K.J.SENGUPTA, J. - (1.) THIS appeal has been directed against the judgment and order dated 11th August, 2004 passed by the Income Tax Appellate Tribunal, 'E' Bench, Kolkata in I.T.A. 2425/Kol/2003 for the assessment year 2000 -01. The said appeal has been admitted by this Hon'ble Court by an order dated 23rd December, 2004 on the following substantial questions of law: - "(i) Whether the Tribunal was justified in law in holding that Explanation to Section 73 was applicable in respect of the loss incurred by the appellant in the business of trading in shares and such loss was to be treated as speculation loss and its purported findings in that behalf are arbitrary, unreasonable and perverse? (ii) Whether the Tribunal was justified in law in not considering and/or dealing with the appellant's contention that the interest earned on loans was to be assessed under the head "income from other sources" and since the interest - income was higher, the losses in share -trading could not be treated as speculation loss? (iii) Whether and in any event and even if the interest - income is held to be assessable under the head "business", such business was required to be treated as the appellant's principal business ruling out the application of the Explanation to Section 73 and the purported findings of the Tribunal to the contrary are arbitrary, unreasonable and perverse?"
(2.) THE short fact of this case leading to preferring the instant appeal is as follows: - In the relevant assessment year the return of income the appellant has shown loss of Rs.3,31,023/ - in the business of purchase and sale of shares of other companies. The said loss has been set off against the interest income amounting to Rs.5,48,716/ -. The Assessing Officer has found that the total income of the appellant did not consist mainly of income from other sources, capital gains, interest on securities and income from house properties. It was noted by the A.O. on fact that the principal business of the appellant was not of banking or granting of loans and advances. In view of the above factual findings A.O. requested the assessee to explain why the share trading loss should not be deemed as speculation loss in view of provisions of Section 73 of the Income Tax Act, 1961. The appellant explained to the said quarries. It was stated in the explanation that it earned interest amounting to Rs.5,48,716/ - under the head 'income from other sources', which is more than the loss of Rs.3,31,022/ - suffered in the business of purchase and sale of shares. It was explained further that out of the total fund of Rs.1,44,38,560/ - more than 62 percent was invested in the business of finance. Thus it was the contention that the loss cannot be treated as speculation loss. However, A.O. did not accept the explanation offered by the appellant and the said income was assessed only under the head "business income" and not under the head "income from other sources". It was also found by the Assessing Officer that for more than 10 months of the year, less than 50 percent of the fund available was utilized in its business of granting loans and advances. The Assessing Officer called upon the assessee to explain further in that regard in view of the above findings. The explanation offered was not accepted by the A.O. and treated the loss suffered by the appellant in the business of share trading as speculation loss applying explanation of Section 73 of the Income Tax Act, 1961. The above order was carried on to the Appellate Authority namely Commissioner of Income Tax (Appeals) unsuccessfully. It appears that the Commissioner of Income Tax also analyzed the fact and did not interfere with the decision of the A.O. in applying explanation of Section 73 of the Income Tax Act, 1961. Thus assessee went up to the learned Tribunal in appeal from which the impugned judgment and order was passed as the learned Tribunal refused to interfere with the decision rendered by two authorities below. Mr. Khaitan, learned Senior Advocate appearing for the appellant submits that on the facts and circumstances of this case explanation to Section 73 will not apply as the income shown in the return should have been treated under head "other sources", as the principal business of the assessee is granting of loans and advances. His grievance is that learned Tribunal did not consider nor decide the assessee's contention that the interest income was assessable under the head "other sources". The criterion of turnover may be relevant when it is a case of comparing commodities. In order to elucidate this plea he contends that when share trading is compared with granting of loans turnover may be relevant. Turnover in respect of a commodity would depend upon how many times the same amount of money is rolled over in repeated activities of buying and selling the commodity. Money given by way loan is ordinarily not rolled over in the same manner. He submits on fact findings of all the parties that by the end of the year the assessee's principal business was that of a granting loans and advances was not justified. He submits that once a particular business is found to be principal business as at the end of the year, such business alone can be regarded as assessee's principal business. It would be illogical to suggest that the business of granting of loans and advances would be accepted as the principal business because it was carried on at the beginning and major part of the year though before the end of the year the assessee has substantially moved out of it, and went for some other business.
(3.) HE submits referring to the decision of this Court in case of Peerless Financial Services Ltd. v. C.I.T. reported in (2011) 335 ITR 452 (Cal) that the income generation test is also relevant for deciding the principal business. He further submits that on application of capital deployed test as also the income generation test, the principal business of the assessee should have been accepted as that of granting of loans and advances since the capital deployed in loans and interest income were higher as compared to the share trading business. In the alternative, he submits that if according to the Tribunal the interest income had become obscure, it should have held that such income was assessable under the head "other sources" and had been higher the loss in share trading could not be treated as speculation loss.;