D.K.Seth, J. - (1.) The question to be answered is : "Whether, on the facts and in the circumstances of the case, the learned Tribunal was justified in directing the AO to compute the total income of the assessee without applying the provisions of Explanation to Section 73 when the loss in share trading exceeded the income from other sources and the loss was a loss from speculative business contrary to the finding of the Tribunal that the loss is not speculative loss ?"
(2.) The AO had disallowed the benefit of the Explanation to Section 73 of the IT Act, 1961, to the assessee in respect of the asst. yr. 1989-90 declining to set off the loss in share dealing on the ground that this share dealing is a speculation business carried on by the assessee under Section 73(1) of the IT Act, 1961. The CIT(A) and the learned Tribunal had reversed the said order and had allowed the benefit of the Explanation to Section 73 holding that the main source of income of the assessee consists of income from interest on securities and income from house properties. It appears from the order of the appellate authority and the learned Tribunal that the income under the head of interest on securities and income from other sources exceeded the income of the assessee under other heads. From p. 25 para 3 of the order of the learned Tribunal, it appears that the income from other sources was Rs. 5,73,701 whereas the business income was Rs. 3,33,670. Upon such finding, the Tribunal had allowed the benefit of the Explanation to Section 73 and had permitted setting off the business loss within treating the same as a speculation loss.
(3.) It is abundantly clear from the said finding that the learned Tribunal had allowed the benefit of the Explanation to Section 73 after setting off of the speculation loss. In order to ascertain whether an assessee would be entitled to the benefit of the Explanation to Section 73, it is to be examined first whether the assessee comes within the exception provided in the said Explanation. It is to be found out as to how it stands before the benefit of the Explanation of Section 73 is allowed. The expression "......gross total income consists mainly of income. chargeable under the heads ....." used in the Explanation is clear and unambiguous. It gives out the intent of the legislature. Section 73 restricts adjustment of speculation loss with speculation profit only. Speculation loss is not permitted to be adjusted against business profit. This restriction is relaxed and adjustment is made permissible by reason of the Explanation in respect of a company whose gross total income consists mainly of income chargeable under the heads specified. It is the gross total income, which is to be taken into account first. If this test is satisfied, then only setting off against business profit is permissible.;