Case Law Details
RELEVANT PARAGRAPH
4. From the record, we found that during the relevant year under consideration, the assessee was continuously engaged in the activity of financing, trading and real estate and had also undertaken transaction of purchase and sale of shares. It had earned income from paper trading including commission and service charges amounting to Rs. 4.78 lakhs, interest income of Rs. 42.56 lakhs, dividend income of Rs. 0.26 lakhs, profit on sale of mutual funds Rs. 44.90 lakhs and suffered loss in purchase and sale of shares, delivery whereof were taken amounting to Rs. 94.21 lakhs. The AO proceeded to apply Explanation to Section 73 by observing that net result of the assessee company was loss of Rs. 2.61 lakhs. As per AO, loss on account of share transaction was more than its income from other sources, therefore exception applicable for taking out assessee’s case from the clutches of Explanation to Section 73 is not applicable. With regard to assessee’s plea that it was mainly engaged in the business of granting of loans and advances, the AO observed that major part of the assessee’s turnover was from sale of paper. In respect of assessee’s contention regarding amount of loan of Rs. 3.76 crores advanced by the assessee, the AO observed that assessee has taken a whopping sum of Rs. 12.74 crores as a loan. Accordingly, he held that assessee cannot be said to be a company, the principal business of which is banking and granting of loans and advances. Thus, the assessee’s case was held to be not covered by any of the exceptions to Explanation to Section 73 of the Act.
5. Provisions of Section 73 of the Act deal with carry forward and set off of loss from the business of speculation. Explanation to Section 73 is a deeming provision wherein on fulfilment of specified conditions, purchase and sale of shares are deemed to be speculative activities. As per Explanation to Section 73 where any part of a business of a company (other than company whose gross total income consists mainly of income which is chargeable under the head 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, deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares.
6. It is crystal clear from the plain reading of Explanation to Section 73 that if any of the following conditions are satisfied the provisions of Explanation to Section 73 will not be attracted:-
(i) If the gross total income of the company includes income mainly from the heads i.e. interest on securities, income from house property, capital gains and income from other sources.
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