TMI Blog2019 (5) TMI 1165X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares. Consequently, the CIT(A) rejected the contention of the assessee that the assessing officer had erred in not allowing the speculation loss to be set off against profits of trading in futures and options. 5. The Revenue appealed against the decision of the CIT(A). The Income Tax Appellate Tribunal ( ITAT) by its decision dated 6 November 2015 held that the claim of the assessee for setting off the loss from share trading should be allowed against the profits from transactions in futures and options, since the character of the activities was similar. The ITAT held that the assessee which was in the business of share trading had treated the entire activity of the purchase and sale of shares which comprised both of delivery based and non-delivery based trading, as one composite business. 6. The Revenue appealed before the High Court which by its judgment dated 22 November 2016 accepted its submission. The High Court held that the profits which had arisen from trading in futures and options were not profits from a speculative business. Hence the loss on trading in shares could not be set off against the profits arising from the business of futures and options. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought it into force with effect from 1 April 2015. In this regard, it was submitted that insofar as trading in derivatives is concerned, the provisions of Section 43(5) were amended by Finance Act, 2005 to provide that an eligible transaction in respect of trading in derivatives of securities carried out on a recognised stock exchange shall not be deemed as a speculative transaction. It was urged that there was a clear anomaly in the provisions of law. The anomaly, it was submitted, consisted in the fact that delivery based trading in shares was treated as a speculative business until the amendment to the Explanation to Section 73 was brought into force on 1 April 2015. On the other hand, what was essentially speculative and non-delivery based, namely, trading in derivatives on recognised stock exchanges was removed from the purview of the business of speculation with effect from 2006-2007. Reliance has been placed on the Circular of the CBDT dated 27 February 2006 explaining the provisions of the Finance Act, 2005 and on the Circular dated 21 January 2015 explaining the provisions of Finance (No. 2) Act, 2015. Hence, it is urged that even though Parliament brought into force the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 73 retrospective. 12. Reliance has been placed on the decisions of this Court in Commissioner of Income Tax (Central)-I, New Delhi v. V atika Township Private Ltd.[2015] 1 SCC 1 and on the judgment of a three judge Bench of this Court in Vijay Industries v. Commissioner of Income Tax[2019] 4 SCC 184 . 13. These submissions now fall for consideration. 14. The provisions of Section 43(5) were amended by the Finance Act, 2005. Prior to the amendment, Section 43(5) defined a 'speculative transaction' to mean a transaction in which a contract for the purchase or the sale of any commodity including stocks and shares is settled otherwise than by the actual delivery or transfer of the commodity or scrips. The impact of the amendment by the Finance Act, 2005 was that an eligible transaction on a recognised stock exchange in respect of trading in derivatives was deemed not to be a speculative transaction. With effect from 1 April 2006, trading in derivatives was by a deeming fiction not regarded as a speculative transaction when it was carried out on a recognized stock exchange. 15. The circular of the CBDT dated 27 February 2006 indicated that this ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation also carves out an exception in respect of certain specified businesses which shall lie outside the fold of the deeming fiction. Prior to the amendment of the Explanation by the Finance (No. 2) Act 2014 with effect from 1 April 2015, the business of trading in shares carried on by a company was not excluded from its purview. However, by the amendment which was brought into force from 1 April 2015, the explanation to Section 73 reads as follows: Explanation - Where any part of the 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 trading in shares or 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. 17. While on the one hand, Parliament amended Section 43(5) with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The submission is that, it is not merely the receipt of interest on loans and advances, but the deployment of funds which should have a bearing in determining the principal nature of the business. In this context, reliance was placed on the view taken by a Division Bench of the Calcutta High Court in Commissioner of Income Tax v. Savi Commercial P. Ltd. [2015] 373 ITR 243 . The High Court, while dealing with the provisions of the Explanation to Section 73, observed that income alone cannot be taken into account and where the activity of granting loans and advances is on a larger scale than the business of buying and selling shares that would be an important indicator. In other words, it was held that profit alone cannot be made a distinctive factor. 22. The correctness of this aspect of the submission which has been urged by learned senior counsel need not be determined in the facts of the present aspect, since we are of the view that the High Court was justified in relying upon the specific admission of the assessee that during the assessment year in question, its sole business was of dealing in shares. We must also advert to the circumstance that while the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into force, including its view in regard to the stability of the stock market. Insofar as this Court is concerned, It would be difficult to hold that the provisions which were contained in the Finance Act (No. 2) 2014 insofar as they amended the Explanation to Section 73 were clarificatory or that notwithstanding the provision by which the amendment was brought into force with effect from 1 April 2015, that it should be given retrospective effect. We reject the second submission. 25. Even though an amendment, including one in the context of the Finance Act is brought into force with effect from a stipulated date, the Court may as an exercise of statutory interpretation, determine whether the amendment is clarificatory or was intended to operate with retrospective effect. Such an exercise was carried out by this Court in its decision in Allied Motors (supra). Interpreting the provisions of Section 43B, this Court held thus: 10 While interpreting Section 43-B without the first proviso some of the High Courts, in order to prevent undue hardship to the assessee, had taken the view that Section 43-B would not be attracted unless the sum payable by the assesee by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ult not intended to be subserved by the object of the legislation found in the manner indicated before, and if another construction is possible apart from strict literal construction then that construction should be preferred to the strict literal construction. Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction. The test to be applied is essentially one of the intent of the legislature. 28. In a more recent decision in Commissioner of Income Tax v. Vatika T ownship Pvt. Ltd. [2015] 1 SCC 1, a Constitution Bench of this Court held thus: 42.1. Notes on Clauses appended to the Finance Bill, 2002 while proposing insertion of proviso categorically states that this amendment will take effect from 1.6.2002 . These become epigraphic1 words, when seen in contradistinction to other amendments specifically stating those to be clarificatory or retrospectively depicting clear intention of the legislature. It can be seen from the same notes that a few other amendments in the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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