TMI Blog2017 (2) TMI 723X X X X Extracts X X X X X X X X Extracts X X X X ..... -2017 - Sh. H. S. Sidhu, Judicial Member And Sh. O. P. Kant, Accountant Member Appellant by : Dr. Rakesh Gupta Sh. Amit Kumar, Advocates Respondent by : Sh. S.S. Rana, CIT(DR) ORDER Per O. P. Kant, A. M. This appeal by the assessee is directed against order dated 12/06/2013 of learned Commissioner of Income-tax (Appeals)-2, Faridabad, for assessment year 2009-10, raising following grounds: 1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and facts in confirming the action of Ld. AO in making an aggregate addition of ₹ 27,63,30,230/- by denying the claim of set off of loss from shares and derivatives (Rs.17,27,16,630/- loss on account of trading in derivatives, ₹ 10,10,75,192/- loss on account of trading in shares and ₹ 25,38,408/- loss on account of intraday trading in shares) in view of Explanation to section 73 of the Income Tax Act, 1961. 2. That in any view of the matter and in any case, order of Ld. CIT (A) in confirming the action of Ld. AO, in making the impugned addition by denying the set off of the loss aggregating to ₹ 27,63,30,230/- (Rs. 17,27,16,630/- loss on accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eculative and in any case was actual business losses and sale and purchase of shares was delivery based. It was further submitted that transactions in derivatives were also non-speculative, in compliance to section 43(5) of the Act. The Assessing Officer held that the assessee company was engaged in dealing in shares and, therefore, explanation to section 73 of the Act applies directly to the assessee and according to the said explanation if any part of the business of the company consists in the purchase and sale of shares of other companies, then for the purpose of section 73 of the Act, the assessee shall be deemed to be carrying on the speculation business to the extent of business of purchase and sale of such shares. Accordingly, the loss from trading in share amounting to ₹ 10,10, 75,192/- was held as loss from speculation business. Similarly, he held that derivative transaction might not be speculative under section 43(5) of the Act, but when the dealing in those is undertaken by the company which forms the business of such company, the provision of Explanation to section 73 come into play. According to the Assessing Officer, the provision of section 73 are specific an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, the learned counsel submitted that loss from the activity of purchase and sale of shares also cannot be held as speculative in nature. 3.5 The learned counsel did not press in respect of intraday loss of ₹ 25,38,407/- 3.6 On the other hand, the learned Commissioner of Income Tax (Departmental Representative) relied on the finding of the lower authorities and submitted that as far as loss from derivative transactions was concerned, the decision of the Hon ble Delhi High Court in the case of CIT Vs. DLF Commercial Developers Ltd. (supra) might be followed wherein it is held that by all accounts derivatives are based on stocks and shares, which falls squarely within the Explanation to Section 73 and loss from sale/purchase of such derivative would be speculative loss. 3.7 We have heard the rival submission of the parties and perused the relevant material on the record. In the grounds raised by the assessee, two issues emerge before us. The first issue is whether loss from dealing in derivative transaction can be set of against business income or not. Second issue before us is whether loss from the purchase and sale of shares can be set of against the business in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business of a company [other than 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 ], or a company the principal business of which is the business of banking or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares.] Section 43, to the extent it is relevant, reads as follows: 43. In Sections 28 to 41 and in this section, unless the context otherwise requires- ********** ********* (5) Speculative transaction means a transaction in which a contract for the purchase of 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 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... working out the mandate of Sections 28 to 41 of the Act. 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 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. Section 43 defines, for the purpose of Sections 28 to 41, certain terms. The latter provisions fall in Chapter IV, in Section D, which deal with computation of business income. The said provisions provide for matter 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 conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce that has not been excluded from Section 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom 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. 3.7.2 On the other hand, the learned counsel of the assessee relied on the decision of the Hon ble High Court of Calcutta in the case of Asian Financial Services Ltd. Vs. Commissioner of Income Tax-3, Kolkata (supra). In the said case one of the questions raised was that, whether on the 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 loss of ₹ 3,24,76,185/- incurred in eligible transaction within the meaning of proviso (d) to section 43(5) not involving any purchase/sale of shares as such was speculation loss ? 3.7.3 The Hon ble High Court of Calcutta disagreed with the decision of the Hon ble Delhi High Court and held as under: It would appear that the activities appearing i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Vegetable Product Ltd., reported in 88 ITR 192 submitted that where contrary decision of the Hon ble high courts other than the jurisdictional High Court are available, then in such a situation, decision favourable to the assessee should be followed. The Hon ble Supreme Court in the case of vegetable product Ltd (supra) held as under: 4. There is no doubt that the acceptance of one or the other interpretation sought to be placed on s. 271(1)(a)(i) by the parties would lead to some inconvenient result, but the duty of the Court is to read the section, understand its language and give effect to the same. If the language is plain, the fact that the consequence of giving effect to it may lead to some absurd result is not a factor to be taken into account in interpreting a provision. It is for the legislature to step in and remove the absurdity. On the other hand, if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted. This is a well-accepted rule of construction recognised by this Court in several of its decisions. Hence, all that we have to see is, what is the true effect of the langua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC) 123 : (1990) 182 ITR 1 (SC) held that as long as there is no ambiguity in the statutory language, resort to any interpretative process to unfold the legislative intent becomes impermissible. The requirement of interpretation arises only when the words used in the statute are, on their own terms, ambivalent and do not manifest the intention of the legislature. 6. Further, a Division Bench of the Delhi Tribunal in the case of SRJ Securities Ltd. vs. Asstt. CIT (2003) 81 TTJ (Del) 484, after exhaustively considering the various aspects, has held that loss suffered by assessee, a share broker-cum-dealer, on purchase and sale of shares on its own account was speculation loss within the meaning of Sec. 73 r/w Explanation and assessee s main income not being interest on securities, income from house property, capital gains or income from other sources and assessee not being in the business of banking or granting of loans and advances, and the business of share broker and share dealer being separate and distinct businesses, the loss could not be set off against commission earned from brokerage business. The relevant finding of the Tribunal is reproduced as under: 32. The next ..... X X X X Extracts X X X X X X X X Extracts X X X X
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