The deeming fiction under the explanation to section 73 does not apply if the gross total income mainly consists of income chargeable under other heads.

AKIL KURESHI

1. Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal ( “the Tribunal” for short) dated 20.11.2009 raising following questions for our consideration:-

“[A] Whether the Appellate Tribunal is right in law and on facts in deleting the addition of Rs.10,35,384/- made on account of treating the share trading loss as speculative loss, in accordance with provisions of Explanation to section 73?

[B] Whether the Appellate Tribunal is right in law and on facts in deleting the enhancement made by CIT(A) of Rs.69,230/- made on account of accrued interest on loans given to Dhiren H. Vora?”

2. Question [A] pertains to deletion of Rs.10.35 lakhs (rounded off) made by the Assessing Officer and confirmed by CIT(Appeals) treating the share trading loss of the assessee as speculative loss.

3. Briefly stated the facts are that the respondent assessee is in the business of trading of shares. It also has other sources of income. For the Assessment Year 2000-01, the assessee claimed the loss of Rs.10.35 lakhs to be set off against other incomes. The Assessing Officer was of the opinion that in terms of section 73 of the Income Tax Act (“the Act” for short) the loss being speculative in nature could not be set off against other income. The assessee contended that the provision of section 73 would not apply nor would the explanation contained to the said section bring the assessee within the sweep of sub-section (1) of section 73.

4. It was pointed out that the assessee’s gross total income included income from interest of Rs.13.48 lakhs (rounded off) against the trading loss of shares of Rs.10.35 lakhs. When the Assessing Officer did not accept such contention and disallowed the claim, the assessee preferred the appeal. CIT(Appeals) rejected the assessee’s appeal upon which further appeal came to be filed before the Tribunal. The Tribunal reversed the decision of Revenue authorities making following observations:-

“10. We have heard the rival submission and perused the orders of the lower authorities and the materials available on record. In the instant case for assessment year 2000-01, the assessee earned interest income of Rs.13,48,350/- and claimed set off of loss from share trading business of Rs.10,35,384/-. Similarly, in the Assessment Year 2001-02, the assessee declared interest income of Rs.6,60,765/- and other income of Rs.42,404/- aggregating to Rs.7,03,169/- and claim set off of share trading loss of Rs.6,90,582/- there against. The Learned Assessing Officer observed that the assessee company has disclosed interest income as business income and the investment of the assessee company in share business was more than the investment of the assessee company in share business was more than the investment made for earning interest income opined the Explanation to Section 73 was attracted in the case of the assessee. In this view of the matter, he treated the share trading loss of the assessee as speculation loss and not allowed set off for both the year under appeal. The Learned Commissioner of Income Tax (Appeals) confirmed the above action of the Learned Assessing Officer. We find from page-37 of the paper book where copy of ledger account of Abhijay Capital Services that during the Assessment Year 2000-01. Thus, it is observed that the entire interest of Rs.13,48,350/-was earned by the assessee from advancing loan from one party only during the Assessment Year 2000-01. Further, on page-64 of the paper book contain ledger account of Dindayal Associates for the Assessment year 2001-02 and we find there from the interest income of Rs.6,60,765/- earned during the year. Thus, again it is observed that entire interest income of Assessment year 2001-02 was also earned from one party. The assessee has also filed at page-54 of the paper book details of other income which comprises of profit of sale of computer on Rs.38,904/- and other income of Rs.3500/-aggregating Rs.42,404/-. Thus, the total income from oth