High Court Of Calcutta
CIT vs. Park View Properties (P) Ltd.
Sections 73, Expln.
Asst. Year 1989-90
D.K. Seth & R.N. Sinha, JJ.
IT Ref. No. 23 of 1998
22nd January, 2003
D.K. SETH, J. :
The question to be answered is :
“Whether, on the facts and in the circumstances of the case, the learned Tribunal was justified in directing the AO to compute the total income of the assessee without applying the provisions of Explanation to s. 73 when the loss in share trading exceeded the income from other sources and the loss was a loss from speculative business contrary to the finding of the Tribunal that the loss is not speculative loss ?”
The AO had disallowed the benefit of the Explanation to s. 73 of the IT Act, 1961, to the assessee in respect of the asst. yr.
1989-90 declining to set off the loss in share dealing on the ground that this share dealing is a speculation business carried on by the assessee under s. 73(1) of the IT Act, 1961. The CIT(A) and the learned Tribunal had reversed the said order and had allowed the benefit of the Explanation to s. 73 holding that the main source of income of the assessee consists of income from interest on securities and income from house properties. It appears from the order of the appellate authority and the learned Tribunal that the income under the head of interest on securities and income from other sources exceeded the income of the assessee under other heads. From p. 25 para 3 of the order of the learned Tribunal, it appears that the income from other sources was Rs. 5,73,701 whereas the business income was Rs. 3,33,670. Upon such finding, the Tribunal had allowed the benefit of the Explanation to s. 73 and had permitted setting off the business loss within treating the same as a speculation loss.
It is abundantly clear from the said finding that the learned Tribunal had allowed the benefit of the Explanation to s. 73 after setting off of the speculation loss. In order to ascertain whether an assessee would be entitled to the benefit of the Explanation to s. 73, it is to be examined first whether the assessee comes within the exception provided in the said Explanation. It is to be found out as to how it stands before the benefit of the Explanation of s. 73 is allowed. The expression “……gross total income consists mainly of income…… chargeable under the heads ……….” used in the Explanation is clear and unambiguous. It gives out the intent of the legislature. Sec. 73 restricts adjustment of speculation loss with speculation profit only. 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. If this test is satisfied, then only setting off against business profit is permissible. While computing gross total income, loss is also to be taken into account. Loss is also treated as negative profit. The gross total income as defined in s. 80B(5) of the said Act means the total income computed in accordance with the provision of the Act before making any deduction under Chapter VI-A. It is also a well-settled proposition that the words “income”, “profits” and “gains” have to be understood as including losses. In one sense, profit and gains represent positive income whereas loss represents negative income. It was so held in CIT vs. Harprasad & Co. (P) Ltd. 1975 CTR (SC) 65 : (1975) 99 ITR 118 (SC) and CIT vs. J.H. Gotla (1985) 48 CTR (SC) 363 : (1985) 156 ITR 323 (SC) in construing the word “income” in s. 16(3) of the IT Act, 1922. There is hardly any difference in the definition of âincomeâ in the 1961 Act with that of the 1922 Act. In the case of Eastern Aviation & Industries Ltd. vs. CIT (1994) 208 ITR 1023 (Cal), this Court had held that the Explanation to s. 73 could be applied before the principle of deduction is applied, namely after computing the income as defined under s. 80B(5) of the said Act. Applying the said principle in the present case, we find that there was a loss in share dealing account i.e., Rs. 8,98,799. If the same is treated to be a negative profit, then definitely the income from other sources and dividend income (interest on securities) being Rs. 5,73,701 is lesser. Therefore, the main income consists of the business of share trading which is the main object of the assessee. The business income computed after setting off the loss in share trading assessed at Rs. 3,33,670 does not represent the business income since it was arrived at after applying the benefit of Explanation to s. 73 namely, setting off the speculative income.
Therefore, in our view, both the CIT(A) and the learned Tribunal proceeded on an erroneous view of the proposition of law in respect of s. 73 which in sub-s. (1) makes it clear that speculation loss cannot be set off except against a speculative profit permissible of being carried forward for being set off in the subsequent years stretching to a period of eight years and not otherwise, unless the test of the Explanation is satisfied, which in our opinion, is not being satisfied in the present case. Therefore, the reference is answered in the negative in favour of the Department. No costs.
R.N. Sinha, J. :
[Citation : 261 ITR 473]