Commissioner of Income-Tax v. Savi Commercial P. Ltd
[Citation -2015-LL-0319]

Citation 2015-LL-0319
Appellant Name Commissioner of Income-Tax
Respondent Name Savi Commercial P. Ltd.
Court HIGH COURT OF CALCUTTA
Relevant Act Income-tax
Date of Order 19/03/2015
Judgment View Judgment
Keyword Tags speculation business • business activity • speculation loss
Bot Summary: The question formulated at the time of admission reads as follows: Whether, on the facts and in the circumstances of the case, a company carries on as its principal business, acquisition of shares, debenture, debenture stock or securities issued by the Government local authority or other marketable securities of like nature could be termed as any other company as contemplated under section 73 of the Income-tax Act, 1961 After the appeal was taken up for hearing both the learned counsel suggested that the question formulated at the time of admission should be reframed. Mr. Nizamuddin, learned advocate appearing for the appellant, submitted that the question as to which one is the principal activity of the assessee should depend upon the profits earned during the relevant year. 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. One is a factor based on income and the other is a factor based on activity as would appear from the Explanation underlined by us. Income alone cannot be taken into account in deciding whether the assessee is entitled to make a departure from the mandate appearing in sub- section. In the case before us the activity of granting loans and advances is on a larger scale than the business of buying and selling shares. Since the business activity is also a distinct factor, we are inclined to think that the principal business of the company/assessee is granting loans and advances as would appear from the volume indicated in the chart above for a number of years.


JUDGMENT appeal was admitted on March 28, 2007, pertaining to assessment year 2001-02. question formulated at time of admission reads as follows: "Whether, on facts and in circumstances of case, company carries on as its principal business, acquisition of shares, debenture, debenture stock or securities issued by Government local authority or other marketable securities of like nature could be termed as any other company as contemplated under section 73 of Income-tax Act, 1961?" After appeal was taken up for hearing both learned counsel suggested that question formulated at time of admission should be reframed. After hearing them question, to be decided, has been reformulated as follows: "Whether in case where loss resulting out of dealing in shares is more than income arising out of loans and advances it can be said that principal business of assessee is not of granting loans and advances in light of Explanation appended to section 73 of Income-tax Act?" fund deployment position has been indicated by learned Tribunal in its impugned judgment and order as follows: "Comparative statement of deployment of funds: Y. E. 31- Y. E. 31- Y. E. 31- Y. E. 31-3- Y. E. 31-3- Y. E. 31-3- Business 3-1999 3-2000 03-2001 2002 2003 2004 (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) Granting 6,13,966 21,76,031 1,14,54,522 1,44,82,536 2,23,60,324 3,37,15,822 of loans Stock-in- 2,77,875 51,72,680 58,81,217 1,15,13,903 75,41,281 78,21,578 trade of share Comparative statement of income: Y. E. Y. E. 31- Y. E. 31- Y. E. 31- Y. E. 31- Y. E. 31- Business 31-3-1999 03-2000 03-2001 3-2002 3-2003 3-2004 (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) Interest 17,458 1,61,115 9,27,247 19,48,288 20,95,789 31,73,340 on loans Commission and brokerage in 92,596 5,05,254 4,21,840 2,96,010 1,75,407 2,39,293 third party financing Other 11,04,270 commission Share (-) (- (- 12,67,223 trading 32,31,303 )13,70,155 )13,62,042 We are concerned with year ended on March 31, 2001. It would appear from chart that during aforesaid year assessee had loss of sum of Rs. 32.31 lakhs approximately arising out of trading in shares whereas assessee had earned sum of Rs. 13.48 lakhs approximately from out of interest on loans and commission and brokerage. Mr. Nizamuddin, learned advocate appearing for appellant, submitted that question as to which one is principal activity of assessee should depend upon profits earned during relevant year. Profits were earned only from loans and commission and brokerage. There was no profit earned from dealings in shares. Therefore, he submitted that principal business of assessee is granting of loans and advances and not dealing in shares. Mr. Poddar, learned senior advocate drew our attention to Explanation appended to section 73 of Income-tax Act which reads as follows: "Explanation.-Where any part of business of company (other than company whose gross total income consists mainly of income which is chargeable under heads'Interest on securities', 'Income from house property','Capital gains' and'Income from other sources', or company principal business of which is business of banking or granting of loans and advances) consists in purchase and sale of shares of other companies, such company shall, for purposes of this section, be deemed to be carrying on speculation business to extent to which business consists of purchase and sale of such shares." He submitted that under sub-section (1) of section 73 it has been provided that speculation loss shall be set off only from out of income arising out of speculation. aforesaid stipulation has, however, been qualified by Explanation wherein two exceptions have been made. two exceptions are really two distinguishing factors. One is factor based on income and other is factor based on activity as would appear from Explanation underlined by us. submission advanced by Mr. Poddar, prima facie, appears to be correct. Mr. Nizamuddin was unable to make any suitable reply to aforesaid submission of Mr. Poddar. Speaking for ourselves we are inclined to accept submission advanced by Mr. Poddar. Because both income and business activity, according to legislative mandate, are distinguishing factors. Therefore, income alone cannot be taken into account in deciding whether assessee is entitled to make departure from mandate appearing in sub- section (1). In case before us activity of granting loans and advances is on larger scale than business of buying and selling shares. Both profit and loss are matters of chance in both activities. Therefore, profit alone was not made distinguishing factor. Since business activity is also distinct factor, we are inclined to think that principal business of company/assessee is granting loans and advances as would appear from volume indicated in chart above for number of years. Therefore, view taken by learned Tribunal appears to be correct view of matter. In result question formulated is answered in negative and in favour of assessee. appeal is thus disposed of. *** Commissioner of Income-Tax v. Savi Commercial P. Ltd
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