That on the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred both in law and on facts in directing that the speculation losses are to be treated as ordinary business losses.
2. The assessee, is a limited company and derives income from share dealings and dividend. The assessee during the year under appeal disclosed share loss of Rs. 12,90,145 for which delivery was taken by it. The speculative loss was shown at Rs. 7,95,447. The Income Tax Officer discussed the nature of the business of the assessee and indicated that it was a dealer in shares and it was not an investor.
He, accordingly, came to the conclusion that the business loss shown by the assessee at Rs. 12,90,145 could be taken as speculative loss in view of Explanation to Section 73 of the Income-tax Act, 1961.
3. The assessee went in appeal before the Commissioner of Income-tax (Appeals) and contended that it was an 'Investment Company' within the meaning of Section 109(ii) of the Act and indicated that its dividend income was greater than the business income. Therefore, it was an 'investment company' and, consequently, the business, loss in shares could not be taken as speculative loss in view of Explanation to Section 73 of the Act. The argument of the assessee was accepted by the CIT(A) who directed the ITO to treat the loss from share dealings as an ordinary business loss and not as a speculative loss.
4. Shri S. C. Sen, Senior Departmental Representative, stated the facts and urged that the finding given by the CIT(A), on the facts of the case, is not fair. He pointed out that the assessee was a dealer in shares and. it suffered loss during the year under consideration. The loss incurred by the assessee was of two types : one in share dealing and the other in speculation. The total loss shown by the assessee is roughly Rs. 20,85,592. Dividend was received by the assessee at Rs. 3,87,603. The loss and income are two faces of the same transaction and, therefore, once the loss is greater than the income from dividend the assessee is not an 'investment company' within the meaning of Section 109(ii) of the Act. Shri Sen, accordingly, urged that the finding of the CIT(A) should be reversed.
5. The counsel for the assessee, Shri P. K. Ghosal, on the other hand, very strongly placed reliance on the finding of the CIT(A) and urged that the CIT(A) has found that the income from the dividend was greatar than the business income of the assessee and, therefore, his finding should be maintained.
6. The assessee is a limited company and is a dealer in shares. The assessee-company disclosed share loss from business at Rs. 12,90,145 and loss in speculation was at Rs. 7,95,447. The net loss as per profit and loss account was at Rs. 28,50,358. Dividend income was shown at Rs. 3,87,603. There is some confusion about the computation of income made by the ITO. However, the real question is : whether the assessee was an investment company 'Investment Company' has been defined in Section 109(ii) of the Act. According to that section, if the income of the limited company from interest on securities, from house property, capital gains and income from other sources is greater than the other income of the company, the company may be treated as an 'investment company'. Once the business income is greater than the income from the aforesaid sources, the company could not be treated as an investment company. It has been indicated that the assessee disclosed the total share loss of Rs. 20,85,593 from business as well as speculation. The income from dividend was Rs. 3,87,603. The assessee has excluded the losses and thereby indicated that the business income was greater. The ITO started computation as per the net loss shown in the profit and loss account at Rs. 28,50,358 from which he deducted the loss shown in share transaction and the proportionate expenses incurred thereon at Rs. 29,06,992. Deduction of greater amount has been made from the net loss. The ITO has given the positive figure of Rs. 56,634 which is misleading and may not be correct. However, the assessee has suffered loss from business at a higher amount than the amount of dividend received by it during the year under appeal. The argument of the departmental representative is that loss is the only other side of income. The loss from share dealing was more than the income from other Sources. Therefore, the assessee was not an investment company.
7. The contention of the departmental representative appears to be correct. Income-tax is levied on the income of an assessee. The business income is computed under Chapter D. The profits and gains of business or profession is computed under Section 28 to 43 of the Act.
These sections do not indicate the computation of loss. However, if the computation of income results in loss, the loss is also determined under the aforesaid sections. Therefore, the argument of the departmental representative that income includes, loss has a substance.
'Income' is defined in Section 2(24) of the Act. The definition is inclusivethat meansthe definition of 'income' is not very exhaustive and it has not been defined in a limited sphere. However, while levying income-tax and computing the income from different sources, the loss is determined and a right arises to avail the benefit of the same against the income of future years. The Legislature has restricted, wherever necessary, that loss may not be available for set off or carry forward.
Therefore, it is clear that when an assessee is given the right of claiming the benefit of carry forward of loss determined in one year against the income of the subsequent year, the loss cannot be treated separately and could be given a different meaning.
8. The word 'income' has been considered by the Hon'ble Supreme Court in the case of CIT v. J. H. Gotla [1985] 156 ITR 323 with reference to Section 16(3) of the Indian Income-tax Act, 1922 (Section 64 of the Income-tax Act, 1961). The facts of the said case are that an individual transferred a part of oil mill machinery to his wife and three minor children. The wife and the minor children constituted a firm with a third party with the said plant and machinery. The income earned by the wife and minor children was includible in the hands of the individual. The individual carried forward the loss in his individual business from the earlier years. The individual claimed set off under Section 24(2) of the loss of the individual business against the income includible under Section 16(3) of the 1922 Act. The claim of the assessee was negatived by the Tribunal. The Hon'ble High Court accepted the claim and the decision of the Hon'ble High Court was confirmed by the Supreme Court. The concept of 'income' within the meaning of Section 16(3) read with Section 24(2) was not different from the concept of 'income' as given in Section 109(ii) of the 1961 Act.
The concept of 'income' would only be applied as it is known under the Income-tax Act. Under the said circumstances, the Hon'ble Supreme Court at page 338 observed as follows : The question in the instant case is within a short compass. It can be accepted without much doubt that the income would include loss.
From the said observations given by the Hon'ble Supreme Court it is clear that the income includes loss and loss cannot be considered separately.
9. The definition of 'Investment company' under Section 109(ii) speaks of income. It does not speak of any loss. However, the income only from business is computed under Section 28 to 43 which may result in a loss and, therefore, the loss so computed under Section 28 to 43 of the Act could not be given a different meaning. Consequently, in the present case, the finding of the CIT(A) is not correct because the business loss of the assessee was far greater than the dividend income. Hence, the assessee was not an 'investment company' within the meaning of Section 109(ii) of the Act and the business loss in share dealing for the purpose of Section 73 of the Act can be treated as speculative loss in view of the Explanation appended to the said section. Accordingly, the order of the CIT(A) on this point is reversed and that of the ITO is restored.