Ms. Sonia Gokani, J. - This appeal is preferred under section 260A of the Income-tax Act ( to be referred to hereinafter as "the Act")aggrieved by the order of Income Tax Appellate Tribunal, Ahmedabad Bench (to be referred to hereinafter as "the Tribunal") dated 27-4-2012 proposing following substantial questions of law:-
A. |
|
Whether on the facts and in the circumstances of the case, Income Tax Appellate Tribunal, was right in law in confirming the allocation of business expenses amongst the speculation and non-speculation activities, though both were part of the single and indivisible business carried on by the appellant? |
B. |
|
Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in law and on facts in bifurcating the business expenses amongst three activities in the ratio of their turnover?" |
2. Brief facts are necessary for appreciating the questions raised before us:-
2.1 The appellant, a private company, is engaged in the business of trading of shares, gold bullion and commodities. For the assessment year 2007-08 the appellant filed the return of income declaring the total income of Rs.3,04,341/- and speculation loss of Rs.21,40,013/-. The Assessing Officer noticed that the expenses such as interest, depreciation, office and administration aggregating to Rs.13,76,995/- were relatable to both speculative and non-speculative activities, and therefore, the same was bifurcated in the ratio of income 2:3 vide order dated 27-11-2009.
2.2 This was challenged before Commissioner of Income-tax (Appeals) ("CIT" for short). CIT(Appeals) considered facts of the case of appellant in detail and elaborate submissions which were made on this issue. It also further noted that the business of the appellant of purchase and sale of shares is speculative in nature, as per section 73 of the Income-tax Act, whereas other business of the appellant is non-speculative. It also further recorded that the administrative and other expenses for both the speculative and non-speculative businesses are common and in absence of any proof on the part of the appellant that no part of these expenses relate to speculative businesses, CIT(Appeals) confirmed the order of the Assessing Officer, whereby it allocated the administrative and other expenses in the ratio of 2:3 considering the profit and volume of the business. CIT (Appeals) held as under:-
"Appellant could not submit any evidence or details as to how this ratio for allocation of administrative and other expenses is not correct. Since speculative loss cannot be set off against normal business income, the allocation of expenses relating to speculative business is necessary to arrive at correct speculative loss. Since the allocation of expenses done by the Assessing Officer is justified, the Assessing Officer's action is confirmed."
3. Aggrieved by and dissatisfied with such confirmation, the appellant assessee preferred the appeal before the Tribunal. The Tribunal also concurred with the findings of both the Assessing Officer and CIT(Appeals) relying on the decision of Allahabad High Court rendered in the case of Makhanlal Ram Swarup v. CIT [1966] 61 ITR 214.
4. The Tribunal relied on the judgment of Allahabad High Court rendered in the case of Makhanlal Ram Swarup (supra) where the assessee had several businesses and the Court held that these businesses were assessable under the head "Business, profession or vocation", nevertheless the expenses for each business will have to be separately considered, particularly if the loss or profit of each such business has to be separately treated for any purpose of the Act, even though ultimately the tax may be chargeable only on the totality of the profit and loss of the separate businesses. The Court held that where the assessee carries on the business in moneylending and speculation keeping only one common account for expenses incurred, for the purpose of computing the loss in speculative transactions to be carried forward, the Income-tax Officer was entitled to make an equitable apportionment of the expenses and add respective apportionment thereof to the gross losses in speculation. In the words of Allahabad High Court, it was held as under:—
"Ordinarily, the assessee would himself, for his own benefit and for the more efficient carrying on of his business, take into account the expenses incurred for each business separately, but if the assessee does not for any reason do so, the Income-tax Officer will have the right to apportion such expenses on a fair and reasonable basis. If the apportionment is unreasonable the petitioner can have the matter set right on appeal. We are however not called upon to consider that question in the present case as it was frankly conceded, and rightly so before the Income-tax Appellate Tribunal, that the apportionment, if it could have been made, was a reasonable one.
In this view of the matter, the question is answered in the affirmative by saying that the Income-tax Officer could have apportioned under section 10 of the Act the expenses between the money-lending and speculation business."
5. Tribunal bifurcated the allocation of Rs.13,76,995/- to all the three activities, namely, (1) purchase and sale of shares (2) speculative loans of commodity transactions and (3) income from derivation of shares on the basis of the turnover of these activities. This has aggrieved the appellant and, therefore, the present appeal proposing the aforementioned questions of law.
6. We have heard learned counsel Mr. Divatia for the appellant, who has fervently urged this Court that orders of all the three revenue authorities are misconceived and erroneous. According to him, it was not the stage at which such bifurcation could have been made. Again, it was a single and indivisible business carried on by the appellant and therefore no bifurcation could have been made of all the three activities. According to the learned counsel there is interconnection, interlacing and inter-management and common funds and, therefore, all the authorities failed to appreciate that the business in commodities included different items such as shares, bullions etc. He further urged that the decision of Makhanlal Ram Swarup's case (supra) would not be applicable in the instant case.
He relied on the judgment of Bombay High Court rendered in the case of CIT v. Darshan Securities (P.) Ltd. [2012] 341 ITR 556/206 Taxman 68/18 taxmann.com 142 considered the provision of sub-section (1) of section 73 of the Income-tax Act, 1961, particularly the Explanation and held that the same is designed to define a situation where a company is deemed to carry on speculation business. It is only thereafter that sub-section(1) of section 73 can apply. It further held that the Explanation to section 73 introduces a deeming fiction that where any part of the business of a company consists of the purchase and sale of shares of other companies, such company shall, for the purposes of the section be deemed to carry on speculation business to the extent to which the business consists of the purchase and sale of such shares. The deeming fiction applies only to a company and the provision makes it clear that the deeming fiction extends only for the purposes of the section. Applying the provisions of section 73(1) to determine whether a company is carrying on speculation business would reverse the order of application. For the ambit of sub-section (1) of section 73 is only to prohibit the setting off of a loss which has resulted from a speculation business, save and except against the profits and gains of another speculation business.
7. Per contra, learned Senior Counsel Mr. M.R. Bhatt appearing for the respondent department has vehemently urged that when all the three revenue authorities have concurrently held against the assessee, in absence of any question of law, present appeal need not be entertained. He also urged that stage had already come whereby the authorities needed to bifurcate the expenses. With no proof having been provided by the appellant, these authorities have correctly on the basis of volume and turnover allocated the expenses to different activities undertaken by the appellant.
8. Upon thus having heard both the sides and on examination of material on record, for the reasons to follow, hereinafter, the present Tax Appeal is not entertained.
9. It is not in dispute that the appellant carries on the business of trading of shares, gold bullion and commodities. It is also a matter on record that in the return filed for the assessment year 2007-08 the speculation loss of Rs.21,41,013/- has been shown whereas the total income of the assessee is Rs.3,04,341/-. On administrative and other expenses reflected in the books by the appellant, no segregation had been made and the total expenses are to the tune of Rs.13,76,995/- which admittedly were relatable to both speculative and non-speculative activities. The Assessing Officer and other authorities also have noted the expenses and bifurcated the same as under:-
| i. Office and Administrative expenses |
Rs.13,30,483/- |
ii. Interest expenses |
Rs. 1,138/- |
iii. Depreciation as per I.T. |
Rs. 36,913/- |
iv. Pre Inc. expenses written off |
Rs. 8,461/- |
Total |
Rs.13,76,995/- |
10. It is also not disputed that the expenses are relatable to both speculative and non-speculative transactions and therefore in appropriation to the absolute value of income such expenses have been divided in the ratio of 2:3 between speculative and non-speculative income. Authorities have also noted that the business of the appellant is the purchase and sale of shares which is a speculative business as per the Explanation to section 73.
10.1 This provision of the Income-tax Act provides that any loss computed in respect of the speculation business carried on by the assessee shall not be set off except against the profit and gains of another speculation business. Explanation specifies that where any part of the business of a company consists in 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 purchase and sale of such shares.
10.2 It is to be noted at this stage that judgment of Bombay High Court rendered in the case of Darshan Securities (P.) Ltd. (supra) relied upon by the petitioner may not come to the rescue of the appellant inasmuch as there is no dispute to the fact that the appellant is dealing in the purchase and sale of the shares. It is not being disputed that the business of the appellant is both speculative and non-speculative. The authorities have not applied the provisions of section 73(1) to determine that the appellant was carrying on speculation business. It is only after having held that the appellant dealt with the speculative business, they proceeded to allocate the expenses incurred by the appellant in the ratio of its volume and activities and apportioned the expenses equitably.
11. The administrative and other expenses incurred by the appellant are found to be common for both the speculative and non-speculative businesses, as these expenses related to both the streams, allocation of expenses was not only necessary but inevitable and moreover there had to be some rationale in bifurcating such expenses and when authorities have done it on the basis of profit and volume of the business in the ratio of 2:3, no error is committed at all by the Tribunal warranting any interference. Tribunal rightly applied the ratio of the case of Makhanlal Ram Swarup (supra). In absence of any perversity or in absence of any other ground made out for entertaining this appeal, more particularly, when all the three authorities have concurrently held in favour of the Revenue and against the assessee as also in absence of any substantial question of law, Tax Appeal merits no consideration and, the same is, therefore, dismissed.