The Commissioner Of Income Tax Chennai v. M/S.anush Shares And Securities Pvt Ltd., New

IN THE HIGH COURT OF JUDICATURE AT MADRAS The Commissioner of Income TaxChennai... Appellantv.M/s.Anush Shares and Securities Pvt Ltd.,New No.39, Old No.9, 1[st] Floor Greenways Road,RA.Puram, Chennai ..Respondent Prayer:- Tax Case Appeal is filed under Section 260-A of the IncomeTax Act, 1961 against the order of the Income Tax AppellateTribunal, Madras “D” Bench, Chennai dated 09.01.2015 passed inITA.No.652/Mds/2014 against the order of the Commissioner of IncomeTax(A)-1, Chennai dated 31.12.2013 made in ITA No.231/2013 -14 andagainst the order of the Assistant Commissioner of Income Tax,Company Circle, (3) Chennai dated 24.12.2010 passed in PANNo.AAACA9268R 2.The assessee is engaged in the business of broking andtrading in stocks and securities. The assessee filed its incomeelectronically for the year assessment year 2008-2009 on 19.09.2008admitting a total income of Rs.87,41,225/-. On verification ofprofit and loss account, it was seen that under the head of loss ofmisdeals, an amount of Rs.26,63,131/- was debited and the same wasrepresented under the head loss on account of purchase and sale ofsubstantial quantity of shares during the relevant assessment yearand the assessee also claimed deduction of expenditure towardsinteriors for his new office to the tune of Rs.30,77,279/-. Theassessee was issued with notice under Section 143(2) on 14.08.2009and notice under Section 142(1) dated 14.07.2010 and another noticeon 21.09.2010 calling for details from the assessee, for the https://hcservices.ecourts.gov.in/hcservices/ purchase and sale of the shares and copies of the bills for theinterior work done and the same were also produced by the assesee. 3.The Assessing Officer held that the loss of Rs.26,63,131/-suffered by the assessee on account of share trading as sharebroker is not a business loss, but speculative loss as perExplanation to Section 73 and as per Explanation 2 to Section 28and set off against the income from the business of brokerage wasnot allowed thereby enhancing the taxable income by the amount ofRs.26,63,131/- and expenditure incurred towards interiors of newoffice to the tune of Rs.1,69,915/- was added to the taxableincome and out of balance expenditure of Rs.29,07,364/-,Rs.72,924/- towards supply of venetian blinds, signage and supplyof EB panel was treated as revenue expenditure and Rs.28,34,440/-was treated as repairs for creation of an asset and was consideredas capital assets. The Assessing Officer thus reworked thecomputation of total income and arrived at total income ofRs.1,41,71,527/-. 4.Aggrieved against the same, the assessee preferred an appealbefore the Commissioner of Income Tax (Appeals), who vide orderdated 31.12.2013, confirmed the findings of the Assessing Officerand dismissed the appeal. While arriving at such conclusion, theCommissioner of Income Tax (Appeals) has in para 6.2 dealt with theissue relating to loss sustained by the assessee by way of purchaseand sale of shares and answered the same as follows :- 6.2. I have considered the AR's observations and theappellant's submissions in this regard. It is seen that AOhas verified the complete details with regard to the lossclaimed by the appellant. On verification, AO found thatsubstantial quantity of shares have been purchased and soldby the appellant during the year which has resulted in lossof Rs.26,63,131/-. The AO has treated the said loss asspeculation loss by virtue of explanation to sec.73 andexplanation to sec.28. As the loss suffered by an assesseecompany on dealing its shares on its own account was aspeculation loss, and therefore could not be allowed to beset off against brokerage income. In view of the above,the appellant's contentions are not accepted and the actionof the AO in this regard is upheld. As a result, thegrounds raised are dismissed. 5.The learned Commissioner of Appeals in para 7.2 of hisorder also dealt with the issue relating to the expenditureincurred for interior work in the rented premises and answered thesame against the assessee. Questioning the correctness of thefindings of the Commissioner of Income Tax (Appeals), the assesseefiled an appeal before the Income Tax Appellate Tribunal. TheTribunal decided both the issues in favour of the assessee andallowed the appeal. Aggrieved against the same, the Revenue isbefore this court by way of the present Tax case Appeal. 6.The Tax Case Appeal is admitted on the following substantialquestions of law :(i)Whether on the facts and circumstances of thecase, the Tribunal was right in treating the expenditurefor interiors in the rented premises as revenueexpenditure even though there was a enduring benefitderived by the assessee?(ii)Whether on the facts and circumstances of thecase, the assessee being a share broker, the loss incurredfrom the transaction in shares is to be treated as anormal business loss ignoring the explanation appended toSection 73? 7.Heard the learned counsel for the appellant and perused therecords. 8.As far as the transactions of purchase and sale of shares bythe assessee company are concerned, it was argued on the side ofthe Assessee before the Tribunal that the assessee had wronglypurchased certain securities and future options and therefore theassessee was forced to sell the same and in doing the same,suffered loss, as such, these transactions are misdeals and purelya business loss incurred during the course of the business and suchtransactions will not amount to speculative loss by virtue ofSection 43(5) of the Act. The assessee in support of suchcontention also relied on the following decisions: (i)ITAT Kolkattain Dy.Ld.CIT v. Madanlal Ltd in (2012) 21 Taxmann.com 444 (kol) and(ii) ITAT Chennai in Dy. CIT V. Paterson Securities (P) Ltd (2010)127 ITD 386 (chennai). 9.The original authority rejected such contention and was ofthe view that the assessee is a broker in shares and also engagedin the business of trading in shares and the loss sustained duringthe course of trading in shares is not a business loss, but loss onaccount of speculation by virtue of Section 73 and Explanation 2 toSection 28. The learned Assessing Officer, in support of suchobservation, also relied on the following decisions: (i)BLKSecurities P. Ltd. ITAT (Del) (2009) 27 SOT 142 (ii)SPFL SecuritiesLtd – ITAT (Del) (2006) 6 SOT 562 and (iii)Priyasha Meven Fin. Ltd– ITAT (BOM) 24 SOT 422. 10.However, the Income Tax Appellate Tribunal, after goingthrough the relevant provisions of Sections 43(5)(d) and 73(1) andExplanation to Section 73 of the Act and after examining as to whyExplanation to Section 73 was inserted by the Act with effect from1.4.1997, i.e., in order to have effective check on the dealings inshares of the company controlled by business houses controllinggroups of companies as tax avoidance device, discussed the issue inpara 4.7 and answered the same in favour of the assessee. Forbetter appreciation, para 4.7 of the order of the Tribunal isextracted below: https://hcservices.ecourts.gov.in/hcservices/ "4.7. Considering the nature of the activity carriedout by the assessee company the scope of Explanation toSection-73 will not be applicable because the assessee had https://hcservices.ecourts.gov.in/hcservices/ "4.7. Considering the nature of the activity carriedout by the assessee company the scope of Explanation toSection-73 will not be applicable because the assessee had not resorted to such device mentioned by the WanchooCommittee. Therefore, the profit or loss derived from thepurchase and sale of shares transacted by the assesseecompany cannot be deemed to be income from speculationbusiness. Moreover, Section 43(5)(d) of the Act alsoprovides that trading in derivatives in a recognized stockexchange shall not be deemed to be speculative transaction.Thus, from the above chronology of the provisions of theAct, the loss suffered by the assessee on account ofmisdeals or purchase and sale of shares by actual delivery,or trading in derivatives in a recognised stock exchangecannot be considered to be loss on account of speculation.Conversely it has to be treated as the business loss of theassessee. More over it is pertinent to mention thatmisdeals happen involuntary during the course of theassessee's business activities which is beyond the controlof the assessee. Purchase and sale of shares is not thebusiness of the assessee. Purchase and sale of shares isnot the business of the assessee company because all suchpurchase and sale of shares are made on behalf of theclients of the assessee company earning brokerage towardsthe same. In arriving at this conclusion, we have alsodrawn support from the decision cited by the assessee.Accordingly this issue is decided in favour of theassessee." We find no reason to disagree with such findings of the Tribunal inthis regard. 11.Next issue relates to deduction claimed for the expenditureincurred towards fixing false ceiling, painting, electrical cablingand certain civil works in the rented premises of the assessee.While according to the assessee, the same has to be treated asrevenue expenditure, according to the Revenue, the same shall betreated as capital expenditure. Whereas, the Tribunal by relying onthe decisions of our High court reported in (i)CIT v. AyeshaHospitals Pvt. Ltd., (2006) 292 ITR 266 (Mad) and (ii)ThiruArooran Sugars Ltd. V. Dy. CIT (2013) 350 ITR 324, held theexpenses incurred as revenue expenditure and accordingly alloweddeduction on account of the same. For better appreciation, para 5.3of the order of the Tribunal is extracted hereunder: "5.3. We have heard both the parties and carefullyperused the materials available on record. It is apparentfrom the facts of the case it is not disputed that theexpenditure were incurred towards fixing false ceiling,painting, electrical cabling and certain civil works etc.,in the rented premises of the assessee. Various judicialauthorities has held that in such circumstance theexpenditure has to be treated as revenue expenditure. The https://hcservices.ecourts.gov.in/hcservices/ assessee has relied in the following two cases :-(i)CIT vs.Ayesha Hospitals Pvt. Ltd., (2006) 292 ITR 266(Mad). Held : dismissing the appeal, that the assessee hadspent a sum of Rs.1,85,557/- towards painting, re-laying of the damaged floors, partitions, etc. The co-owners were the directors of the asessee. But theywere separate entities. The co-owners were admittingthe rental income. They were also paying tax on theprofits arising out of the hospital. The lease deedspoke of the normal requirements which the co-ownersprovided. The assessee was putting the building to aspecial use. No landlord would ever incur or undertaketo bear the expenditure. The expenditure was incurredby the assessee on a leased property and had to beallowed as revenue expenditure.(ii)Thiru Arooran Sugars Ltd. V. Dy.CIT (2013) 350 ITR 324. Held : dismissing the appeal, that the assessee hadspent a sum of Rs.1,85,557/- towards painting, re-laying of the damaged floors, partitions, etc. The co-owners were the directors of the asessee. But theywere separate entities. The co-owners were admittingthe rental income. They were also paying tax on theprofits arising out of the hospital. The lease deedspoke of the normal requirements which the co-ownersprovided. The assessee was putting the building to aspecial use. No landlord would ever incur or undertaketo bear the expenditure. The expenditure was incurredby the assessee on a leased property and had to beallowed as revenue expenditure.(ii)Thiru Arooran Sugars Ltd. V. Dy.CIT (2013) 350 ITR 324. Held : that the temporary structure by means offalse ceiling and office renovation had not resulted inany capital expenditure.From the above decisions and the facts before us we do nothave any hesitation to hold that the aforesaid expenses ofRs.26,92,718/- has to be treated as revenue expenditure anddeduction on account of the same has to be allowed. It ishereby decided accordingly.” In view of such settled proposition of law, the finding so renderedby the Tribunal warrants no interference by this Court and nosubstantial questions of law arise in this Tax Case Appeal. //True Copy// Sub Assistant Registrar tsh/rkTo1. The Commissioner of Income Tax, (A)-1,Chennai.2. The Income3 Tax Appellate Tribunal 'D'Bench, Chennai.3. The Assistant Commissioner of Income Tax, Company Circle-1(3),Chennai. VSN(CO)Eu 11.08.15