Case Law Details
RELEVANT PARAGRAPH
11 If we go to the facts of the case the business loss returned by the assessee to the extent it could not be set off was in fact carried forward and while computing the gross total income the income under the head business was nil but in fact the assessee has incurred the net business loss aggregating to Rs.21,22,545/ -. The Hon’ble High Court there also did not take the view that the gross total income of the assessee do not consist of any income from business but in fact in view of the business loss being much more than the dividend income under the head “income from other sources, took the view that the assessee cannot be said to be a 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”.
12. The other decision relied upon before us is in the case of Aryasthan Corporation Ltd. v CIT (2002) 253 ITR 401 (Cal). The facts in this case were that the gross total income as computed by the AO for AY 1982-83 comprised of speculation loss from share dealing Rs.4,50,779/ – and income from other sources was at Rs.24,000/- , When the question traveled to the High Court with regard to the applicability of Explanation to section 73, the Hon’ble . High Court took the view that the case is fully covered by the decision in the case of Eastern Aviation and Industries Ltd. v CIT (1994) 208 ITR 1023 (Cal) and held that in the instant case the assessee cannot be said to be a company whose gross total income consists mainly of income chargeable under the heads “Interest on securities”. “Income from house property”, “Capital gains” and “Income from other sources”; since the business loss here exceeds income computed under the head “Income from other sources” and, as such the Explanation to section 73 is clearly applicable. If we go to the facts of this case, here also the business loss was much more than the income from other sources and it is only the income under the head “business income” Nil would have been included in the gross total income while computing the gross total income as the loss was to be carried forward as per the provisions of the IT Act. Thus, while arriving at the finding whatever the business loss was commuted under the head “income from business” was duly considered for the purpose of applicability of Explanation to section 73 of the Act.
13 In the case of CIT v Park View Properties P. Ltd. (2003) 261 .ITR 473 (Cal), we have noted that the facts were that there was a loss in share dealing account amounting to Rs.8,98,799/ -, the income from other sources was Rs.5,73,701/ – and the business income after setting off of the loss in share trading was Rs.3,33,670/ -. When the matter traveled to the High Court on the question whether the Income-tax Appellate Tribunal was justified in directing the AO to compute the total income of the assessee without applying the provisions of Explanation to section 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 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 section 73, namely, setting off the speculative income.
Therefore, in our view, both the Commissioner (Appeals) and the learned Tribunal proceeded on an erroneous view of the proposition of law in respect of section 73 which in sub-section (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.”
14. In view of this decision it is apparently clear that while computing the gross total income even if it has been carried forward but it has to be taken into account as the loss is also treated as a negative profit. In the case of the assessee we find that there is a loss to the extent of Rs.17,54,836/ – under the head “Income from capital gains” and there is income under the head “Income from business” at Rs.6,84,416/ -. Therefore, the income under the head “capital gains” is much more than the income under the head “income from business”. The assessee therefore in the instant case can be said to be a company whose gross total income consists mainly of the income which is chargeable under the heads “Interest on securities”, “Income from house property”, “Capital gains” and “Income from other sources”. As such the case of the assessee is covered by the exceptions as provided under Explanation to section 73 of the Act and, therefore the Explanation to section 73 will not apply in the case of the assessee.
15. We do not agree with the contention of the learned DR that the income from each source under the head “business” finding of the Income-tax Appellate Tribunal that the loss is not a speculative loss, the Hon’ble High Court at page 475 held as under:
“It is abundantly clear from the said finding that the learned Tribunal had allowed the benefit of the Explanation to section 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 section 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 to section 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. Section 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 the 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 section 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 Vl-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 v Harprasad and Co. P. Ltd. (1975) 99 ITR 118 (SC) and CIT v. H Gotla (1985) 156 ITR 232 (SC), in construing the word “income” in section 16(3) of the Indian Income-tax Act, 1922. There is hardly any difference in the definition of “income” in the 1961 Act with that of the 1922 Act. In the case of Eastern Aviation and Industries Ltd. v CIT (1994) 208 ITR 1023, this court had held that the Explanation to section 73 could be applied before the principle of deduction is applied, namely, after computing the income as defined under section 808(5} of the said Act.
Applying the said principle in the present case, we find that there was a loss in the share dealing , account, i.e., Rs.8,98,799. If the same is treated to be a negative profit, whether negative or positive has to be added for ascertaining whether the assessee is covered by the exceptions provided under the Explanation to section 73 or not. The provision as stipulated under Explanation to section 73 talks of the income under specified heads. The income under each head has to be computed only after considering the income from various sources under the same head. Therefore, in our opinion, the loss from the business has to be set off from the profit from the business while computing the income under the head from business for applicability of Explanation to section 73 of the Act. We, therefore, direct the AO that the sum of Rs.1,92,913/ – cannot be deemed to have been derived from the speculation business as the provisions of Explanation to section 73 are not applicable in the case of the assessee in view of the exceptions provided in the said Explanation. Therefore, the order of the CIT(A) is set aside and the appeal of the assessee for AY 2000- 200t is allowed.
