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TMI Blog2016 (8) TMI 735X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2,07,38,602/- as normal business loss instead of speculation loss in the facts and circumstances of the case. 4. The brief facts of this issue is that the assessee is a member of the National Stock Exchange (NSE) having its main business as stock broking. In addition to the broking business, it also deals in shares and derivatives for self. During the year, the assessee has incurred loss in delivery based share transactions and profits in the transactions in the derivatives segment and jobbing. The assessee reported the following income from share transactions as below:- Income from Brokerage 85,55,143 Profit from derivatives (F&O) 4,11,05,676 Profit from Speculation in share trading (without delivery) 86,34,063 Loss from delivery based transactions in share trading (2,86,80,084) The ld AO invoked the provisions of Explanation to Section 73 of the Act and treated the loss incurred on delivery based share trading as speculation loss. The ld AO placed reliance on the decision of the Hon'ble Bombay High Court in the case of Prasad Agents (P) Ltd vs ITO reported in (2009) 180 Taxman 178 (Bom) wherein their Lordships had observed that the losses incurred by a company carryin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on share trading activities, since both trading of shares as well as futures and options are of the same nature so far as Income Tax Act is concerned, assessee's case is not hit by the Explanation to Sec. 73 of the I. Tax Act. As delivery based share trading as well as trading in F&O (Derivatives) are not hit by the provision of Sec 43(5) of the Income Tax Act, both are non-speculative share trading activities. Hence both are to be considered on the same footing. As per Income Tax Act, both are of the same nature and therefore income from both the transactions is to be clubbed to work out the share trading income of the assessee. Explanation to Sec. 73 of the I. Tax Act will hit only in case of aggregate of share trading is loss. In the case of the assessee, the aggregate of share trading is profit and hence, there is no question of application of Explanation to Sec. 73 of the Act. So far as allocation of expenditure is concerned, nowhere in the Act, it is provided that expenditure should be allocated with respect to such transactions. The ld AO, however, held that only the loss derived from share trading activity was in the nature of loss from speculation business under Expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of his business relates to trading in shares. The second part of his business relates to F&O operations. The assessee has maintained separate trading accounts for this purpose. The ld AO invoked Explanation to Section 73 of the act to the first part, namely , dealing in shares. Thereby the loss arising from such operation was treated by him as loss from speculation. He also applied clause (d) of proviso to section 43(5) to the F & O operations (derivatives) and treated the profits from such operations as normal business profits. Thus, he did not permit the set off of the loss from dealing in shares with profits from operations in Futures. The profits from F&O in shares operations amounted to Rs. 4,11,05,676/- and loss from trading in shares amounted to Rs. 2,86,80,084/-. 6.2. We are in agreement with the arguments advanced by the ld AR that in the case of a stock broker, there is a common terminal, one membership of the stock exchange, common bank account and the common work force with the help of which the business of proprietary trading as well as trading on behalf of the clients are conducted. Therefore it could be safely concluded that the entire business of the stock br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable not to income or loss. The said Explanation defines the terms "speculation business" to mean that part of the assessee's business which consists of purchase & sale of shares. Since the assessee's business of stock broking consisted "purchase & sales of shares", the income arising from the said activity was liable to be considered as profit or loss arising from deemed speculative business and therefore the income arising from stock broking was also integral part of assessee's deemed speculative business entitled for set off against loss arising deemed speculation business. We find that amendment has been brought in the Finance Act 2005 w.e.f. 1.4.2006 wherein transaction in respect of trading in derivatives carried out in a recognized stock exchange shall not be treated as speculative transaction. The Co-ordinate Bench of this Tribunal in the case of ITO vs Arena Textiles & Industries Ltd in ITA No. 1019/Kol/2011 dated 29.12.2011 has held that the transaction done by delivery as well as the transaction of derivative of shares , profit /loss is not hit by section 43(5) of the act and therefore held that the aggregation of share trading loss and profit from derivative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness even though for the purpose of section 43(5) the transactions in derivatives were not 'speculative transactions'. At this stage it is pertinent to note that section 73 provides that the speculation business loss can be set off only against profit earned from any other speculation business. A business which falls within the scope of 'speculation business' under the Explanation to Section 73, remains so, irrespective of the fact whether the assessee incurs loss or earns income in such business. In the circumstances, if the loss incurred in derivatives is held by the Delhi High Court to be loss in speculation business then by equal measure, profit derived from derivative transactions would constitute profit derived from 'speculation business'. Accordingly, the assessee is entitled to set off the loss incurred on share trading business with the profit earned from derivative transactions. 6.3.1. From the aforesaid findings and the ratio laid down in the aforesaid judicial precedents relied upon, it could be safely concluded that the provisions of Explanation to Section 73 of the Act would not be applicable in the instant case in the absence of speculation loss if consolidated bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereof, by removing the obvious hardship caused to various assessees whose main business in trading in shares. The amendment has removed the anamoly and brought the ambit of the Explanation to Section 73 of the Act in line with the intention of the legislature by placing the companies whose principal business is trading in shares as part of the exception to Explanation to Section 73 of the Act, because such companies were not the companies for whom the Explanation was inserted. 6.4.3. We find that though this amendment is made effective only from Asst Year 2015-16 onwards, the real intention behind introduction of this amendment, in our opinion, is curative in nature. In our considered opinion, the amendment, if not held retrospective, would result in hardship to the assessee in the following manner:- (a) The assessee engaged in trading of shares would be treated as speculation business upto Asst Year 2014-15. That assessee might be having losses eligible to be carried forward under the head 'speculation business'. (b) The provisions of section 73 of the Act provides that the brought forward speculation loss could be set off only against speculation profits. (c) Pursuant to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provision workable, the proviso which supplies an obvious omission in the section and which is read to be read into the section to give it a reasonable interpretation, it could be read as retrospective in operation to give effect to the section as a whole. The Hon'ble Apex Court held that the first proviso to section 43B of the Act was curative in nature and hence retrospective in operation, i.e. w.e.f. 01.04.1984 from when the section was brought on the statute. 6.4.6. The Hon'ble Apex Court in the case of CIT vs J.H.Gotla reported in (1985) 156 ITR 323 (SC) at page 339 and 340 had observed as under:- "In the case of K P Varghese vs ITO (1981) 131 ITR 597 , this court emphasized that a statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the legislature, the court might modify the language used by the legislature so as to achieve the intention of the legislature and produce a rational construction. The task of interpretation of a statutory provision is an attempt to discover the intention of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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