TaxTMI 
TaxTMI 
2002 (7) TMI 223
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....n the relevant previous year' the assessee has sold some shares which were held by it as stock in trade' and that the assessee incurred loss of Rs. 1,41,60,772 on such transactions. It is also an admitted position that main source of income for the assessee was under the head 'income from business' and, accordingly, the assessee's case was not covered by exclusion clause in Explanation to section 73. On these admitted facts, Assessing Officer required the assessee to show cause as to why the loss incurred in share transactions should not be treated as a, speculation loss' and, on that basis, its set off against the 'income from business' be declined. The thrust of assessee's submission was that since there has been actual delivery of scrips, 'the impugned transaction falls beyond the ambit of speculative transaction as defined in section 43(5)', and in support of this proposition a reference was also made to the definition of 'speculative transactions' under section 43(5) of the Act. Referring to the wordings of Explanation to section 73, it was further submitted that speculative transaction carried on by the assessee should be su....
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.... treated as speculation loss since assessee company's main income was not from interest on securities, income from house property, capital gains or income from other sources. Aggrieved inter alia by the loss on share transactions being treated as 'speculation loss', assessee carried the matter in appeal before the CIT(A) but without any success. Still aggrieved, the assessee is in second appeal before us. 5. Dr. Debi Pal, learned counsel for the assessee, submitted that the Explanation to section 73 has no application in the matter. He laid great emphasis on the words 'for the purpose of this section' mentioned in the Explanation to section 73, and submitted that the Explanation to section 73 is relevant only for the purposes of section 73 itself and does not travel to sections 70, 71 and 72, or, for that purpose, to any other section of the Act. It is then submitted that when the unabsorbed business loss is carried forward under section 72 of the Act, there is no question of declining carry forward of the said unabsorbed business loss because of application of section 73 of the Act. It is further submitted that as to what will constitute speculation loss for....
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....ist on the statute, it is not open to us to apply this Explanation beyond section 73, and thereby supplant the law or to cure the deficiencies contained therein. Learned counsel submitted that if the words used in section 73 were 'for the purpose of setting off and carry forward of losses' in the place of 'for the purpose of this section', the assessee would indeed have had no case but then this Tribunal can only interpret the law as it actually existed and not as it should have existed. He thus admitted to be capitalizing on, what he perceived as, a 'lacunae in drafting of Explanation to section 73'. It was on the basis of these submissions that learned counsel urged us to reverse the orders of the authorities below, by issuing direction to the effect that loss of Rs. 1,41,60,772 is required to be treated as a 'business loss', as against 'speculation loss' held by the authorities below. Without prejudice to these arguments, it was further submitted that loss in share dealings was only on account of fall in value of shares held as closing stock and, therefore, the loss so suffered cannot be said to be loss on account of 'purchase and sale....
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....esentative thus urged us to approve the orders of the authorities below and, thereby, decline to interfere in the matter. We have heard the rival contentions, perused the orders of the authorities below and deliberated upon the applicable legal provisions and legal precedents on the issue in appeal before us. 6. We find that sub chapter 'set off, or carry forward and set off' in chapter VI of the Income Tax Act beings with section 70 which, as it stood at the material point of time, is reproduced below for ready reference: "Save as otherwise provided in this Act, where the net result for any assessment year in respect of any source falling under any head of income is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head." It is thus abundantly clear that the right to set off wider section 70 is subject to other provisions of the Act which includes section 73 as well. Section 73 of the Act provides as follows: "73. Losses in speculation business. - (1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except agai....
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.... section 72 of the Act, which deals with 'carry forward and set off of business losses' provides as follows : "72. Carry forward and set off of business losses. - (1) Where for any assessment year, the net result of the computation under the head profits and gains of business or profession' is a loss to the assessee, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off or, where he has no income under any other head, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and - (i) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year; (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on: Provided that where the whole or any part of such loss is sustained in any such business as is referred to in sect....
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....his principle is described in Sampat Iyengar's commentary on Law of Income Tax as follows: "The general maxim is generalia specialibus non derogant, that is, general things will not derogate from special things. The maxim is also otherwise expressed as generalibus specialia derogant. A special provision normally excludes the operation of a general provision. ... It can be resorted to for deciding the competing claims of two provisions in the same enactment, one specific and other general with some overlapping between the two. The requisite conditions to attract this principle are: Firstly, both the general enactment and the particular enactment must be simultaneously operative, the general enactment covering larger field and particular enactment covering a limited field out of a larger field covered by the general enactment and, secondly there must be nothing contained in the general provisions indicating the legislative intent to overrule or set aside the particular provision." 10. This principle has also been dealt with by Kolkata SMC bench, in the case of ACIT v. Executors of the Estate of Bhagwan Devi Sarogi [2001] (79 ITD 539), wherein Hon'ble Vice Presiden....
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....ready carried forward under section 72 of the Act, by the time it comes to application of section 73, there is nothing left to which this section can be applied. However, the very basis of this proposition is fallacious because, as we have observed earlier in this order, in view of the principle of generalia specialibus non derogant, section 73 being a specific provision has to take precedence over the general provisions of section 72. In any event, the precedence being assigned to provisions of law based on the order in which they are placed in an enactment is alien to the principles of interpretation. As for the precedence being assigned to various sections in the case of Rajan Enterprises (P.) Ltd., it is because unless intra head set off (section 70) is done, one cannot even work out the incomes under various head which will be the basic figures for inter head adjustment (section 71), and because unless interhead adjustment is done, gross total income cannot be worked out without which calculations for section 73 cannot be done. In our considered view, this order of precedence has nothing to do with, as suggested by the learned counsel, with the order in which the sections are ....
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....1976 which inter alia states as follows: "Section 73 provides that any loss computed in respect of speculation business carried on by an assessee will not be set-off except against the profits & gains, if any, or another speculation business. Further, where any loss, computed in respect of a speculation business for an assessment year is not wholly set-off in the above manner in the said year, the excess shall be allowed to be carried forward to the following assessment year and set-off against the speculation profits, if any, in that year, and so on. The Amending Act has added an Explanation to section 73 to provide that the business of purchase and sale or shares by companies which are not investment or banking companies or companies carrying on business of granting loans or advances will be treated on the same footing as a speculation business. Thus, in the case of aforesaid companies, the losses from share dealings will now be set off only against profits or gains of a speculation business. Where any such loss for an assessment year is not wholly set-off against profits from a speculation business, the excess will be carried forward to the following assessment year and....
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....r the following observations of Fry, L.J., at page 519: The only alternative construction offered to us would lead to this result, that the plain intention of the Legislature had entirely failed by reason of a slight inexactitude in the language of the section. If we were to adopt this construction, we should be constructing the Act in order to defeat its object rather than with a view to carry its object into effect." Vide also Craies on Statute Law, page 90 and Maxwell on The Interpretation of Statutes, Tenth Edition, pages 236-237. "A statute is designed", observed Lord Dunedin in Whitney v. Commissioners of Inland Revenue, "to be workable, the interpretation thereof by a court should be to secure that object, unless crucial omission or clear direction makes that end unattainable." 15. In case we are to accept the contentions of the learned counsel, Explanation to section 73 has to be treated as otiose because, if this provision cannot be put into service for determining what is 'speculation loss' for the purpose of 'carry forward and set off' of losses, this provision cannot be put into service for any other purpose at all. This construction....
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....usiness 'to the extent to which the business consists of the purchase and sale of such shares'. The definition thus sought to be placed is of the 'speculation business' and not 'speculation profits'. As to what will constitute profits from such speculation business, this is to be essentially governed by the normal accounting principles and business practices. Unlike the definition under section 43(5) which defines 'speculative transactions' per se, the deeming provisions of Explanation to section 73 lay down the circumstances in which, and the extent to which, a business is to be deemed as, speculation business'. The thrust of the provisions under Explanation to section 73 is on the nature of 'business', rather than nature of 'transaction'. It is thus immaterial as to whether profit is, or is not, on account of sale and purchase of shares but, in our considered view, to the extent it is arising out of 'business of purchase and sale of shares', it will be hit by the provisions of Explanation to section 73. As held by Hon'ble Supreme Court in the case of Chainrup Sampatram's case loss on account of fall in value of s....
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....s. 1,41,60,772 as speculation loss as per Explanation to section 73' of the Act. We thus decline to interfere in the orders of the authorities below. 21-33. These paras are not reproduced here as they involve minor issues.] 34. We now move on to ITA No. 320/Cal./98. 35. In this appeal, the assessee has taken four grounds but solitary grievance of the assessee is against CIT(A)'s confirming the order of the Assessing Officer holding that not treating the loss of Rs. 233.83 lakhs, incur-red by the assessee in business of sale and purchase of shares, as,speculation loss' was a mistake apparent from record and that this mistake was liable to be rectified under section 154 of the Act. 36. Briefly, the material facts are that after the assessment under section 143(3) was completed, assessing total income at Rs. 1132.19 lakhs, the Assessing Officer realised that though the assessee had disclosed a loss of Rs. 233.83 lakhs from business of trading in shares and though the provisions of Explanation to section 73 were clearly applicable in assessee's case, the Assessing Officer had treated allowed set off of loss incurred in such share trading against the normal b....
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.... allowance of carry for-ward of the loss in speculation business. Aggrieved, the assessee carried the matter in appeal but without any success. Still aggrieved, the assessee is in second appeal before us. 38. As this appeal was heard along with ITA No. 313/Cal./98 wherein the very applicability of Explanation to section 73, for determining as to what will constitute 'speculation loss', was challenged, learned counsel urged to us to take into account his submissions in ITA No. 313/Cal./98 so far as merits of the matter are concerned. Without prejudice thereto, it was further argued that in the light of the elaborate submissions made on that aspect of the matter, it may be appreciated that two views about applicability of Explanation to section 73 in the instant case are at least possible and, therefore, the mistake, even if there be any, is not a mistake which can be covered by the limited scope of section 154. Learned counsel also placed reliance on the landmark judgment of Hon'ble Supreme Court in the case of TS. Balaram ITO v. Volkart Bros. [1971] 82 ITR 50. On the other hand; learned Departmental Representative placed his reliance on the authorities below. Rival c....
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....tion is covered by the definition of 'speculative transaction' under section 43(5), losses from such transactions cannot be, treated as 'speculation losses' for the purpose of 'set off' or 'carry forward and set off'. None of these propositions can, therefore, constitute a 'possible view' in the context of the scope of section 154, as both these legal propositions, in our considered view, are devoid of any substance. In any event, in the course of original assessment proceedings, the Assessing Officer had simply not taken into account the provisions of Explanation to section 73 and the admitted facts of the case warranted application of the same. Therefore, it could not be said that there was no error apparent from the records. As held by Hon'ble Supreme Court, in the case of ITO v. Bombay Dyeing & Mfg. Co. Ltd. 34 ITR 143. 'If that be the true position then the order ... is plainly and obviously in consistent with a specific and clear provision of the statute and that must inevitably be treated as mistake apparent from record .... If a mistake of fact apparent from record of the assessment can be rectified...... we see no reason why ....