TMI Blog2022 (5) TMI 377X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts of this case. Transactions in derivatives carried out by the assessee after 01.04.2006 thus would not be speculative transactions. Income Tax Appellate Tribunal could not have confirmed any addition on transaction in derivatives on recognised stock exchange as defined in Section 43 (5) (d) of the Income Tax Act, 1961 with reference to explanation given to Section 73 of the Income Tax Act, 1961 which is applicable to speculative transaction. By virtue of insertion of clause (d) to the proviso to Section 43 (5) of the Income Tax Act, 1961, the transactions in respect of the trading in derivatives as prescribed in clause (d) inserted in proviso to Section 43(5) would not be a speculative transaction. The appellant was thus entitled to claim set off of the loss suffered by the appellant in the said transactions in derivatives against the business income of the appellant from infrastructure business under Section 70 of the Income Tax Act 1961. - INCOME TAX APPEAL NO. 79 OF 2018 - - - Dated:- 6-5-2022 - R. D. DHANUKA S. G. MEHARE, JJ. Mr. S. P. Shah, Advocate for appellant. Dr. Kalpalata Bharaswadkar-Patil, Advocate for respondent. JUDGMENT : [PER R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ives while computing net taxable income. The application for rectification under section 154 made by the appellant was rejected by order dated 14th May 2012. On 4th June 2012 the appellant preferred an appeal before the Commissioner of Income Tax (Appeals) against the assessment order. The appellant did not challenge the additions made by the Assessing Officer. 4. On 27th February 2014, the Commissioner of Income Tax (Appeals) passed order refusing to consider the loss suffered by the appellant on transaction in derivatives while computing the net income of the appellant. The Commissioner of Income Tax (Appeal) was of the view that the appellant would not be entitled to set-off loss suffered from transactions in securities because of the provisions of section 73. The Commissioner held that as provided under section 73, the loss suffered by the assessee would be a loss from speculative business and as such the appellant would not be entitled to claim setoff against the income from a non-speculative business. 5. Being aggrieved by the said order, the appellant preferred an appeal before the Income Tax Appellate Tribunal on 2nd July 2014. On 31st October 2017 the Income Tax Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch conditions as may be prescribed and notified 79 by the Central Government for this purpose; Set off of loss from one source against income from another source under the same head of income. 70. (1) Save as otherwise provided in this Act, where the net result for any assessment year in respect of any source falling under any head of income, other than Capital gains , is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head. (2) Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any short-term capital asset is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset. (3) Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any capital asset (other than a short-term capital asset) is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d suffered losses to the tune of Rs.1,90,66,444/- in those transactions in securities in the derivatives. He submitted that, though the Commissioner of Income Tax (Appeals) was pleased to accept that the appellant had suffered loss in the transactions in securities in derivatives, he refused to consider the said loss while computing the net income of the appellant on the ground that under Section 73, the loss suffered by the assessee would be a loss from speculative business and as such, the appellant would not be entitled to claim set-off against the income from a nonspeculative business. 8. It is submitted by the learned counsel that, in view of Section 28 Explanation-2 r/w Section 43(5) proviso (d) such transactions are kept out of the definition of speculative transactions. 9. The learned counsel for the appellant placed reliance on Section 73 of the Income Tax Act, 1961 and would submit that, the appellant was entitled to set-off the loss suffered by the appellant in the transactions in securities in the derivatives against the income derived by the appellant from the business of collection of toll and business of infrastructure. He submits that, the Commissioner of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs. Lokmat Newspapers P. Ltd. reported in (2010) 322 ITR 43 and would submit that, in the said judgment there were no derivative transactions involved. The transactions considered by this Court in the said judgment were arising out of trading in shares. The said judgment is thus clearly distinguishable on facts. 14. Smt. Bharaswadkar-Patil, learned counsel for the revenue on the other hand invited our attention to the grounds of Appeal before the Income Tax Appellate Tribunal and would submit that, it was clearly admitted by the appellant that no set-off of loss suffered in speculative transaction was permissible. The appellant had not claimed any set-off before the Assessing Officer. The Income Tax Appellate Tribunal, however, allowed the Rectification Application filed by the appellant. 15. The learned counsel for the revenue invited our attention to Section 43(5) (d), Section 73 and would submit that, in view of the definition of speculative transaction and in view of Section 73 of the Income Tax Act, 1961, losses in speculation business would not be governed by Section 43(5) read with proviso thereto. She submits that, deeming fiction is created under Section 73 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the loss derived in the derivative transaction against the profits having arisen from the infrastructure business. He invited our attention to Section 73 of the Income Tax Act, 1961 and would submit that, the business of the infrastructure carried out by the appellant is not a speculative business. It is not the case of the revenue that, loss in trasactions in securities carried out by the appellant in derivatives is a speculative business. He submits that, since business in derivative is not included in the definition of speculative business, the loss suffered by the appellant is permitted to be set-off against income having arisen to the appellant out of infrastructure business. 19. The learned counsel for the appellant strongly placed reliance on Section 70 of the Income Tax Act and would submit that, loss suffered by the appellant in the transactions in securities in derivatives being one of the distinct business falling under head of the income from business, the appellant is entitled to set-off the loss under the said source against the income having arisen from the infrastructure business which is also a distinct business falling under Section 28 of the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of the share trading in derivative at Rs.1,90,66,444/- is to be assessed as speculative loss. However, the set-off being speculative loss could not be set-off against the regular business income assessed by the Assessing Officer at Rs.90,79,092/- as claimed by the appellant. The Commissioner of Income Tax (Appeals) did not consider or dealt with the contention of the appellant that, in view of amended provisions of Section 43(5)(d), the trading of shares in derivatives was to be assessed as the regular business and not speculative business and thus loss if any in transaction in derivative was required to be set-off against the other heads of income. 23. In the impugned order, the Income Tax Appellate Tribunal has dealt with the grounds raised by the appellant that the learned CIT(A) erred in law and on facts in confirming an addition on transactions in derivatives on recognized stock exchange as defined in Section 43(5)(d) of the Income Tax Act, 1961 with reference to explanation given to Section 73 of the Income Tax Act, 1961 which is applicable to speculative transactions. The Income Tax Appellate Tribunal, however, considered the judgment of this Court in case of Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are not deemed to be speculative transaction. 27. By the said explanatory note it was made clear that, the Finance Act, 2005 has amended Section 43(5) to provide that an eligible transaction in respect of trading in derivatives of securities carried out on a recognized stock exchange shall not be deemed as speculative transaction. The notification prescribing the transaction which are not deemed to be speculative transaction. It was made clear that the Finance Act, 2005 has, accordingly, amended Section 43 (5) to provide that an eligible transaction in respect of trading in derivatives of securities carried out on a recognized stock exchange shall not be deemed as speculative transaction. The notification prescribed the rules and the conditions to be fulfilled by a stock exchange to be recognized by the Central Government for the purposes of Section 43(5) [i.e., Rules 6DDA and 6DDB of the Income Tax Rules, 1962] published in the Official Gazette on 1st July, 2005 vide S.O. No.932(E). 28. The Hon ble Supreme Court in case of Snowtex Investment Limited (supra) had considered an appeal arising out of the judgment of the High Court holding that the profits which had ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to Section 73 by the Finance (No. 2) Act, 2014 was with effect from 01.04.2015. In its legislative wisdom, the Parliament amended Section 43 (5) with effect from 01.04.2006 in relation to the business of trading in derivatives, the Parliament brought about a specific amendment in the Explanation to Section 73, in so far as trading in shares is concerned, with effect from 01.04.2015. The latter amendment was intended to take effect from the date stipulated by Parliament. 32. The Hon ble Supreme Court accordingly showed no reason to hold either that it was clarificatory or that the intent of Parliament was to give it retrospective effect. The Hon ble Supreme Court accordingly held that in the assessment year 2008-2009, the loss which occurred to the assessee as a result of its activity of trading in shares (a loss arisen from the business of speculation) was not capable of being set off against the profits which it had earned against the business of futures and options since the latter did not constitute profits and gains of a speculative business. The Hon ble Supreme Court accordingly did not interfere with the view taken by the High Court. The principles of law laid down by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 28 of the Income Tax Act, 1961. 37. The Division Bench of this Court in case of Commissioner of Income Tax Vs. Shri Bharat R. Ruia (HUF) has considered the substantial question of law i.e. whether the transactions in exchange traded financial derivatives are speculative transactions as defined in Section 43 (5) of the Income Tax Act, 1961. In the facts of that case, proceedings arising out of the assessment year 2003-2004 were in question. In paragraph No. 23 of the said judgment, this Court held that plain reading of clause (d) of Section 43 (5) makes it clear that with effect from 01.04.2006 only those eligible transaction in derivatives referred to under Section 2 (ac) of 1956 Act which were carried out in a recognized stock exchange shall not be deemed to be a speculative transaction. It is only because, the transactions in derivatives referred to under Section 2 (ac) of the Act carried out in a recognized stock exchange were covered under Section 43 (5) of the Act, the legislature could exclude those transactions from the purview of Section 43 (5) with effect from 01.04.2006. 38. This Court in the said judgment also considered the Handbook on Derivatives Trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit as a profit of speculation business and had claimed set off against a speculation loss brought forward from the assessment years 19961997 to 1998-1999. This court in the said judgment had not considered the clause (d) inserted to proviso to Section 43 (5) of the Income Tax Act and had considered unamended Section 43 (5) and Section 73. The said judgment in our view is clearly distinguishable on the facts and thus would not advance the case of the revenue. The reliance placed by the Income Tax Appellate Tribunal on the said judgment in case of Commissioner of Income Tax Vs. Lokmat Newspapers Pvt. Ltd. (supra) is totally misplaced. 42. In so far as judgment of Delhi High Court in case of the Commissioner of Income Tax Vs. DLF Commercial Developers Limited (supra) relied upon by the learned counsel for revenue is concerned, the Delhi High Court has taken a view contrary to the view taken by this Court in case of Commissioner of Income Tax Vs. Shri Bharat R. Ruia (HUF) (supra). The Judgment of the Hon ble Supreme Court in case of Snowtex Investment Limited (supra) was not brought to the notice of Delhi High Court while dealing with the case of Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
