TaxTMI 
TaxTMI 
2019 (5) TMI 1165
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....ed under Section 143(2). By an order dated 14 December 2010 the assessing officer recorded that the principal business activity of the assessee is trading in shares and securities. The loss from share trading was held to be a speculation loss. The assessing officer held that in view of the provisions of Section 43(5)(d), activities pertaining to futures and options could not be treated as speculative transactions. The loss from speculation was held not to be capable of being set off against the profits from business. 4. Against the order of the assessing officer for assessment year 2008-2009, an appeal was filed before the CIT(A). The CIT(A) held that the assessee derived income from trading in derivatives and share business along with dividend and interest and was an NBFC. The CIT(A) inter alia held that the provisions of Section 43(5) came into existence with effect from 1 April 2006 and hence, transactions in futures and options must be treated as business income as distinct from trading in shares. Consequently, the CIT(A) rejected the contention of the assessee that the assessing officer had erred in not allowing the speculation loss to be set off against profits of trading ....
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....13.48 crores; (ii) Funds deployed for loans and advances - Rs. 11.32 crores (iii) Percentage - 84% (iv) Deployed for share business - Rs. 1.28 crores (v) Percentage - 9.5% (vi) Unsecured loans - Rs. 5.92 crores Consequently, the submission which has been urged under the first head is that the assessee having deployed a substantial part of its funds during the assessment year for loans and advances, the High Court erred in accepting the view of the assessing officer. It was urged that the assessee has a certificate as an NBFC under the provisions of the Reserve Bank of India Act 1934. 9. The second limb of the submissions, which is in the alternative, is that the provisions of the Explanation to Section 73 were amended so as to bring trading in shares within its purview by Finance (No. 2) Act 2014. It was urged that this amendment should be construed to be retrospective, though Parliament has brought it into force with effect from 1 April 2015. In this regard, it was submitted that insofar as trading in derivatives is concerned, the provisions of Section 43(5) were amended by Finance Act, 2005 to provide that an eligible transaction....
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....on that the principal business for the assessment year was not the granting of loans and advances. This finding was supported on the above two grounds. 11. On the second issue of the claim of retrospectivity, it was urged that though the Court has the power in an appropriate case, based on the intent of the legislature to hold that an amendment is retrospective, the position in this case is quite distinct. In the present case, it was submitted that when the provisions of Section 43(5) were amended with effect from 2006 by the Finance Act 2005, the legislature took note of the provisions of Section 73. Yet it did not consider it appropriate to make a corresponding amendment in the Explanation to Section 73 and it is only nine years thereafter that an amendment to the latter provision was introduced. Hence, it was urged that the intent of the legislature was not to make the amendment to the Explanation to Section 73 retrospective. 12. Reliance has been placed on the decisions of this Court in Commissioner of Income Tax (Central)-I, New Delhi v. V atika Township Private Ltd.[2015] 1 SCC 1 and on the judgment of a three judge Bench of this Court in Vijay Industries v. Commissione....
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....ities carried out on a recognised stock exchange shall not be deemed as speculative transaction. The notification prescribing the rules and the conditions to be fulfilled by a stock exchange to be recognized by the Central Government for the purposes of section 43(5) [i.e., Rules 6DDA and 6DDB of the Income-tax Rules, 1962] has been published in the Official Gazette on 1st July, 2005 vide S. O. No. 932(E). Applicability: From A.Y. 2006-07 onwards." 16. Section 73 deals with losses from speculation business. Under sub-Section (1) of Section 73, a loss computed in relation to speculation business carried on by an assessee can only be set off against the profits and gains of another speculation business. The Explanation to Section 73 contains a deeming fiction where certain businesses shall, for the purposes of the section, be deemed to be speculation businesses. The Explanation also carves out an exception in respect of certain specified businesses which shall lie outside the fold of the deeming fiction. Prior to the amendment of the Explanation by the Finance (No. 2) Act 2014 with effect from 1 April 2015, the business of trading in shares carried on by a company was not....
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...., which in our view is of crucial significance, is how the assessee construed its own line of business. The High Court has extracted what the assessee stated before the assessing officer namely: "............ in our case the share trading is our sole business during the assessment year under concern". From the above statement of the assessee, it is evident that the assessee itself stated that share trading was its sole business during the assessment year in question i.e. A.Y. 2008-2009. 21. Mr. R.V. Easwar, learned senior counsel submits that while the assessee did make this statement before the assessing officer, it should not be regarded as conclusive. It was urged that the submission of the assessee was also rejected on the basis that while it had received interest on loans of Rs. 2.21 lakhs, it had paid out interest of Rs. 62.84 lakhs. The submission is that, it is not merely the receipt of interest on loans and advances, but the deployment of funds which should have a bearing in determining the principal nature of the business. In this context, reliance was placed on the view taken by a Division Bench of the Calcutta High Court in Commissioner of Income Tax v. S....
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....n 43(5), the Parliament indeed was cognizant of the provisions which were contained in Section 73(4). The above memorandum indicates that the provisions of Section 73(4) were proposed to be amended so as to reduce the period of carry forward of speculation losses from eight assessment years to four assessment years. Having introduced an amendment to Section 73(4), the Parliament would have, if it intended to bring about a parity with the provisions of Section 43(5) introduced a specific amendment. Parliament, however, did not do so by the Finance Act 2005. It was only with effect from 1 April 2015 that an amendment was brought about to exclude trading in shares from the deeming provision contained in the Explanation to Section 73. Parliament may have had reasons to allow the situation to continue until the amendment was brought into force, including its view in regard to the stability of the stock market. Insofar as this Court is concerned, It would be difficult to hold that the provisions which were contained in the Finance Act (No. 2) 2014 insofar as they amended the Explanation to Section 73 were clarificatory or that notwithstanding the provision by which the amendment was brou....
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....ective effect to clarify the ambit of Section 43-B(a). This Court held that if Explanation 2 is retrospective, the first proviso would be similarly so construed. This position was re-enforced by a departmental circular. The Court, in other words, interpreted the intent of Parliament. 27. A similar line of enquiry has been adopted in the subsequent decision of this Court in Alom Extrusions (supra). In that case, while construing the provisions of Section 43-B, this Court held: "25. Before concluding, we extract hereinbelow the relevant observations of this Court in CIT v. J.H. Gotla (1985) [1985] 4 SCC 343 which reads as under: (SCC p. 360, para 47) "47. ... we should find out the intention from the language used by the legislature and if strict literal construction leads to an absurd result i.e. result not intended to be subserved by the object of the legislation found in the manner indicated before, and if another construction is possible apart from strict literal construction then that construction should be preferred to the strict literal construction. Though equity and taxation are often strangers, attempts should be made that these do not remain always so ....