TMI Blog2016 (3) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness or businesses which may for clarity be called proper business. Under Section 70 of the Act, the assessee is entitled to have the loss set off against his income from any other source under the same head unless otherwise provided. Therefore answer to the question is that the assessee is entitled to have the loss arising out of deemed business set off against the income arising out of business proper unless otherwise provided. The question however remains whether the explanation to Sub-Section (4) of Section 73 relied upon by Mr. Lodh provides otherwise. A plain reading of the explanation quoted above cannot be said to have provided otherwise. In that case the irresistible conclusion is that the assessee is entitled to set off such lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, unreasonable and perverse? (b) Whether on a true and proper interpretation of the Explanation to section 73 of the Income Tax Act, 1961, the Tribunal was justified in law in holding that the loss of ₹ 3,24,76,185/- incurred in eligible transactions within the meaning of proviso (d) to section 43(5) not involving any purchase or sale of shares as such was speculation loss ? (c) Whether and in any event, the appellant having earned profit in its business of purchase and sale of shares, the Tribunal should have directed the aforesaid loss in eligible transactions to be set off against such profit ? With regard to the first question, Mr. Khaitan submitted that the tax free income earned by the assessee is a meagre sum of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(5) of the Income Tax Act. Once it is deemed to be a business loss on the basis of the proviso appended to section 43(5), the question of applying section 73 or the explanation thereto for the purpose of refusing the loss to be set off against the business income is palpably wrong. He submitted that the judgment of the Delhi High Court relied upon by the learned Tribunal does not lay down good law. According to him, the Delhi High Court erred in holding that dealing in derivatives is also speculation within the meaning of section 73. Mr. Lodh, learned Advocate appearing for the revenue submitted that Section 43(5) is a general provision whereas Section 73 is a specific provision. He in particular, drew our attention to the explanation t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... schief of the aforesaid explanation. He added that when the business consisting of purchase and sale of shares of other companies amounts to a speculation business, can it be said that business in derivatives, which depend upon the value of the underlying shares, is anything other than a speculation business? According to him, the view taken by the Delhi High Court is the correct view and therefore, this Court should answer the question against the assessee. The view expressed by the Delhi High Court, relied upon by Mr. Lodh, reads as follows:- To borrow the Madras High Court's expression, derivatives are assets, whose values are derived from values of underlying assets ; in the present case by all accounts the derivatives are bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ides. Definition of ''speculative transaction'' has been provided in Sub-section (5) of Section 43, which in so far as material for our purposes, is as follows:- (5) speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips: Provided that for the purposes of this clause- (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is entitled to have the loss set off against his income from any other source under the same head unless otherwise provided. Therefore answer to the question is that the assessee is entitled to have the loss arising out of deemed business set off against the income arising out of business proper unless otherwise provided. The question however remains whether the explanation to Sub-Section (4) of Section 73 relied upon by Mr. Lodh provides otherwise. A plain reading of the explanation quoted above cannot be said to have provided otherwise. In that case the irresistible conclusion is that the assessee is entitled to set off such loss arising out of deemed business against the income arising out of business proper. The learned Tribunal has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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