The Tax Publishers2006 TaxPub(DT) 1649 (Ahd-Trib) : (2006) 012 (II) ITCL 0170 : (2006) 102 TTJ 0235 : (2006) 008 SOT 0257

Parkar Securities Ltd. v. Dy. CIT

INCOME TAX ACT, 1961

Loss- Business loss or speculation loss-Applicability of Explanation to section 73-Purchase and sale of shares

Assessee-company submitted that it was only a share broker and claimed the loss arisen out of purchase and sale of certain shares by it as a business loss. AO disallowed the loss to be set off against brokerage income by applying the Explanation to section 73 and treated the loss as a speculation loss with a view that loss was result of business activity of the assessee carried on as sale and purchase of shares of other companies. The assessee submitted that purchase of shares and sale thereof was an eventuality which occurred during the course of its broking business and certain clients for whom it was working as broker had disowned certain transactions under compulsion, which could not be termed as business of sale and purchase of shares of other companies as envisaged in the provisions of Explanation to section 73 and had to be honoured by it for the reasons that it had no alternative other but to accept these transactions as its own as if he had not so done its licence as broker with Stock Exchange could have been terminated/suspended. Held:Explanation to section 73 provides that where any part of the business of a company 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. Sale and purchase of shares of other companies, within the ambit of the Explanation, must be carried out as an activity of business. In the present case, the nature of the business of the assessee in general was to earn income as a broker of stock exchange and the purpose behind the transactions in regard to which the assessee had incurred loss was the purchase for and on behalf of certain clients to earn brokerage income therefrom. It was only an eventuality that some of the clients disowned only part of the transactions which under compulsion were to be taken by the assessee as its own. The assessee had submitted the copies of parties bills, along with its purchase bills, giving details of non-acceptance of sauda by parties and Xerox copies of settlement sheets. Thus, by placing all these materials on record of AO, it could be said that the assessee had discharged its primary onus to substantiate its explanation regarding incurring of losses out of these transactions. Thus the submission of assessee that the purpose behind the purchase was to earn brokerage income therefrom and sale of those shares was consequential act as purchase of these shares was disowned by respective clients appeared to be a bona fide submission. There was no item of such purchase of shares outstanding in the closing stock of the assessee and there was no purchase and sale of shares either in the preceding year or in the proceeding year. Thus, the conduct of assessee showed that its intention had never been to deal in the sale and purchase of shares at its own and it was only an eventuality or forced circumstances under which the assessee had to adopt these purchases and these transactions entered into by assessee, under compulsion could not constitute business of the assessee, more so part thereof. Therefore, the loss arising to the assessee did not fall within the ambit of the Explanation to section 73 and was allowable as business loss in the normal course of business of the assessee and was available to be set off against the assessees brokerage income.

Income Tax Act, 1961 Section 73 read with sections 28(i) and 2(13)

Case Law Analysis:Referred:CIT v. Nirmalkumar & Co. [1986] 161 ITR 413/ 26 Taxman 382 (Cal.) (para 4), Shreelekha Banerjee v. CIT [1963] 49 ITR 112 (SC) (para 12), Mysore Rolling Mills (P.) Ltd. v. CIT [1992] 195 ITR 404/ 63 Taxman 416 (Kar.) (para 23), CIT v. Sri Venkateswara Rice & Oil Mills [1985] 154 ITR 756/[1986] 29 Taxman 95 (AP) (para 23), CIT v. Kamani Tubes Ltd. [1994] 207 ITR 298/ 75 Taxman 55 (Bom.) (para 23), CIT v. Abdul Razak & Co. [1982] 136 ITR 825/[1981] 6 Taxman 346 (Guj.) (para 23), CIT v. Shah Pratapchand Nawpaji [1983] 139 ITR 149 (AP) (para 23), Rajputana Trading Co. Ltd. v. CIT [1969] 72 ITR 286 (SC) (para 23), CIT v. Arvind Investments Ltd. [1991] 192 ITR 365/ 58 Taxman 216 (Cal.) (para 25), CIT v. Pangal Vittal Nayak & Co. (P.) Ltd. [1969] 74 ITR 754 (SC) (para 25) and Asstt. CIT v. Subhash Chand Shorewalla [2004] 91 TTJ (Delhi) 57 (para 31).

Decision: In favour of Assessee.
A.Y. 1997-98

INCOME TAX ACT, 1961

Business expenditure-Allowability-Foreign travel expenses of director and his wife

Assessee-company claimed deduction of certain expenses incurred on foreign tour of its director and his wife. Though the details of visit were furnished but the same were not supported by vouchers and other documentary evidence that could show that assessee actually carried out certain business activity during the course of visit. Therefore, AO disallowed the entire expenses. The assessee submitted that the director) had visited various stock exchanges for the purpose of visit of director was not purely personal as apprehended by AO. Thus, disallowance of entire expenses was not justified. Held:The visit of director was not purely personal. It might have some elements of business nature. Therefore, the entire expenses could not be disallowed and expenses relating to the director only should be estimated which have been incurred for the purpose of business. The expenses relating to the wife of director could not be allowed being not wholly and exclusively incurred for the purpose of business of assessee. Thus, 25 per cent of total expenses was allowed and 75 per cent was held disallowable.

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