Whereas The Assessing Officer Held That The Assessee Was Hitby The Explanation To Section 73 Of The Act, The Cit(Appeals)Held Otherwise. Referring To The Orders v. Th] Ito (32 Itd806)And Himalaya Co. Ltd. Vs. Cit(30 Itd 139)(Cal.), Heaccepted The Assessee's Contention And Held That It Was Aninvestment Company

19-02-ITR=.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX REFERENCE NO. 19 OF 2002 The Commissioner of Income-TaxBombay, City-VI, Bombay.. Applicant v/s. M/s. Madona Commercial Pvt. Ltd.84-A, Mittal Court, 224, Nariman Point,Bombay..Respondent Mr. A.R. Malhotra a/w Mr. N.A. Kazi for the applicantMr. Madhur Agarwal a/w Mr. P.C. Tripathi I/b Raj Darak for therespondent P. C. CORAM : M.S. SANKLECHA & SANDEEP K. SHINDE, J.J. DATED : 2[nd] JULY, 2018 1.By this Reference under Section 256(1) of the Income Tax Act,1961 (the Act) the Income Tax Appellate Tribunal (the Tribunal) seeksour opinion on the following question of law :- “Whether on the facts and in the circumstances of the case andon a proper interpretation of the Explanation to Section 73 ofthe Income-Tax Act, the Tribunal was right in law in holdingthat the assessee was an investment company and therefore theloss in the share transactions was not a speculative loss withinthe meaning of the aforesaid Explanation ?” 2.This Reference relates to Assessment Year 1989-90. 3.The statement of case to the extent relevant to anser the question Uday S. Jagtap 1 of 7 19-02-ITR=.doc as forwarded to us reads as under :- “2.The question before Tribunal was regarding theapplicability of the Explanation to Section 73 of the Act. Theassessment year is 1989-90. In the assessment, the followingincome was brought to tax: Whereas the assessing officer held that the assessee was hitby the explanation to Section 73 of the Act, the CIT(Appeals)held otherwise. Referring to the orders of the Tribunal reportedin Shree Swamy Samarth Cement Depot Vs. 4[th] ITO (32 ITD806)and Himalaya Co. Ltd. Vs. CIT(30 ITD 139)(Cal.), heaccepted the assessee's contention and held that it was aninvestment company. 3.Before the Tribunal the Revenue contended that the CIT(A)had ignored the fact that the assessee's income mainly consistedof income from the business of trading in yarn, steel and sharesetc. and therefore it ceased to be an investment company. It wasalso contended that the CIT(A) failed to appreciate that the grosstotal income of the assessee mainly consisted of business incomeand did not consist mainly of income chargeable under the head“interest on securities”, “income from house property”, “capitalgains” or “income from other sources” and therefore the loss ofRs.2,74,09,727/- incurred by the assessee in shares was aspeculative loss within the meaning of the Explanation to Section73 of the Act. 4.The Tribunal rejected the contention of the Departmentsince in its view the assessee's income mainly consisted of incomefrom other sources, which constituted 91.68% of the gross totalincome. It was therefore held that the Explanation to Section73 was not applicable.” 5.It is an agreed position between the parties that the question of 19-02-ITR=.doc law herein stands concluded by the decision of this Court inCommissioner of Income tax Vs. Darshan Securities (P) Ltd. (IncomeTax Appeal No.2886 of 2009) dated 2[nd] February, 2012. However,the bone of contention between the parties is in whose favour is theissue covered. The Revenue contends that on facts the Explanation toSection 73 of the Act applies as the assessee's gross total income doesnot mainly consists of income from other sources so as to fall in theexclusion provided is Section 73 of the Act. The assessee contendsotherwise. Therefore, it would be appropriate to first reproduce the Explanation to Section 73 of the Act, which reads as under :- 5.It is an agreed position between the parties that the question of 19-02-ITR=.doc law herein stands concluded by the decision of this Court inCommissioner of Income tax Vs. Darshan Securities (P) Ltd. (IncomeTax Appeal No.2886 of 2009) dated 2[nd] February, 2012. However,the bone of contention between the parties is in whose favour is theissue covered. The Revenue contends that on facts the Explanation toSection 73 of the Act applies as the assessee's gross total income doesnot mainly consists of income from other sources so as to fall in theexclusion provided is Section 73 of the Act. The assessee contendsotherwise. Therefore, it would be appropriate to first reproduce the Explanation to Section 73 of the Act, which reads as under :- “Explanation – Where any part of the business of a company[(other than a company whose gross total income consistsmainly of income which is chargeable under the heads “Intereston securities”, “Income from house property”, “Capital gains”and “Income from other sources”], or a company [the principalbusiness of which is the business of trading in shares or banking]or the granting of loans and advances) consists in the purchaseand sale of shares of other companies, such company shall, forthe purposes of this section, be deemed to be carrying on aspeculation business to the extent to which the business consistsof the purchase and sale of such shares]” 6.The Tribunal in the Statement of Case records as a fact found by the Tribunal that the assessee's income mainly consists of income fromother sources. Therefore, held by the Tribunal as not being covered bythe Explanation to Section 73 of the Act. Thus, making Section 73 ofthe Act inapplicable. 19-02-ITR=.doc 7.Mr. Malhotra in support of the appeal contends that if thestatement of case as furnished by the Tribunal to this Court is read withthe assessment order which is part thereof then the finding in thestatement that income from business at Rs.87,784/- and income fromother sources at Rs.9.66 lakhs is not correct. It is submitted that a lossof Rs.2.74 crores incurred by the respondent assessee on sale of shares,would necessarily be an income from business. This business incomewould then replace the status of “income from other sources” as beingthe main source of income in the gross total income. This according tohim would result in the Explanation to Section 73 of the Act becomingapplicable to the present facts and it not being considered as aninvestment company. In support of the same, he invited our attentionto the assessment order which is at Exh.A to the Statement of Case. 8.On perusal of the assessment order, we find that in paragraph3.4 it records that the gross total income as returned by the assesseeconsists of the following :- It further records that the above is the result of the various 19-02-ITR=.doc transactions which have been referred to therein as under : - “3.4 ….. However, the above is the result of followingtransactions :- This working evidences that the loss on trading in shares atRs.2.74 crores has been taken into account to arrive at income frombusiness. 9.Thus, the basic premises on the part of the Revenue that therespondent assessee's income mainly consisted of income from businessis factually incorrect. Once it is found as a fact in the order dated 17[th]September, 1998 of the Tribunal that the assessee's income mainlyconsisted of income from other sources as it forms 91.68% of its totalincome, then in the absence of any challeng to the finding of fact, itcannot be a subject of inquiry. This has been so held by the SupremeCourt in K. Ravindranathan Nair Vs. Commissioner of Income Tax247 ITR 178 and Patnaik & Co. Ltd. Vs. Commissioner of IncomeTax, 161 ITR 365. This was contested by the Revenue and reliance 19-02-ITR=.doc 9.Thus, the basic premises on the part of the Revenue that therespondent assessee's income mainly consisted of income from businessis factually incorrect. Once it is found as a fact in the order dated 17[th]September, 1998 of the Tribunal that the assessee's income mainlyconsisted of income from other sources as it forms 91.68% of its totalincome, then in the absence of any challeng to the finding of fact, itcannot be a subject of inquiry. This has been so held by the SupremeCourt in K. Ravindranathan Nair Vs. Commissioner of Income Tax247 ITR 178 and Patnaik & Co. Ltd. Vs. Commissioner of IncomeTax, 161 ITR 365. This was contested by the Revenue and reliance 19-02-ITR=.doc was placed upon the decision of the Apex Court in Sohan Pathak &Sons Vs. Commissioner of Income Tax, 24 ITR 395 and KhanBahadur Ahmed Alladin & Sons Vs. Commissioner of Income Tax, 68ITR 573 to contend that as the statemetn of case is not clear, the Courtshould call for a supplementary statement of case from the Tribunal.We do not find that the statement of case is not clear. In any event, tosatisfy ourselves, we went thrugh the basis of the Revenue's contentionviz. the assessment order and find no substance in the contention. 10.Therefore, once the finding of fact has not been challenged, itmust follow that Section 73 of the Act which introduces a deemingfiction to define a speculation business will not apply as the bracketedportion in the Explanation carves out an exception so fas as mainincome is from “Income from other sources”. Thus, in our view, thequestion has proposed for our consideration stands concluded by thedecision of this Court in Darshan Securities Pvt. Ltd. (supra). 11.In fact, Mr. Malhotra very fairly states that if the Revenue'ssubmission that the assessee's income mainly consists of businessincome is not accepted, then on the basis of the principles laid down inDarshan Securities Pvt. Ltd. (supra), the question would have to be 19-02-ITR=.doc answered in the affirmative i.e. in favour of the respondent assesseeand against the appellant Revenue. 12.It is a settled position as held by the Calcutta High Court inEastern Aviation and Industries Ltd. Vs. CIT, 208 ITR 1023 andAryasthan Corporation Ltd. Vs. CIT, 253 ITR 401, the expression“Investment Company” means a company whose gross total incomeconsists mainly of income chargeable under the head Income fromhouse property, capital gains and income from other sources. This isnot disputed before us. Thus, in the present fact, the respondent is anInvestment Company. 13.Therefore, the question of law referred to us for our opinion isanswered in the affirmative i.e. in favour of the respondent assesseeand against the appellant Revenue. 14.Reference is disposed of in the above terms. (SANDEEP K. SHINDE J.) (M.S. SANKLECHA, J.)