss of Rs. 6,65,220. The said loss was classified to be carried forward in accordance with provisions of Section 72 of the Income-tax Act. During the year, the assessee-company dealt with shares of one company only namely, Cable Corporation of India Ltd. 4. The break up of income as per audited accounts for the year ending 31.3.1996 was as under:2. Earning from purchase and sale of shares 12,68,257 26,41,4572. Other administrative expens 9,711 33,06,67Dividend income to be taxed separately under 13,73,200the head "Other sources"Loss under the head "Income from business/ 20,38,420profession" 5. The borrowed funds of Rs. 4,08,97,170 was mostly utilised for the purchase of shares and was blocked against shares held as stock-in-trade amounting to Rs. 3,16,90,626. Since borrowed funds were utilised in trading in shares, the Assessing Officer held that the interest amounting to Rs. 32,96,966 has to be adjusted against the business income (i.e., trading in shares) only. The Assessing Officer thought to invoke Explanation to Section 73 on the ground that main source of income is trading in shares. He rejected the contention of the assessee that main source of income of the assessee is dividend income i.e., income from other sources because business income is Rs. 12,68,257; dividend income is Rs. 13,73,200, and thus dividend income is more, and hence Explanation to Section 73 cannot be invoked.

Therefore, the loss in trading in shares cannot be treated as speculation loss, which mean that it is an ordinary business loss which can be set off against the normal income under the head "Other sources". In the assessment the Assessing Officer treated the loss of Rs. 20,38,420 as speculation loss and taxed the dividend income of Rs. 13,73,200 separately.

6. Before the CIT(A) the same contentions were raised, that is, the main source of income is income from other sources and, hence, Explanation to Section 73(1) cannot be invoked in the case of the assessee. The CIT(A) also rejected the contention of the assessee by observing as under: The appellant's contention is that they are not covered by the provisions of Explanation to Section 73. In this connection it would be relevant to refer to the Hon'ble Calcutta High Court decision in the case of CIT v. Arvind Investments Ltd. 192 ITR 365, where the following observation was made: Explanation.Where any part of the business of a company [other than an investment company, as defined in Clause (ii) of Section 109, 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.

Sub-section (1) of Section 73 restricts the scope of Section 70 which permits the setting off of loss from one source against the profit from another source falling under the same head of income and Sub-section (1) of Section 73 categorically declares that any loss arising from speculation business shall not be set off except against profits and gains of another speculation business. In other words, if there is a speculation loss and also gain from another source of non-speculation business, then such speculation loss cannot be set off against the profit from a non-speculation business.

Sub-section (2) of Section 73 restricts the scope of Section 72 which provides for carrying forward and setting off of business losses. If any loss computed in respect of a speculation business had not been wholly set off, such loss may be carried forward and set off against profits and gains of any speculation business in the following assessment years.

The Section applies only to a company. It does not apply to individuals, firms, Hindu undivided families or association of persons. The Explanation also does, not apply to an investment company or a company whose principal business is banking or money-lending.

If the business of a company which does not fall within the excluded categories consists of purchase and sale of shares of other companies, then such a company shall be deemed to be carrying on speculation business for the purpose of Section 73 to the extent to which the business consists of the purchase and sale of such shares.

It would thus appear that the contention of the appellant is contrary to the provisions of law. Another decision which is against the appellant is that of Eastern Aviation Industries Ltd., 208 ITR 1023, where it was held that Explanation to Section 73 was clearly applicable. The appellant has relied on the ITAT Mumbai Bench decision in the case of Laxmi Feeds & Exports Ltd., 62 LTD 315. The said decision has been perused by me. It is seen that the facts of the appellant's case are quite different being a case of solitary transaction of purchase and sale. In fact in that case the assessee had subscribed for one lakh equity shares of face value of Rs. 10 in a public issue and after having been allotted the said shares the same was sold subsequently at a loss. In the appellant's case there has been frequent sale and purchase of shares though of a single company. Such purchase and sale is clearly not covered by the ratio of the decision referred to. In view of the same, the action of the Assessing Officer, in rejecting the appellant's claim has to be upheld.7. It is how the assessee is in appeal against the above order of the CIT(A). 13efore us the learned Counsel for the assessee raised several contentions in support of his argument that he is not hit by Explanation to Section 73(1). They are: 1. In order that Explanation could be attracted a part of the business of the assessee-company should consist in the purchase and sale of shares of other companies. In the present case entire business consisted of purchase and sale of shares of one company.

Thus, due to opening words, the Explanation is not attracted.

2. For attracting Explanation, the sale and purchase of shares must be of "companies". What is contemplated is a plurality of transactions as well as plurality of companies in whose shares the transactions are undertaken. If the Explanation had contemplated that a single transaction or the transaction in the shares of single company was sufficient to attract the Explanation, then the words used in the Explanation would have been "purchase and sale of shares of another company or companies". The use of plural "companies", therefore, brings out the legislative intent. For this proposition the learned Counsel of the assessee relied on the decision of ITAT in Laxmi Feeds & Exports Ltd. v. Asstt. CIT [1997] 62 LTD 315 (Mum.) wherein it is held that plurality of companies is a pre-condition for attracting the provisions of Explanation to Section 73(c)(refer para 8 at page 319 of 62 LTD).J.B. Boda & Co. (P.) Ltd. v. ITO I.T. Appeal No. 1849 (Bom.) of 1991 [1992] 41 LTD 36 which has placed reliance on decision of Bombay High Court in CIT v. Indian Commercial Co. (P.) Ltd. considered scope of Explanation 2 to Section 28 which defines the term "speculation transactions" to mean "where speculation transactions carried on by an assessee are of such a nature as to constitute a business, the business shall be deemed to be distinct and separate from any other business". The court held that the use of the plural "speculative transactions" in Explanation 2 to Section 28 shows that in order to constitute a speculative business, a single transaction would not be sufficient (Ref. Page 472 of 106 ITR). Relying on this the learned Counsel of the assessee submitted that dealing in shares of Cable Corporation of India alone cannot result in declaring the business of the assessee as speculation business.

4. A strict construction of deeming provision is necessary. When Explanation to Section 73 deems sale and purchase in shares as speculation transactions then a strict consideration of the position is needed.

5. Assuming that the case of the assessee falls in main part of Explanation, nevertheless, it would fall in the exception carved out in the Explanation. The said Explanation provides that if a company where 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", then the provisions of Explanation would not be applicable. The assessee has been assessed under the head "Income from other sources", i.e., on dividend income of Rs. 13,73,200. Thus, the G.T.I, of the assessee consists of income, which is chargeable under the residuary head. Therefore, the case of the assessee is covered by exception.

6. The learned AR further submitted that assuming that provisions of Sections 70 to 72 are to be applied before determining whether Explanation to Section 73 applies, even then the case of the assessee would fall in the exception. It is so because assessee has positive income under the head "Income from other sources" at Rs. 13,73,200 and a loss under the head "Profits and gains of business" at Rs. 20,38,420. As the income from the head "Income from other sources" is in excess of the loss under the head "Business"; and there cannot be two views that a positive figure is larger than the negative figure, the assessee's case would be covered by the exception.

7. The department has primarily relied upon the decision of Honourable Calcutta High Court in Eastern Aviation & Industries Ltd. v. CIT wherein, as per facts of that case, business loss of Rs. 21,11,545 was considered more than dividend income of Rs. 3,87,603. The learned Counsel for the assessee submitted that above decision of Honourable Calcutta High Court was considered by ITAT Mumbai in I.T.A. No. 1103/Bom./2000 in Associated Capital Market Management (P.) Ltd. and distinguished.

8. The learned Counsel for the assessee further submitted that the issue as to whether loss of the assessee is a business loss should also be decided having regard to the legislative intent behind that introduction of the Explanation. Circular No. 204 dated 24.7.1976 sets out the object of the provisions viz., to curb the device, adopted by certain business groups to manipulate and reduce taxable income of companies under their control.

There is no material to suspect that the assessee had adopted any device to reduce its taxable income. In this regard the learned Counsel for the assessee placed reliance on a decision of the Tribunal in the case of Aman Portfolio (P.) Ltd. v. Dy. CIT [2005] 92 TTJ (Delhi) 3511.

9. The learned Counsel for the assessee submitted that assuming that Explanation to Section 73 is attracted, then the Assessing Officer ought to have allocated the interest expenses of Rs. 32,96,966 as incurred towards earning of dividend income and thereby reduce the income chargeable under the head "Income from other sources" and consequently reduce the loss under the head "Profit and gains of business and profession". For this proposition the learned Counsel for the assessee relied on the decision of Honourable Bombay High Court in CIT v. Maganlal Chhaganlal (P.) Ltd. Taxman 602 wherein the Honourable High Court upheld the contention of the Revenue that the deduction available under Section 80M, interest paid on money borrowed for acquiring the shares which are held as stock-in-trade had to be adjusted in computing the dividend income chargeable under Section 56.

8. Summarising the arguments the learned Counsel for the assessee submitted that the orders of CIT(A) in treating the loss of Rs. 20,38,420 as speculation loss be reversed or in the alternative such loss should be reduced by setting off the interest paid on money borrowed.

9. On the other hand, learned DR submitted that for invoking Explanation to Section 73, it is not necessary that assessee should be dealing in more than one business or that if he is dealing only in trading of shares than Explanation cannot be invoked. According to him, the interpretation of words "part of the business of the assessee" means that he should have some other business also so as to make the trading in shares as a "part of the business" is not correct. The "whole" of business consisting of trading in shares would include "part" also. For their proposition he relied on the decision of Hon'ble Calcutta High Court in CIT v. Arvind Investments Ltd. . He also relied on the decision of ITAT'C BenchDy. CIT v. Aakrosh Investment & Leasing (P.) Ltd. [2004] 90 LTD 287, where the Explanation to Section 73 was invoked even though the entire business of the assessee was in dealing in shares only. He further referred to decision of Hyderabad A Bench of the ITAT in Prudential Construction Co. Ltd. v. Asstt. CIT [2000] 75 LTD 338 wherein entire loss relating to share transactions including valuation of closing stock was held to be speculation loss within the meaning of Explanation to Section 73.

10. The second argument of learned DR was that words "companies" occurring in the Explanation is not for the reason that Legislature wanted that the assessee should deal in the shares of more than one company for it to come within the mischief of Explanation. The plural is used to make the concerned sentence grammatically correct. In ITO v.Mysore Rolling Mills (P.) Ltd. [1983] 6 LTD 639 (Bang.), the assessee was dealing in the shares of one company. On the facts of that case, it was held that case is covered within the Explanation. The learned DR distinguished the decision of ITAT in J.B. Boda & Co. Ltd. v. ITO IT Appeal No. 1849 (Bom.) of 1991 [1992 41 LTD 36 wherein it was held that there should be plurality of companies whose shares arc purchased and sold. While arriving at that decision Hon'ble ITAT in Boda's case had relied on the decision of Hon'ble Bombay High Court in CIT v. Indian Commercial Co. (P.) Ltd. wherein Hon'ble Bombay High Court referred to Explanation 2 to Section 28 of the Act, 1961 for the proposition that for constituting a separate business as speculation, there should be plurality of transactions. In other words, single speculative transaction would not constitute a distinct and separate business. The learned DR therefore submitted that this decision would not be applicable because Explanation 2 of Section 28 would come into play only after a transaction is (or transactions are) found to be speculative. Once a single transaction available is speculative and there are no further speculative transactions, then the single speculative transaction will not constitute separate or distinct business. On the other hand, learned DR submitted that Explanation to Section 73 is invoked to deem certain transactions in shares as speculative, if conditions laid down therein are satisfied. Thus, according to learned DR the nature, scope and object of two sections are different, they operate in different fields.

11. The learned DR then relied on the decision of Hon'ble Calcutta ITAT in Paharpur Cooling Towers Ltd. v. Dy. CIT [2003] 85 LTD 745, wherein it was held that the thrust of Explanation to Section 73 is on "business" rather on the nature of transaction. He further submitted that in CIT v. Sun Distributors & Mining Co. Ltd. [1993] 68 Taxman 223, Hon'ble Calcutta High Court held that it is not necessary that sale and purchase of shares had to be made in the same year. It was clearly emphasized that the business was more important than the transaction for deciding the applicability of Explanation to Section 73. Referring to the contention of the learned AR that the assessee has dividend income of Rs. 13,73,200 under the head 'Income from other sources' whereas it had a loss of Rs. 20,38,420 under the head 'Profits and gains of business' and that the positive figure is always more than the negative figure hence the Explanation to Section 73 is not attracted, ld. DR submitted that this contention of the assessee is not correct in view of decision of Hon'ble Calcutta High Court in the case of CIT v.Park View Properties (P.) Ltd. . Further, the Special Bench of the Bombay Tribunal in the case of Asstt. CIT v. Concord Commercials (P.) Ltd. [2005] 95 LTD 117 has held that the meaning of gross total income in the Explanation to Section 73 is the same as that given in Section 80B(5). Thus, after aggregation of income, the gross total income of the assessee in this case would be negative and thus would consist only of income under the head "Business". Thus, the Special Bench of the Income-tax Appellate Tribunal in the aforesaid judgment of M/s. Concord Commercial Pvt. Ltd. follows the view taken by the Calcutta High Court in the case of Park View Properties (P.) Ltd. (supra).

12. Referring to the contention of the learned AR that the Explanation to Section 73 cannot be invoked unless the revenue makes out a case that this is a kind of device to reduce taxable income, for which learned AR relied on the decision of the single member decision of the ITAT Delhi in the case of Aman Portfolio (P.) Ltd. (supra), learned DR submitted that the said decision of the single member ITAT Delhi Bench ,was considered by the Division Bench of ITAT Delhi in the case of Dy.

CIT v. Frontline Capital Services Ltd. [2005] 96 TTJ (Delhi) 201 4 SOT 473. The Division Bench of the ITAT, Delhi has overruled the decision of the single member Bench.

13. Further, according to learned DR, the above contention of the learned AR is not acceptable in view of the fact that there is no need to go into the intention of the Legislature if the words in the statute themselves are clear. He quoted from STO v. Modi Sugar Mills as under: In interpreting a taxing statute equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or. assumptions. The Court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed, it cannot imply anything what is clearly expressed, it cannot import provisions in the statute so as to supply any assumed efficiency.

14. The Hon'ble Supreme Court has held that the rules of interpretation could be put into service only where the language of the statute was ambiguous or capable of more than one meaning. He relied on CIT v.Gwalior Rayon Silk Mfg. Co. Ltd. [1992] 196 ITR 1491 (SC), CIT v. Sodra Devi and Smt. Tarulata Shyam v. CIT 15. Referring to the alternative argument of Id. Counsel for the assessee that if the losses are to be treated as speculation loss, the interest of Rs. 32,96,966 must be allocated towards earning out dividend income also and only the net amount of dividend should be brought to tax, the Ld. DR submitted that it is for the assessee to establish that the interest in question is attributable to the dividend earned and is allowable under Section 57(iii). It should also be seen that the above claim is not quantified hence there is no question of allowing the same.

16. Further, it was submitted by the ld. DR that the shares in question were held by the assessee as stock-in-trade and not as investments. Any sum borrowed for the purposes of purchasing stock-in-trade is to be allowed as a deduction under Section 36(1)(iii) of the Income-tax Act out of business income. The earning of dividend on stock-in-trade is only incidental. The interest in question, hence, cannot be allocated towards dividend.

17. We have heard the rival submissions and considered the material on record including the case laws. The first issue raised by learned Counsel for assessee is that the assessee is an investment company and Explanation to Section 73 would not be applicable (Ground No. 1). We are unable to agree. Explanation to Section 73 reads as under: 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.

18. In this Explanation, two exceptions have been provided. If the case of a company falls in either of these two exceptions then, it will not hit by the Explanation. First exception is about those companies whose gross total income consists of income chargeable under the heads "Income from house property", "Capital gains" and "Income from other sources". The Section provides thrust on composition of gross total income. Thus, if gross total income comprises of mainly of incomes, chargeable under these heads, then Explanation to Section 73 will not apply. This issue was dealt with by Special Bench of ITAT in Concord Commercials (P.) Ltd. 's case (supra), in para 21 to para 24 as under: 21. But the Explanation has provided two exceptions. The first exception is available in the case of 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 second exception is in the case of a company whose principal business is the business of banking or the granting of loans and advances.

22. The first category of exception is identified by the composition of its gross total income. The words used in the statute [...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"] provide thrust on the composition of the gross total income of that company. If the gross total income of the company mainly consists of income falling under the above-mentioned heads, Explanation to Section 73 does not apply. If the gross total income of the company is mainly made up of income under the head "Profits and gains of business or profession", it is caught by the mischief of Explanation to Section 73. Therefore, we have to see that the first category of exception is made on the basis of the "character of its gross total income".

23. As far as the second category of exception is concerned, the thrust is made on the nature of business carried on by the company.

If the company is carrying as its principal business, the business of banking or the granting of loans and advances, Explanation to Section 73 does not apply. The company is excluded from the ambit of Explanation on the basis of the nature of the principal business carried on by it.

24. The two kinds of exceptions provided in Explanation to Section 73 are based on two independent tests laid down in the Explanation itself. The test to be applied on the first category of company is the character of its gross total income. The test laid down in the case of the second category of company is the nature of the principal business carried on by it. In the first category, where the test is that of the character of gross total income, the other test relating to the nature of principal business carried on by it does not apply. Likewise in the second category of company where the test is the nature of the principal business carried on by it, the test of the gross total income does not apply. The two exceptions provided in Explanation to Section 73 are governed by two different tests laid down in the said Explanation itself. Therefore, the examination of the exceptions provided in Explanation to Section 73 is to be done strictly in accordance with the tests laid down in the Explanation.

19. From this, it is quite clear that a case will not fall under the exception merely by the head under which income was finally assessed but by composition of gross total income as given in para 4 of this order. The composition of gross total income in the present case is dividend income of Rs. 13,73,200 assessable under the head "Income from other sources" and business income/loss of Rs. 20,38,420.

20. The question therefore arises is as to whether the case of the assessee will fall in the exception. It is submitted by learned Counsel for assessee that positive income is always more than the negative income shown in the form of loss. In other words, if income from dividend is Rs. 100 assessed under the head "Other sources" and loss from trading in shares is shown is Rs. 50 lakhs still as per learned Counsel for assessee, the Explanation cannot be invoked, as the case would not fall in the exception. In other words, a positive figure, howsoever small it may be, is always more than any negative figure howsoever large it may be. He also relied on the decision of ITAT (Mum.) in Associated Capital Market Management (P.) Ltd. 's case (supra). On the other hand, learned DR had relied on the decision of Hon'ble Calcutta High Court in Easter Aviation Industries v. CIT Taxman 641 (Cal); CIT v. Park View Properties (P.) Ltd. and CITDy. CIT v. Aakrosh Investment & Leasing (P.) Ltd. [2004] 90 LTD 287 for the proposition that absolute figures have to be compared for determining as to whether the assessee company's main income is from business or under other four residuary sources.

21. On the other hand, the thrust of learned Counsel for assessee has been that numerical figures should be compared to determine as to which is higher whether "business income" or "Income from Other sources" etc.; let us examine how the courts have dealt with this issue.

(1) In Eastern Aviation & Industries Ltd's case (supra) there was a business loss of Rs. 21,11,545 and income from dividend was Rs. 2,87,603. Hon'ble Calcutta High Court held that the figure of loss of Rs. 21,11,545 was more than the dividend income. Hence, the Explanation to Section 73 would be applicable.

Held, that from the assessment order passed in the case of the assessee-company it was clear that the assessee had shown a net loss of Rs. 28,50,358 in its profit and loss account for the previous year under reference. This included speculative loss in share transactions amounting to Rs. 7,95,447, loss in regular share dealing business amounting to Rs. 12,90,145 and loss of interest attributable to the share dealing business amounting to Rs. 8,21,400. As against the above, the only income of the assessee-company for the year under reference was by way of dividend amounting to Rs. 3,87,603. In other words, the business loss of Rs. 21,11,545 was clearly more than the income by way of dividend. Hence for the year under reference, it could not be said to be a company whose gross total income consisted mainly of income which was chargeable under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources", since the business loss exceeded income computed under the head "Income from other sources". As such, the Explanation to Section 73 was clearly applicable and the loss suffered by the assessee-company in its share trading transactions inclusive of interest paid on borrowed monies attributable to that business was rightly treated by the Tribunal as a loss in speculative business.

(2) It held that words income or profits and gains should be understood as including the losses also. Profits represent positive income whereas losses represent negative income. The Hon'ble Calcutta High Court held that: The expression "investment company" means 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". Further, the Explanation to Section 73 of the Income-tax Act, 1961, reads as under: 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 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 the computation, wherever it becomes material, in the taxable income of the assessee.

For the assessment year 1983-84, the Income-tax Officer held that the business loss shown by the assessee had to be taken as speculative loss in view of the Explanation to Section 73. The assessee went in appeal before the Commissioner of Income-tax (Appeals) and contended that it was an "investment company" within the meaning of Section 109(ii) of the Act, as its dividend income was greater than the business income, and, consequently, the business loss in shares could not be taken as speculative loss in view of the Explanation to Section 73. The argument of the assessee was accepted by the Commissioner of Income-tax (Appeals), who directed the Income-tax Officer to treat the loss from share dealings as an ordinary business loss and not as a speculative loss.

On further appeal by the Revenue, the Tribunal held that the loss from share dealing was more than the income from other sources, and that, therefore, the assessee was not an investment company. On a reference.

share dealing was Rs. 8,98,799 whereas dividend income was Rs. 5,73,701. It was held that main income of the assessee was from share dealing as under: In order to ascertain whether an assessee would be entitled to the benefit of the Explanation to Section 73 of the Income-tax Act, 1961, it is to be examined first whether the assessee comes within the exception provided in the said Explanation. Speculation loss is not permitted to be adjusted against business profit. This restriction is relaxed and adjustment is made permissible by reason of the Explanation in respect of a company whose gross total income consists mainly of income chargeable under the heads specified. It is the gross total income, which is to be taken into account first.

Only if this test is satisfied, is setting off against business profit permissible. While computing the gross total income, loss is also to be taken into account as it is treated as negative profit.

"Gross total income" means the total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A. For the assessment year 1989-90, the Assessing Officer disallowed the benefit of the Explanation to Section 73 to the assessee. The Assessing Officer declined to set off the loss in share dealing on the ground that this share dealing was a speculation business carried on by the assessee under Section 73(1). The Commissioner (Appeals) and the Tribunal reversed the order of the Assessing Officer holding that the main source of income of the assessee consisted of income from interest on securities and income from house properties. On a reference: Held, that there was a loss in share dealing account amounting to Rs. 8,98,799. If the same was treated to be a negative profit, then the income from other sources and dividend income being Rs. 5,73,701 was less. Therefore, the main income consisted of the business of share trading which was the main object of the assessee. The business income computed after setting off the loss in share trading assessed at Rs. 3,33,670 did not represent the business income since it was arrived at after applying the benefit of Explanation to Section 73, viz, setting off the speculative income. The test of the Explanation was not satisfied in the case of the assessee.

Therefore, both the Commissioner (Appeals) and the Tribunal proceeded on an erroneous view of the proposition of law in respect of Section 73.

(4) Hon'ble Calcutta High Court had another occasion to consider the concept of income in the context of Explanation to Section 73, in Aryasthan Corporation Ltd. v. CIT . It followed the decision in Easter Aviation's case and observed as under: The Explanation to Section 73 of the Income-tax Act, 1961, lays down that 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 purpose 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 words "income" and "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.

Held, that, in the instant case, speculation loss from share dealing amounted to Rs. 4,50,779 and the income from other sources amounted to Rs. 24,000. The assessee could not 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 exceeded income computed under the head 'Income from other sources'. Hence, the Explanation to Section 73 was clearly applicable". 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.

(5) The Special Bench of the Tribunal in Concord Commercial (P.) Ltd.'s case (supra). Had an occasion to consider the decision of Hon'ble Calcutta High Court in Eastern Aviation & Industries Ltd.'s case (supra) and Aryasthan Corporation Ltd.'s case (supra). It applied the ratio of the decisions and held that on the facts of that case negative profit was less than the positive income (absolute figure) from dividend. Thus, "income from other sources" was Rs. 10,18,914 whereas business loss was Rs. 97,358. It held in para 48 as under: 48. In the case of Eastern Aviation & Industries Ltd. v. CIT , the assessee had a share trading loss of Rs. 12,90,145 and a speculation loss of Rs. 7,95,447. The positive income from other sources was Rs. 3,87,603. In Aryasthan Corporation Ltd. v. CIT also, the facts were identical where the business loss was higher than positive income from other sources. But in assessee's case, dividend income is higher than the business loss. Income from other sources by way of dividend was Rs. 10,18,914 whereas income from business was a loss of Rs. 97,358.

Even when business loss is treated as negative profit, the negative profit was less than the positive income from dividends. Therefore, on the facts of the present case, the above two decisions of the Calcutta High Court are not applicable to issue.

From this it follows that decision of Hon'ble Calcutta High Court can be applied to find out whether explanation is attracted or not.

(6) On the issue as to whether for the purposes of invoking Explanation to Section 73, absolute figures will be considered for comparison or comparison has to be made numerically only between the figures of loss in business of trading in shares and dividend income, these decisions of Hon'ble Calcutta High Court have been brought to our knowledge. Decisions of any other High Court have not been cited. In view of the matter, we are of the view that Tribunal should follow the decision of a single High Court available on the subject. Our view is fortified by the decision of Hon'ble Bombay High Court in CIT v. Smt. Godavaridevi Saraf , wherein it was held that unless a contrary decision is given by a competent High Court which is binding on the Tribunal in Bombay, it should respect the law laid down by another High Court. It observed as under: It should not be overlooked that the Income-tax Act is an All-India statute and if an Income-tax Tribunal in Madras, in view of the decision of the Madras High Court, has to proceed on the footing that Section 140A(3) was nonexistent, the order of penalty thereunder cannot be imposed by the authority under the Act. Until a contrary decision is given by any other competent High Court, which is binding on a Tribunal in the State of Bombay, it has to proceed on the footing that the law declared by the High Court, though of another State, is the final law of the land. When the Tribunal set aside the order of penalty it did not go into the question of intra vires or ultra vires. It did not go into the question of constitutionality of Section 140A(3). That Section was already declared ultra vires by a competent High Court in the country and an authority like an Income-tax Tribunal acting anywhere in the country has to respect the law laid down by the High Court, though of a different State, so long as there is no contrary decision of any other High Court on that question.

(7) Above ruling that decision of another High Court should be followed unless there is a contrary decision of another High Court was followed by Hon'ble Bombay High Court in CIT v. Jayantilal Ramanlal & Co. . Siemens India Ltd v. K.ITO and R. Parthasarthy, Asstt. CCE v. Dipsi Chemicals (P.) Ltd. (8) Hon'ble ITAT, Panaji Bench in ITO v. Dilip Shirodkar also expressed the view that once an Higher authority than the Tribunal has expressed a view, the Tribunal has to respectfully follow the same even though that decision may be of a non-jurisdictional High Court. It observed as under: In the hierarchical judicial system that we have, better wisdom of the court below has to yield to higher wisdom of the court above and, therefore, once an authority higher than this Tribunal has expressed an opinion on that issue, we have to respectfully follow the same. Such a High Court being a non-jurisdictional High Court does not alter the position as laid down by the Hon'ble Bombay High Court in the matter of CIT v. Godavaridevi Saraf .

(9) Admittedly, there is a difference between binding nature of a decision of non-jurisdictional High Court and having a respectful persuasive value. For the purposes of rectification under Section 154 or 254, the view of a non-jurisdictional High Court may not be a binding precedent. Further, the decision of non-jurisdictional High Court may not always have a binding effect. This view was expressed by Hon'ble Bombay High Court in CIT v. Thane Electricity Supply Ltd. and by ITAT in Chemosyn (P.) Ltd. v. Second ITO [1992] 198 ITR 209 (AT) (Bom.). But, it cannot be denied that unless there is a contrary decision of another High Court, the decision of a non-jurisdictional High Court has a great persuasive value, which should be followed.

22. We have another reason to hold that it is the absolute figures of the loss or of income either under the head "Business" or under the head 'Other sources' without 'sign' which should be taken for comparison. To consider the figures along with "sign" for comparison will yield distorted results. To consider the figures with 'sign' means income of Rs. 100 will be greater than loss of Rs. 1 lakh i.e., if income from 'other sources' is Rs. 100 whereas the loss from trading in shares is Rs. one lakh, then by considering the figures 'with sign' would give the result that assessee's income from 'other sources' is more than its income from trading in shares as positive 100 is more than negative one lakh and hence the case falls in one of the exceptions provided in Explanation to Section 73, as per arguments canvassed by learned Counsel for the assessee. But what will happen, if the income from 'other sources' is also a loss say Rs. 100 and income from trading in shares is also a loss of Rs. 1 lakh, i.e., both are on the same side of the 'sign'. If we follow the arguments of the learned Counsel for the assessee, then negative '100' will be more than negative 1,00,000 and income of. the assessee from 'other sources' will be more than the income from trading. In another example just opposite to this. If income from other sources is +100 and income from trading is + 1,00,000 then this 1,00,000 income will be more than Rs. 100(+) and hence income from trading in shares will be more than income from "other sources". Just by reversing the 'sign' of income, the results become just opposite (notwithstanding the position of law that when there is a positive income under the head 'Business1, Explanation to Section 73 may not be applicable). We are afraid this interpretation is giving absurd result. When 'sign' of both incomes are +ve, the assessee can be said to be deriving income mainly from trading (i.e., +1,00,000 is more than +100) when 'sign' of both incomes are '-ve', the assessee will be said to be deriving income mainly from 'other sources' (as -100 is more than -1,00,000). When any interpretation gives an absurd result, it has to be avoided. Thus, this interpretation of the phrase 'gross total income consists mainly of income which is chargeable under the head...' in Explanation to Section 73, which gives contrary results when 'sign' of the two incomes are reversed i.e., with negative signs of the incomes, the GTI is mainly from 'other sources' and with +ve sign of two incomes, the GTI is mainly from trading is unfair, irrational and unreasonable. Thus, such interpretation needed to be avoided. In our considered view if Rs. 1,00,000 is more than Rs. 100, then it is always more irrespective of the sign attached to it. Thus, it is the absolute figures of the two incomes divorced from 'sign', i.e., irrespective of whether it is +ve income or 'loss', has to be considered for comparison for deciding as to whether the case falls in the first exception of Explanation to Section 73 or not. Further, we arc of the view that 'loss' is always chargeable to tax as it is liable to be adjusted against other income under the head 'Business' in the current year or if allowed to be carried forward then income of following year/s. According to us, word "chargeable" used in Explanation to Section 73 does not mean "charged". In other words, when we say that high negative income i.e., higher figure of loss is less than the positive income from other sources i.e., lesser figure of income, we indirectly subscribe to the view that the loss is not chargeable to tax. According to us, the word "chargeable" used in Explanation to Section 73 would refer to chargeability to tax under the Act. This would only mean that loss may not be charged to tax directly in the current year. But by adjustment against other business income in that year or in following years, it reduces the other income on which tax is levied. Hence, negative income i.e., loss is as equally chargeable to tax as positive income. Hence, we have to consider absolute figure to determine as to whether an assessee company's gross total income consists of mainly of income chargeable to tax under "business" head or under other four heads described in Explanation to Section 73.

23. In view of the discussion held above, respectfully following the decisions of Hon'ble Calcutta High Court in Eastern Aviation & Industries Ltd.'s case (supra), Park View Properties (P.) Ltd.'s case (supra) and Aryasthan Corporation Ltd.'s case (supra), we are of the view that it is only the absolute figures which are to be taken into consideration for comparison to decide whether explanation can be applied or not. Therefore, in the present case, where loss due to trading in shares has greater figure than the figure of income from dividend, the Explanation to Section 73 is rightly invoked.

24. Next argument of the learned Counsel for assessee is that since the entire business of the assessee consists of purchase and sale of shares, the explanation is not attracted, which is attracted only when there are some other business also and only then it can be said that they form part of business of the assessee in sale and purchase of shares. We do not agree. Whole consists of part also. If the whole of the business is that of sale and purchase of shares still, the provision of Explanation would be applicable. In CIT v. Arvind Investments Ltd. , it was held by Hon'ble Calcutta High Court as under: The provisions of the Explanation to Section 73 have to be contrasted with the provision of Section 43(5), which defines "speculative transaction" to mean a transaction in which a contract for the purchase or sale of any commodity, including any stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scraps. The Explanation to Section 73 treats any purchase and/or sale of shares by certain companies to be speculative for the purpose of Section 73 only. For the purpose of setting off and carrying forward of loss, the buying and selling of shares by certain companies are regarded by the statute as speculation business, even though the transaction of purchase and sale was followed up by delivery of scrips and as such cannot be treated as "speculative transaction" as defined in Section 43(5). The opening words of the Explanation to Section 73 are "where any part of the business of a company". "Any" is a word which excludes limitation or qualification. A restricted meaning should not be given to the phrase "any part of the business". The object of Circular No. 204, dated 24.7.1976, is to curb devices to manipulate and reduce the taxable income of a company under the management of a controlling group of persons. But the circular has clearly stated in paragraph 19.1 that "the business of purchase and sale of shares by companies which are not investment or banking companies or companies carrying on business of granting loans and advances will be treated on the same footing as speculation business". The phrase in the Explanation to Section 73 "to the extent to which the business consisted of purchase and sale of such shares" also does not indicate that the Legislature had several other actual and existing non-speculative activities of business in mind, It merely indicates that the business activity which consists of purchase and sale of shares will be treated as speculation business. If the entire business activity of a company consists of purchase and sale of shares of other companies, then the entire business will be treated as speculation business. But, if, apart from purchase and sale of shares, the company has other business activities, then those other activities will not be treated as speculation business.

Sub-section (2) of Section 73 of the Income-tax Act, 1961, restricts the scope of Section 72 which provides for carrying forward and setting off of business losses. If any loss computed in respect of a speculation business has not been wholly set off, such loss may be carried forward and set off against profits and gains of any speculation business in the following assessment years. The Explanation to Section 73 introduces a legal fiction. The Section applies only to a company. It does not apply to individuals, firms, Hindu undivided families or associations of persons. The Explanation also does not apply to an investment company or a company whose principal business is banking or money lending. If the business of a company which does not fall within the excluded categories consists of purchase and sale of shares of other companies, then such a company shall be deemed to be carrying on speculation business for the purpose of Section 73 to the extent to which the business consists of the purchase and sale of such shares.

The provisions of the Explanation to Section 73 have to be contrasted with the provision of Section 43(5), which defines "speculative transaction" to mean a transaction in which a contract for the purchase or sale of any commodity, including any stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. The Explanation to Section 73 treats any purchase and/or sale of shares by certain companies to be speculative for the purpose of Section 73 only. For the purpose of setting off and carrying forward of loss, the buying and selling of shares by certain companies are regarded by the statute as speculation business, even though the transaction of purchase and sale was followed up by delivery of scrips and as such cannot be treated as "speculative transaction" as defined in Section 43(5). The opening words of the Explanation to Section 73 are "where any part of the business of a company". "Any" is a word which excludes limitation or qualification. A restricted meaning should not be given to the phrase "any part of the business". The object of Circular No. 204, dated 24.7.1976, is to curb devices to manipulate and reduce the taxable income of a company under the management of a controlling group of persons. But the circular has clearly stated in paragraph 19.1 that "the business of purchase and sale of shares by companies which are not investment or banking companies or companies carrying on business of granting loans and advances will be treated on the same footing as speculation business". The phrase in the Explanation to Section 73 "to the extent to which the business consisted of purchase and sale of such shares" also does not indicate that the Legislature had several other actual and existing non-speculative activities of business in mind. It merely indicates that the business activity which consists of purchase and sale of shares will be treated as speculation business, if the entire business activity of a company consists of purchase and sale of shares of other companies, then the entire business will be treated as speculation business. But, if, apart from purchase and sale of shares, the company has other business activities, then those other activities will not be treated as speculation business.

Held accordingly, that the Explanation to Section 73 applied to the case of the assessee whose entire business consisted of dealing in shares. The loss incurred by the assessee was a speculation loss.

25. We respectfully follow the above decision of Hon'ble Calcutta High Court in this regard.

26. Further, another argument of learned Counsel for assessee is that to attract Explanation the assessee should have dealt in shares of more than one company as plural word 'companies' has been used in the Explanation. We do not accept this proposition. If the assessee is dealing in the shares of one company only still the Explanation can be invoked. We are of the view that singular is included in plural. If a plural word is used, singular is automatically comes within its ambit.

We beneficially refer to Section 13 to General Clauses Act, 1897. It reads as under: 13. Gender and number.In all Central Acts and Regulations unless there is anything repugnant in the subject or context- (i) words imparting the masculine gender shall be taken to include females and (ii) the words in the singular shall include the plural, and vice versa.

No contrary legislative intent has been demonstrated in the present case. Hon'ble Justice G.P. Singh in "principles of statutory interpretation, eighth edition of 2001, on page 867 observed as under: Contrary intention to exclude the operation of the rule that the plural includes the singular is not inferred merely because the relevant provision is drafted in the plural and the subsidiary and ancillary provisions follow the same pattern and use plural words or works implying the plural. In this case, the Privy Council held that power to appoint 'Commissioners' under the Ordinance to conduct inquiry include a power to appoint a sole Commissioner and that contrary intention was not shown because ancillary provisions in the ordinance provided that processes and warrants should be issued 'under the hand of the Chairman or Presiding member of the commission'. It was pointed out that just as in obedience to the general rule the words empowering the appointment of 'Commissioners' could be read as empowering the appointment of 'Commissioner' or sole Commissioner', the words 'under the hand of the Chairman or Presiding member of the Commission' could be read as 'under the hand of the Chairman or presiding member or sole Commissioner of any such Commissioner'. The decision indicates that contrary intention would have been inferred had the ordinance contained some substantive provision essential to the functioning of the Commission which could not have been satisfied without a plurality e.g., a provision that a Commission should not sit to hear witnesses unless at least two Commissioners are present. The principle laid down in this case was followed in a subsequent Privy Council's case where it was held that the mere fact that a statutory provision suggests an emphasis on singularity as opposed to plurality is not enough to exclude the application of the rule that words in the singular shall include the plural. It was also held that in considering whether a contrary intention appears, there need be no confinement of attention to the particular provision; and it would be appropriate to consider the provision in its setting in the legislation; and furthermore to consider the substance and tenor of the legislation as a whole.In ITO v. Mysore Rolling Mills (P.) Ltd. [1983] 6 LTD 639 (Bang.), the assessee-company deals in shares of single company and it was held to be speculative loss within the meaning of Explanation to Section 73.

The assessee's counsel relied on the decision in J.B. Boda & Co. Ltd. v. ITO IT Appeal No. 1849/Bom./91'] to canvass its proposition. In that case, as rightly pointed out by learned DR., it was held on facts, that the assessee was not doing speculation business. In CIT v. Sun Distributors & Mining Co. Ltd. [1993] 68 Taxman 223 (Cal.), on which learned DR relied held that for Explanation to attract, it is not necessary that sale and purchase of shares have to be in the same year.

Inferring from this, it is quite clear that a company can deal in the shares of one company and still the Explanation to Section 73 can be attracted.

28. Further, in the case of Paharpur Cooling Towers Ltd. v. Dy. CIT [2003] 85 LTD 745 (Kol.), it is held that even if loss is on account of falling value of stock, it is still in the nature of loss incurred from that business. Para 17 of that order reads as under: 17. We are also of the considered view that even if the loss is only on account of fall in value of stock, it is still in the nature of loss incurred from that business. A careful perusal of Explanation to Section 73 indicates that this Explanation lays down that the expression 'speculation business', under the specified circumstances, will cover assessee's business 'to the extent to which the business consists of the purchase and sale of such shares'. The definition thus sought to be placed is of the 'speculation business' and not 'speculation profits'. As to what will constitute profits from such speculation business, this is to be essentially governed by the normal accounting principles and business practices. Unlike the definition under Section 43(5) which defines 'speculative transactions' per se, the deeming provisions of Explanation to Section 73 lay down the circumstances in which, and the extent to which, a business is to be deemed as 'speculation business'. The thrust of the provisions under Explanation to Section 73 is on the nature of 'business', rather than nature of 'transaction'. It is thus immaterial as to whether profit is, or is not, on account of sale and purchase of shares but, in our considered view, to the extent it is arising out of 'business of purchase and sale of shares', it will be hit by the provisions of Explanation to Section 73. As held by Hon'ble Supreme Court in the case of Chainrup Sampatram (supra) loss on account of fall in value of stock is to be treated as loss of that business on the ground of prudence, fully sanctioned by the custom. Their Lordships of Hon'ble Supreme Court inter alia observed that, "...valuation of unsold stock at the end of an accounting period is a necessary part of the process of determining the trading results of that period, and can in no sense be regarded as source of such profits (or losses)". In this view of the matter, the loss on valuation of closing stock of shares, in the present case, cannot be treated any different than a normal trading loss; such a loss is, as is the settled legal position, an integral part of the loss on trading, ie., purchase and sale, of shares.

29. Thus, merely because assessee-company deals in the shares of single company, it does not lead to the inference that Explanation to Section 73 would not be attracted. It was held by ITAT in Paharpur Cooling Towers Ltd.'s case (supra) that emphasis in Explanation to Section 73 has been on the business of the company. The words used in the Explanation are "where any part of the business of a company (....) consists in the purchase and sale of shares of other companies...".

What is relevant here is 'trading in shares of companies'. Here also, we are of the view that plural will include singular as per Section 3 of General Clauses Act referred above i.e., word 'companies' would include 'company'. That is it is immaterial whether an assessee deals in the shares of a single company or in shares of several companies. No contrary Legislature intent has been demonstrated and in fact there is none. Therefore, this argument of the learned Counsel for assessee is rejected.

30. Regarding argument of learned Counsel for assessee that Section 28(2) provides that where assessee carries single transaction then it will not be deemed to be speculation business and for it to constitute speculative business, there should be multiple transactions or plurality of transactions. We are of the considered view that provisions of Section 28(2) would not be applicable to the present case. The question presently involved is to determine whether assessee is having income mainly from other sources so as to attract Explanation to Section 73. It has rightly been pointed out by the learned DR that where a transaction is considered speculative by virtue of Section 43(5) then for it to constitute a separate business there should be such multiple speculative transactions. As per Section 28(2), single speculative transaction will not constitute separate business. It does not help to decide the question about invoking Explanation to Section 73, wherein it has to be only seen whether the case falls into either of the two exceptions provided therein. If the assessee's income is mainly from dealing in shares and if the case does not fall in either of the two exceptions, Explanation to Section 73 will be invoked and loss arising from trading in shares will be treated as speculative.

Section 28(2) is invoked when transaction is are treated as speculative under Section 43(5). Whereas Explanation to Section 73 is invoked to decide whether loss from trading in shares can be deemed to be speculative. Section 28(2) comes into operation after holding the transaction as speculative i.e., it is posterior consideration whereas Explanation to Section 73 is for deciding speculative nature of loss i.e., it is an 'interior' consideration. Therefore, this argument of the learned Counsel for the assessee also rejected.

31. The learned Counsel for assessee has further raised another contention that interest expenses of Rs. 32,96,966 as incurred towards earning of dividend income should be reduced from the income chargeable under Income from other sources and this will consequently reduce the loss under the head 'Business'.

32. We are of the view that no part of the interest expenditure is allowable to be allocated to dividend income because assessee is holding shares as stock-in-trade and therefore, entire interest expenditure is allowable under Section 36(1)(iii). We agree with the learned DR that onus lies on the assessee to establish that interest in question is attributable to the dividend income and allowable under Section 57(iii). Such onus has not been discharged. Therefore, entire interest expenditure is only allowable under Section 36(1)(iii) to be adjusted against business income from trading in shares. Regarding the argument of learned Counsel for assessee that in view of Circular No.204 dated 26.7.1996 of CBDT, the department has to prove that assessee is dealing in shares to manipulate the rates of taxable income before Explanation to Section 73 could be invoked, we are of the view that decision of single member Bench in Aman Portfolio (P.) Ltd.'s case (supra) has been overruled in Dy. CIT v. Frontline Capital Services Ltd. [2005] 96 TTJ (Delhi) 2011 and therefore, it is no longer necessary for the Assessing Officer to establish for invoking Explanation to section, that assessee is manipulating to reduce its taxable income by trading in shares and incurring losses. This argument of the learned Counsel for assessee is also rejected.

33. Thus, we hold that in the present case, Explanation to Section 73 is attracted and loss from trading in shares has to be treated as speculation loss. The order of CIT(A) is, therefore, confirmed.


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