TMI Blog2015 (7) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... ating them by the AO as speculative transaction, as per Explanation to section 73. Derivatives are assets, whose values are derived from values of underlying assets; in the present case, by all accounts the derivatives are based on stocks and shares, which fall squarely within the explanation to Section 73 (4). Therefore, it is idle to contend that derivatives do not fall within that provision, when the underlying asset itself does not qualify for the benefit, as they (derivatives - once removed from it and entirely dependent on stocks and shares, for determination of their value). See CIT-vs- DLF Commercial Developers. [2013 (7) TMI 334 - DELHI HIGH COURT] . Therefore the assessee was not entitled to carry forward its losses; the question framed is answered in favour of the revenue Addition towards the notional interest - CIT(A) deleted the addition - Held that:- The income under the Income Tax Act is leviable, as per the provisions of section 4 on the real income. This is not a case of the AO to disallow the interest claimed by the assessee as deduction. Until and unless the income has been received or accrued to the assessee, it cannot be regarded to be the income of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Option (F O) transactions as non-speculative loss, ignoring/ without having regard to the fact that the Explanation to Section 73 of the Income Tax Act, 1961 apply to the loss from delivery based transactions in shares and, therefore, this Explanation applies to loss from derivative (F O) transactions and such loss was in the nature of speculative loss. 5. That, on the facts and in circumstances of the case and in law, the CIT(Appeals) has erred in deleting the addition of ₹ 29,50,000/- made by the A.O. as notional interest on account of interest-free loans/advances given by the assessee-company without having regard to the fact that commercial expediency or the business purpose of such advances was not established by the assessee-company. 2. Ground nos.1 and 2 relate to the restriction of disallowance under section 14A to ₹ 4,86,108/- i.e. 50% of ₹ 9,72,216/- as made by the AO merely on the basis that disallowance, in the opinion of the CIT(A), is at much higher side. 3. We have heard the rival submissions and carefully considered the same. We noted that it is not the case of the assessee that the AO has applied rule 8D, while computing the disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the transactions are nothing but speculative by virtue to Section 73 of the Income Tax Act, 1961. On the other hand, from the material placed on record, I find that the transactions in shares and securities carried out by the appellant company are in the form of eligible transactions covered under clause (d) of sub-section (5) of section 43 of the Act. On careful consideration of the facts, I find merit in the contentions of the appellant that - (i) The Finance act, 2005 has amended the section 43(5) to provide that an eligible transaction in respect of trading in derivatives (Future and Option) securities carried out on a recognized exchange shall not be deemed as speculative transactions with effect from 24/01/2006. (ii) The basic principle of the legislation was to avoid litigations and to remove anomalies in the interpretation of the Income Tax Act, 1961. (iii) The Assessing Officer failed to read correctly the contract notes as because the contract notes of the delivery based transactions and future and option transactions are similar in the nature, wherein in the future and option, it is specifically mentioned that the transactions are of Future and option. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. In terms of the Explanation to Section 73 (4) in the case of a company, business of purchase and sale of shares is deemed to ITA 94/2013 Page 8 be speculation business. However, certain companies are excluded from this Explanation which are: (i) a company whose gross total income consists mainly of income which is chargeable under the heads 'Interest on securities', 'Income from house property', 'Capital gains' and 'Income from other sources'. (ii) a company, the principal business of which is the business of banking or the granting of loans and advances. 8. Section 43 defines, for the purpose of Sections 28 to 41, certain terms. These latter provisions fall in Chapter IV, in Section D, which deal with computation of business income. The said provisions provide for matters relating to computation of such income, rent taxes, insurance of buildings, repairs of plant and machinery, depreciation, reserves for shipping business, rehabilitation fund, expenditure on certain eligible objects or schemes, deductions, amounts not deductible, profits chargeable to tax, etc. The assessee is no doubt correct in contending that the only definition of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 73, yet, the Court would be doing violence to Parliamentary intendment. This is because a definition enacted for only a restricted purpose or objective should not be applied to achieve other ends or purposes. Doing so would be contrary to the statute. Thus contextual application of a definition or term is stressed; wherever the context and setting of a provision indicates an intention that an expression defined in some other place in the enactment, cannot be applied, that intent prevails, regardless of whether standard exclusionary terms (such as unless the context otherwise requires ) are used. In The Vanguard Fire General Insurance Co. Ltd., Madras v. M/S. Fraser And Ross Anr AIR 1960 SC 971 it was held that: It is well settled that all statutory definitions or abbreviations must be read subject to the qualification variously expressed in the definition clauses which created them and it may be that even where the definition is exhaustive inasmuch as the word defined is said to mean a certain thing, it is possible for the word to have a somewhat different meaning in different sections of the Act depending upon the subject or the context. That is why all ITA 94/2013 Page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it and entirely dependent on stocks and shares, for determination of their value). 12. In the light of the above discussion, it is held that the Tribunal erred in law in holding that the assessee was entitled to carry forward its losses; the question framed is answered in favour of the revenue and against the assessee. The appeal is, therefore, allowed; there shall be no order as to costs. 6.1 The ld. AR before us could not bring to our knowledge any contrary decision which had a view contrary to the aforesaid decision of the Hon'ble Delhi High Court. We, therefore, respectfully following the decision of the Hon'ble Delhi High Court, set aside the order of the CIT(A) on this issue and restore the order of the AO. Thus, these grounds of the Revenue stand allowed. 7. Ground no.5 relates to the deletion of addition of ₹ 29,50,000/- towards the notional interest. Brief facts relating to this ground are that the assessee company advanced a sum of ₹ 13,50,00,000/- to one M/s. Aarhat Investments for the purchase of bonds and shares, which firm failed to execute the purchase. The AO calculated the notional interest of ₹ 29,50,000/- and added the same in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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