2019 (5) TMI 1165 - SUPREME COURT

Treatment of loss from share trading - speculative loss OR business loss - set off of speculation loss to be against profits of trading in futures and options - effect of statement of assessee made before AO - scope of amendment made in Explanation to Section 73 by the Finance (No 2) Act 2014 - retrospective OR prospective - HELD THAT:- In the present case, there is no dispute about the fact that the assessee was registered as an NBFC under the provisions of the Reserve Bank of India Act, 1934. Section 73(1) does not define specifically, the circumstances in which the principal business of a company would be regarded as a business of the specified description. In the present case, the principal business was urged to be the granting of loans and advances. We cannot accept this submission and are of the view that the High Court was justified in rejecting it.

The circumstance, which in our view is of crucial significance, is how the assessee construed its own line of business. The specific admission of the assessee before the assessing officer assumes significance. The assessee made an admission on a statement of fact which in our view, must bind it. In this view of the matter, the principal business of the assessee was not of granting loans and advances during the assessment year. As a consequence, the deeming fiction u/s 73 would be attracted. Hence, the finding of the High Court, on the first aspect, cannot be faulted.

Impact of amendment - The amendment which was brought by Parliament to the Explanation to Section 73 by the Finance (No 2) Act 2014 was with effect from 1 April 2015. In its legislative wisdom, the Parliament amended Section 43(5) with effect from 1 April 2006 in relation to the business of trading in derivatives, Parliament brought about a specific amendment in the Explanation to Section 73, insofar as trading in shares is concerned, with effect from 1 April 2015. The latter amendment was intended to take effect from the date stipulated by Parliament and we see no reason to hold either that it was clarificatory or that the intent of Parliament was to give it retrospective effect.

The consequence is that in A.Y. 2008-2009, the loss which occurred to the assessee as a result of its activity of trading in shares (a loss arising from the business of speculation) was not capable of being set off against the profits which it had earned against the business of futures and options since the latter did not constitute profits and gains of a speculative business.

No error in the decision of the High Court. The appeal is, accordingly, dismissed.