Typhoon Financial Services Ltd.,, ... vs Assessee

सम ी जी.डी.अ वाल, उपा य (अहम. े ) एवं ी कुल भारत, या यक सद य । BEFORE SHRI BEFORE SHRI G.D. AGARWAL,VICE PRESIDENT (AZ) And SHRI KUL BHARAT, JUDICIAL MEMBER

आयकर अपील सं./I.T.A. No.514/Ahd/2012 ( नधा रण वष / Assessment Year : 2008-09) Typhoon Financial Services बनाम/ The Income Tax Officer Pvt.Ltd. Vs. Ward-8(1) 35, Omkar House Ahmedabad-380 015 Nr.Swastik 4 Rasta, Navrangpura Ahmedabad-380 009 थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AAACT 6902 F (अपीलाथ( /Appellant) .. ()*यथ( / Respondent)

अपीलाथ( ओर से / Appellant by : Shri G.C. Pipara, AR )*यथ( क, ओर से/Respondent by : Shri Nimesh Yadav, Sr.DR

ु वाई क, तार/ख / सन Date of Hearing 26/05/2015 घोषणा क, तार/ख /Date of Pronounce ment 29/05/2015

आदे श / O R D E R

PER SHRI KUL BHARAT, JUDICIAL MEMBER :

This appeal by the Assessee is directed against the order of the Ld.Commissioner of Income Tax(Appeals)-XIV, Ahmedabad ('CIT(A)' in short) dated 10/02/2012 pertaining to Assessment Year (AY) 2008-09. The Assessee has raised the following grounds of appeal:-

ITA No.514/Ahd/2012 Typhoon Financial Services Pvt.Ltd. vs. ITO Asst.Year - 2008-09 -2-

1. The learned CIT(A) has erred in law as well as on facts in confirming the stand of the AO in treating loss on sale of shares of Rs.15,50,000/- as speculative loss applying the provisions of Explanation to Section 73(1) of the Income Tax Act, 1961 without proper consideration and appreciation of the facts of the case as well as relevant provisions of the Act.

2. The learned CIT(A) has erred in not considering/appreciating the fact that the appellant company is an NBFC, which is specially excluded from the purview of Explanation to Section 73 of the Act.

Therefore, the impugned loss of Rs.15,50,000/- requires to be set-off against profit from business/other sources/capital gain.

3. The learned CIT(A) has further erred in not considering the various decisions relied upon by the appellant including the decision of the Hon'ble ITAT, Ahmedabad Bench in support of the proposition that the appellant company is not covered by the Explanation to Section 73 of the Act on facts of the case.

The appellant craves leave to add, amend, alter, modify or delete any of the above grounds as well as to submit additional grounds at the time of hearing of the appeal.

2. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.143(3) of the Income Tax Act,1961 (hereinafter referred to as "the Act") was framed vide order dated 17/12/2010, thereby the Assessing Officer (AO in short) treated the loss on the sale of shares as speculation loss and to be carried forward and to be adjusted against future speculation profit only. Against the said assessment order, the assessee filed an appeal before the ld.CIT(A), who after considering the submissions of the assessee, dismissed the appeal. Against this, the assessee is further in appeal before us.

ITA No.514/Ahd/2012 Typhoon Financial Services Pvt.Ltd. vs. ITO Asst.Year - 2008-09 -3-

3. The only effective ground in this assessee's appeal is against treating the loss on the sale of shares of Rs.15,50,000/- as speculation loss. The ld.counsel for the assessee submitted that the assessee is a non- banking finance company. He drew our attention towards page-38 of the paper-book, wherein Certificate of Registration of the assessee as a non- banking finance company issued by the Reserve Bank of India, Ahmedabad is enclosed. The ld.counsel for the assessee submitted that the assessee is engaged in the business of non-banking finance company for advancing loans, etc. He submitted that the ld.CIT(A) grossly erred in applying the provisions of Explanation to Section 73(1) of the Act.

3.1. On the contrary, ld.Sr.DR supported the orders of the authorities below.

4. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The contention of the ld.counsel for the assessee is that the ld.CIT(A) erred in applying the provisions of Explanation to Section 73(1) of the Act. For the sake of clarity, Explanation to Section 73 of the Act is reproduced hereunder:-

SECTION 73 : Losses in speculation business.

(1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business.

ITA No.514/Ahd/2012 Typhoon Financial Services Pvt.Ltd. vs. ITO Asst.Year - 2008-09 -4- (2) Where for any assessment year any loss computed in respect of a speculation business has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and--

(i) it shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year; and

(ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on.

(3) In respect of allowance on account of depreciation or capital expenditure on scientific research, the provisions of sub-section (2) of section 72 shall apply in relation to speculation business as they apply in relation to any other business.

(4) No loss shall be carried forward under this section for more than [four assessment years] immediately succeeding the assessment year for which the loss was first computed.

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 trading in shares or 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.

4.1. From a bare reading of the above Explanation, it is evident that 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 ITA No.514/Ahd/2012 Typhoon Financial Services Pvt.Ltd. vs. ITO Asst.Year - 2008-09 -5-

granting of loans and advances are excluded from deeming provision created by the Explanation. The ld.CIT(A) has decided the issue by observing as under:-

"2.3 Decision:

I have carefully perused the assessment order and the submissions given by the appellant. The A. O. has disallowed loss of Rs.15,50,000/- on purchase and sale of shares by applying the Explanation to sub-section 4 of Section 73 of the Act. It has been held by him that since the business of the appellant was purchase and sale of shares was speculative in nature and it can be only set off against the speculative income and, therefore, he assessed the income derived by the appellant on sale of house property during the year under consideration. The appellant has submitted that explanation to sub- section 4 of 73 is not applicable to the appellant company as the appellant company was a non - banking finance company and the same is also supported by memorandum and articles of association of the appellant company.

In order to clearly understand the issue involved explanation to sub-section 4 of section 73 is reproduced hereunder:

"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 gain" and "Income from other sources") or(a company the principle 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 amount shall, for the purpose of this section, be deemed to be carrying on a speculative business to the extent to which the business consists of purchase and sale of such shares."

A careful perusal of the above explanation reveals that the It is applicable to two categories of companies. In first category, an exception has been provided to the companies whose gross total income consists mainly of income under the head Interest on securities, interest from house property, capital gain and income from other sources. In second category, the companies which are in the business of banking or granting of loans and ITA No.514/Ahd/2012 Typhoon Financial Services Pvt.Ltd. vs. ITO Asst.Year - 2008-09 -6- advances have been included for the purpose of deeming to be carrying on the speculation business. The use of word 'or' between the comas clearly changes the categories which have been mentioned in the explanation. The companies mentioned before the word 'or' are exempted from the deeming fiction as that category starts with the words 'other than the company'. The companies mentioned after the word 'or' are covered by the deeming fiction as if does not begin with the exclusion clause. In the light of this explanation, the submission given by the appellant is not found to be acceptable. The appellant has sought to say that even if the principle business is of banking or giving loan, the income from sale and purchase of shares will also not be speculative. The explanation sought to be taken by the appellant is not correct as it is taking the opposite meaning. The appellant has himself stated that it was a NBFC and the business are the one which are covered in the second part of the explanation. Therefore, the deeming provision would be applicable in the case of the appellant.

In view of the above discussion, the disallowance made by the A.O. is upheld and the ground of appeal is dismissed."

4.2. The undisputed facts in the case in hand is that the assessee is engaged in the business of financing and substantial income has been derived from interest. The assessee claimed loss on sale of shares of Rs.15,50,000/-. The Assessing Officer treated the same as speculation loss and allowed it to be carried forward and to be adjusted against future speculation profit only. The ld.CIT(A) confirmed the action of the Assessing Officer. The grievance of the assessee is that both the authorities below have wrongly interpreted the Explanation to section 73 of the Act. It is undisputed fact that the principal business of the assessee-company is granting of loans and advances and the substantial income has been derived therefrom. The R.B.I. has granted to the assessee Certificate of Registration u/s.45-IA of the Reserve Bank of India Act, 1934 to commence/carry on the business of non-banking ITA No.514/Ahd/2012 Typhoon Financial Services Pvt.Ltd. vs. ITO Asst.Year - 2008-09 -7-

financial institution subject to certain conditions. Under these facts, the authorities below have erred and are not justified in applying the provisions of Explanation to Section 73 of the I.T. Act, 1961. Therefore, the impugned order is hereby set aside and the Assessing Officer is directed not to treat the loss as speculation loss.

5. In the result, the appeal of the assessee is allowed.

Order pronounced in the Court on Friday, the 29th day of May, 2015 at Ahmedabad.

Sd/- Sd/- (जी.डी.अ वाल) (कुल भारत) उपा य (अहम. े ) या यक सद य ( G.D. AGARWAL ) ( KUL BHARAT ) VICE PRESIDENT (AZ) JUDICIAL MEMBER Ahmedabad; Dated 29/ 05 /2015 ट/.सी.नायर, व. न.स./T.C. NAIR, Sr. PS

आदे श क! " त$ल%प अ&े%षत/Copy of the Order forwarded to :

1. अपीलाथ( / The Appellant

2. )*यथ( / The Respondent.

3. संबं8धत आयकर आयु:त / Concerned CIT

4. आयकर आय:

ु त(अपील) / The CIT(A)-XIV, Ahmedabad

5. ;वभागीय ) त न8ध, आयकर अपील/य अ8धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड= फाईल / Guard file.

आदे शानुसार/ BY ORDER,

स*या;पत ) त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad