|CORAM:||Mahavir Singh (JM), Shamim Yahya (AM)|
|SECTION(S):||14A, 43(5), Explanation to s. 73, Rule 8D|
|CATCH WORDS:||speculative loss|
|COUNSEL:||S. K. Tulsiyan|
|DATE:||October 21, 2014 (Date of pronouncement)|
|DATE:||October 24, 2014 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|Rule 8D(ii) & 8D(iii) do not apply to shares held as stock-in-trade. Loss arising out of derivatives from the income arising out of buying and selling of shares|
(i) Both trading of shares and derivative transactions are not coming under the purview of Section 43(5) of the Act which provides definition of “speculative transaction” exclusively for purposes of section 28 to 41 of the Act. Again, the fact that both delivery based transaction in shares and derivative transactions are non-speculative as far as section 43(5) is concerned goes to confirm that both will have same treatment as regards application of the Explanation to Section 73 is concerned, which creates a deeming fiction. Now, before application of the said Explanation, aggregation of the business profit/loss is to be worked out irrespective of the fact, whether it is from share delivery transaction or derivative transaction. Now, this view has been confirmed by the Hon’ble jurisdictional High Court in assessee’s own case in GA No.3481 of 2013 and ITAT No. 215 of 2013 dated 12th March, 2014, has held as under:-
It would, thus, appear that where an assessee, being the company, besides dealing in other things also deals in purchase and sale of shares of other companies, the assessee shall be deemed to be carrying on a speculation business. The assessee, in the present case, principally is a share broker, as already indicated. The assessee is also in the business of buying and selling of shares for self where actual delivery is taken and given and also in buying and selling of shares where actual delivery was not intended to be taken or given. Therefore, the entire transaction carried out by the assessee, indicated above, was within the umbrella of speculative transaction. There was, as such, no bar in setting off the loss arising out of derivatives from the income arising out of buying and selling of shares. This is what the learned Tribunal has done.”
(ii) Admitted facts are that the assessee is engaged in composite business of purchase and sale of shares and is a registered stock broker. The main intention of dealing in shares and securities is to earn business profits. During the relevant year under consideration assessee earned dividend income to the tune of Rs.28,77,678/-, although the dividends were received by assessee on the shares held as stock in trade. Earning of dividend was merely incidental to the holding of shares for a particular period within which dividend was declared. The CIT(A) as well as we have noticed that the balance sheet of the assessee does not show any investment and all the shares are being held as stock in trade only. The AO has calculated the disallowance on the stock in trade/inventories held by the assessee. A plain reading of Rule 8D(2)(ii) and (iii) can only be applied, in the situations, wherever share are held as an investment and this rule will not have any application when the shares are held as stock in trade.
Deemed fiction leads to legal fiction too;
AOs cannot master that fictions , though the fictions may appear simple but fact is fiction managing under law is an acrobatics like in a circus.
Please train well the AOs . Else unnecessary legal costs would accrue on Revenue, after all tax revenue is to be used by government for citizens welfare activities as also the states from where revenues earned in direct proportion of States domiciled and citizens as in India we have one citizenship only, so business established there in every state enjoys a legal person status in the relevant State, that way funds allocations do happen under public finance doctrines, so care in expenses by department of revenue is vital, so bestter training of AOs only can do the job.
If AOs cannot understand English properly educate them with their vernacular for their understanding purposes so that they commit least possible errors is the prudent revenue administration, that way British very carefully managed 3/4 of the world in the times when citizens were not as qualified today. British had very tough time as public servants too.
when so you are only managing India, not 3/4 of world, why cannot you stream line your revenue management please would be the question posed by any one.