Clear Channel Mumbai P.Ltd( Formelry ... vs Department Of Income Tax

आयकर अपील य अ धकरण, सी खंडपीठ मंब ु ई INCOME TAX APPELLATE TRIBUNAL,MUMBAI -C BENCH सव ी आई पी बंसल , या यक सद य एवं राजे , लेखा सद य Before S/Sh. I P Bansal,Judicial Member & Rajendra,Accountant Member आयकर अपील सं/.ITA No.7711/Mum/2012, नधारण वष/Assessment Year-2006-07 ITO-1(11), Room No.579, M/s. Clear Channel Mumbai Pvt.

Aayakar Bhavan, Ltd.(formerly known as Everest Media Vs Mumbai-20. Pvt. Ltd.),52, Film Centre, 68, Tardeo Road,Mumbai -400034 PAN:AACCP4032F (अपीलाथ /Appellant) ( यथ / Respondent) नधा रती ओर से/Assessee by :Dr. K. Shivaram, & Ajay R. Singh राज व क ओर से/ Revenue by : Shri Premanand J. सुनवाई क तार ख/ Date of Hearing : 07- 05 -2015 घोषणा क तार ख / Date of Pronouncement : 13-05-2015 आयकर अ ध नयम,1961 क धारा 254(1)के अ तगत आदे श Order u/s.254(1)of the Inco me-tax Act,1961(Act) लेखा सद य राजे के अनुसार PER RAJENDRA, AM-

Challenging the order dt.15.10.2012 of the CIT(A)-1,Mumbai,Assessing Officer(AO) has raised following Grounds of Appeal:

"1. Whether on the facts and in the circumstances of the case, and in law, the ld. CIT(A), Mumbai erred in directing the Assessing Officer to allow the set-off of carried forward speculation loss against the share trading income of Rs.84,91,346/- considering non-applicability of the amended provisions of section 43(5) in the assessee's case?

The appellant craves leave to add to, amend or withdraw the aforesaid ground of appeal."

Assessee-company,engaged in the business of hoarding and share trade,filed its return on 23/ 10/ 2006.The AO completed the assessement on 12/12/2011,u/s.143(3)r.w.s 147of the Act,determin

-ing the income of assessee at Rs.84,91,346/-.

2.Effective Ground of Appeal is about set off of carry-forward speculation loss against the share trading income.During the assessment proceedings,the AO found that trading in shares had been considered as speculative business by the assessee, that the profit of Rs.85.20 lacs was set off against the brought forward speculation loss, that brought forward/speculation loss of Rs.1.23 crores of AY 02-03 was adjusted to the extent of income available of Rs.84.91 lacs .As per the AO the adjustment made by the assessee was not correct in view of the amended provisions of section 43 (5)(d)of the Act.The AO was of the opinion that the section stipulated that an eligible transaction in respect of trading in derivatives referred to in clause(ac) of sec.2 of the Securities Contract (Regulation)Act 1956 carried out in a recognised stock exchange would not be deemed to be a speculative transaction w.e.f. AY 2006-07.Therefore, he asked the assessee to show cause as to why income from derivates should not be treated as business income and not as speculative income.Vide its letter,dt.21.11.2011,the assessee explained that it was not making any distinction 7711/ITA/MuM/2012,AY.2006-07,CCMP

in the treatment,for tax purposes,between the share transaction and the derivative transaction, that it was treating them at par, that the income arising out of such transactions was being offered as speculation income since many years, that the said treatment had been examined and accepted in the past as well.After considering the submission of the assessee,the AO held that trading in derivates had to be treated as business income and not as speculative income, that the treatment of income from derivative as a non-speculative business income was by nature of operation of specific provisions of law, as laid down in sec. 43 (5) of the Act, that principle of consistency in treatment would not apply.Therefore,he did not allow set off of the brought forward loss of Rs.84.91 lacs and added it back to the income of the assessee.

3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA).Before him,it was contended that during the year under consideration the assessee earned the share trading income of Rs.1.42 crores.,that it had suffered derivative loss of Rs.57.35 lacs,that it had shown the share trading income of Rs.85.20 lacs after netting of derivative losses in its return of income,that the speculation income offered by the assessee was set off against the speculation loss brought forward from the previous year, that the AO wrongly treated the current year's share trading income as derivative income, that he treated the income in question as business income and did not allow set off of speculation loss of earlier year, that without considering the submission of the assessee the AO made an addition of Rs.84.91 lacs, that the assessee had offered the share trading income as speculation income in view of the deeming provisions of Explanation to sec.73 of the Act.

After considering the submission of the assessee and the assessment order,the FAA held that the assessee had earned income from security market to the extent of Rs.84,91,346/-, that same had been adjusted against the carry-forward losses that has arisen out of same nature of transaction, that there was no dispute about the availability of speculation losses,that the income of Rs.84.91 lacs was derived from both type of transactions i.e.share trading and speculative transaction,that it had set off the profit against the carried forward speculation losses.The FAA referred to the cases of Lokmat Newspaper Pvt. Ltd.(230 CTR 521) and Prasad Agencies Pvt. Ltd. (333 ITR

275). She further held that the AO had wrongly treated the entire profit as derivative income and had applied the amended provisions of section 43(5) of the Act without considering the data available on record, that in the earlier years also part of the speculation loss has been allowed to set off against similar share trading income, that there was no deviation in the facts of the case from the earlier years.The FAA directed the AO to allow the set off of carry forward speculation loss against the share trading income.

4.Before us,Departmental Representative(DR) relied upon the order of the AO and stated that provisions of sec. 43(5) of the Act were amended from the AY 06-07.Authorised Representative (AR)supported the order of the FAA and relied upon the cases that were referred by the assessee before the FAA.He also referred to Balance sheet and Schedule-10 of the accounts.

5.We have heard the rival submission and perused the material before us.The only dispute arising in the appeal is as to whether the assessee could be allowed to set off carry forward speculation losses of earlier year against the delivery based share transaction of the year under appeal.The AO was of the opinion that the provisions of section 43(5)of the Act prohibited such set off.It is

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not in dispute that the assessee was in business of hoarding and it was doing speculative as well as delivery based share trading.In our opinion,considering these peculiar facts,it can safely be said that the provisions of section 43(5)would not be applicable and that explanation to section 73 would be more relevant to decide the issue.We find that in almost similar circumstances the Hon'ble Bombay High Court had decided the issue in favour of the assessee. In that matter during the course of assessment proceedings,the assessee showed a profit of Rs. 28,37,382/- on the sale of shares and securities held as stock-in-trade.The profit was offered by the assessee as a profit of speculation business and was set off against a speculation loss of Rs. 27,61,505/- brought forward from AY.s.1996-97 to 1998-99. After claiming a set off of the speculation loss, which was brought forward, the assessee showed a balance of Rs. 75,877/- as speculation income.The AO did not treat the income which arose from the sale of shares as income from a speculation business on the ground that the assessee had settled its transaction of sale and purchase of shares through physical delivery. Consequently, the AO did not allow the claim of the assessee for seeking a set off of the income from the sale of shares against the loss on account of speculation business, brought forward.The FAA confirmed the order of the AO. The Tribunal,came to the conclusion that the profit which has been earned from the sale of shares, fell within the purview of the Explanation to section 73 and to be set off against losses which have been brought forward.

Counsel appearing on behalf of the Revenue, while assailing the judgment of the Tribunal, urged the following submissions that are more or less same as the arguments of the AO : (i) The profit of business has to be computed in accordance with the provisions of s. 28; (ii) s. 43(5) provides a definition of what constitutes a speculative transaction and Expln. (2) to s. 28 provides a deeming fiction of when a business can be treated as a speculation business; (iii) s. 73 deals with losses of speculation business; a speculation loss can arise only from a speculative transaction;

(iv) The Explanation to section 73 creates a deeming fiction of when an assessee can be deemed to be carrying on a speculation business; (v) The loss from a delivery based transaction will constitute a loss on account of speculation business as a result of the deeming provisions of the Explanation to section 73; (vi) The deeming fiction created by the Explanation to section 73 will, however, not apply when there is a profit from a delivery based transaction; and (vii) In the present case though the losses which were sustained by the assessee and were brought forward from the earlier assessment year pertain to a speculation business, they could not be set off against the profits which were earned by the assessee from the sale of shares during the assessment year in question, since the profits were earned from a delivery based transaction in the sale of shares.Referring to the provisions of explanation to section 73 of the Act and dismissing the appeal filed by the department,the Hon'ble High Court held as under:

"7.The Explanation to s. 73 creates a deeming fiction. The Explanation postulates a situation where the assessee is a company and where any part of the business of the company consists of the purchase and sale of shares of other companies. In such a case, the assessee is for the purposes of s. 73 deemed to be carrying on a speculation business, to the extent to which the business consists of the purchase and sale of shares. The Explanation carves out an exception in the case of a company whose gross total income consists mainly of income under the heads of 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. The exception carved out by the Explanation, however, is not attracted to the facts of this case and its interpretation, therefore, does not call for consideration here. What is material for the purposes of this case is, that the Explanation postulates a situation where any

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part of the business of a company consists of the purchase and sale of shares of other companies. Therefore, the Explanation is attracted in a situation where something more than an isolated transaction involving sale and purchase of shares is involved. A business postulates a systematic course of activity or dealing. Unless the business of a company consists of the sale and purchase of shares, the deeming fiction would not apply. However, once the requirements of the Explanation are satisfied, namely, in a situation where : (i) The assessee is a company; (ii) Any part of the business of the company consists in the purchase and sale of shares of other companies, the consequence of which is envisaged in the Explanation, as a fiction of law is brought into existence. The legal fiction is that the assessee is deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares.

8. Sec. 28 of the Act deals with the profits and gains of a business or profession. Explaination (2) to s. 28 provides that where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business (which is to be referred to as a "speculation business") shall be deemed to be distinct and separate from any other business. Sec. 43 provides definitions of certain terms relevant to the head of income from profits and gains of business or profession. Sub-s. (5) of s. 43 defines the expression "speculative transaction" to mean a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. The proviso to sub-s. (5) then describes certain categories of transactions which shall not be deemed to be speculative transactions. The proviso will not have a bearing on these proceedings.

9. The contention of the Revenue in the present case, in essence, is that the definition of the expression "speculative transaction" in s. 43(5) must be read into the provisions of s. 73, because a business cannot be a speculation business unless there is a speculative transaction and a speculative transaction is defined by the former as one, not involving an actual delivery of shares. Hence, it was submitted that a transaction which involves an actual delivery of shares would not constitute a speculative transaction and the assessee who is engaged in a business involving the actual delivery of shares, cannot be regarded as being engaged in speculation business.

10. The submission which has been urged on behalf of the Revenue, cannot be accepted, having regard to the plain meaning of the Explanation to s. 73. The submission of the Revenue is that a loss which arises on account of a transaction of the sale and purchase of shares would constitute a loss from a speculation business for the purposes of the Explanation. But, that the profit which arises from a transaction involving the actual delivery of shares would not constitute a profit for the purposes of sub-ss. (1) and (2) of s. 73 in respect of which a set off can be granted. To accept the submission of the Revenue would be to introduce a restriction into the scope and ambit of the deeming fiction which is created by the Explanation to s. 73, which is not contemplated by Parliament. Once a deeming fiction is created by law, it must be given full and free effect, of course, in relation to the ambit within which it is intended to operate. The deeming fiction created by the Explanation to s. 73 defines when an assessee is to be deemed to be carrying on a speculation business for the purposes of the section. The deeming fiction is, therefore, one which arises specifically in the context of the provisions of s. 73 and is confined to that purpose alone. The Explanation stipulates that where an assessee is a company whose business consists in any part of the purchase and sale of shares of other companies, it shall be deemed to be carrying on a speculation business to the extent to which the business consists of purchase and sale of such shares. Whether or not it is a profit or loss that has resulted from carrying on such business, is a consideration which is alien to the meaning of what constitutes a speculation business by the Explanation to s. 73. Once an assessee is deemed to be carrying on a speculation business for the purpose of s. 73, any loss computed in respect of that speculation business, can be set off only against the profits and gains of an other speculation business. Similarly, for the purposes of sub-

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s. (2), the loss in respect of a speculation business which has not been set off either in whole or in part, can be carried forward and can be set off against profits and gains "of any speculation business". The expression "any speculation business" means a speculation business of the assessee in respect of which profits and gains for the assessment year in question have arisen and there is no justification to restrict the content of that speculation business where profits have arisen by excluding a business involving actual delivery of shares. No such restriction is found in the Explanation. To impose one is a legislative function. In other words, once the assessee is carrying on a speculation business and the profits and gains have arisen from that business during the course of the assessment year, the assessee is entitled to set off the losses carried forward from a speculation business arising out of a previous assessment year.

11. In these circumstances, the view which has been formed by the Tribunal is consistent with the provisions of s. 73. The questions of law shall stand answered accordingly. The appeal shall stand dismissed."

Respectfully,following the above judgment,we decide the effective ground of appeal against the AO.

In the result, appeal filed the AO stands dismissed.

फलतः नधा रती वारा दा खल क गई अपील खा रज क जाती है .

Order pronounced in the open court on 13th ,May,2015.

आदे श क घोषणा खल ु े यायालय म दनांक 13 मई,2015 को क गई ।

Sd/- Sd/- (आई पी बंसल/I P Bansal) (राजे / RAJENDRA) या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER मुंबई/Mumbai, दनांक/Date: 13 .05.2015 Patel. PS Jv, Sr. PS आदे श क त ल प अ े षत/Copy of the Order forwarded to : 1.Appellant /अपीलाथ 2. Respondent / यथ

3.The concerned CIT(A)/संब ध अपील य आयकर आयु त, 4.The concerned CIT /संब ध आयकर आयु त

5.DR "C" Bench, ITAT, Mumbai / वभागीय त न ध, सी खंडपीठ,आ.अ. याया.मुंबई

6.Guard File/गाड फाईल स या पत त //True Copy// आदे शानस ु ार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपील य अ धकरण, मुंबई /ITAT, Mumbai.

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