TMI Blog2022 (9) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... he same. We have already held hereinabove that the gross total income mainly consists of income from house property, income from capital accounts and income from other sources for the assessee and thereby, the case of the assessee falls in the first exception carved out in Explanation to Section 73 - This view is further fortified by the decision in the case of CIT vs. HSBC Securities and Capital Markets India Pvt. Ltd. [ 2012 (6) TMI 715 - BOMBAY HIGH COURT ] Principal business of the assessee, not being granting of loans and advances and thereby not eligible for exception and accordingly, the deeming fiction provided in Explanation to Section 73 would get attracted. The Hon ble Apex Court in the case of Snowtex Investment Limited [ 2019 (5) TMI 1165 - SUPREME COURT ] had merely upheld the action of the Hon ble High Court in this regard. With regard to the amendment brought in Explanation to Section 73 of the Act w.e.f. 01/04/2015, the Hon ble Apex Court held that it should be given only prospective application. This has been discussed till the end of the judgement i.e. till para 33. Ultimately, the Hon ble Apex Court had only upheld the order of the Hon ble Calcutta High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e find that assessee is a private limited company engaged in the business of real estate development and leasing of constructed premises; investment and trading in shares, securities, futures and options. During the year under consideration, the assessee had entered into derivative transactions comprising of futures and options in addition to entering into trading transactions in equity shares. The assessee claimed total loss of Rs.8,28,91,018 comprising of:- (a) Loss on future trading - Rs. 5,19,33,951/- (b) Loss on options - Rs. 12,65,977/- (c) Loss on share trading - Rs.2,96,91,090/- Total Rs.8,28,91,018 ========== 3.1. The ld. AO in the assessment proceedings had sought to treat the loss on sale of aforesaid shares, futures and options amounting to Rs.8,28,91,018/- as speculation loss by applying the provisions of Explanation to Section 73 of the Act. In effect, the assessee had claimed the aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulation business. (2) Where for any assessment year any loss computed in respect of a speculation business has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and- (i) it shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year; and (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on. (3) In respect of allowance on account of depreciation or capital expenditure on scientific research, the provisions of sub-section (2) of section 72 shall apply in relation to speculation business as they apply in relation to any other business. (4) No loss shall be carried forward under this section for more than four assessment years immediately succeeding the assessment year for which the loss was first computed. Explanation.-Where any part of the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke of convenience, Section 43(5) (d) is reproduced hereunder:- 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- (d) an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange; shall not be deemed to be a speculative transaction. 3.7. In our considered opinion, in terms of Section 43(5)(d) of the Act, the loss incurred on futures and options (derivative transactions) would have to be construed only as business loss and hence the provisions of Section 73 and its explanation thereon would not come into operation at all for the same. We also hold that Section 43(5)(d) of the Act should have to be first given effect while computing gross total income of the assessee before applying Section 73 and its Explanation thereon. In the instant case, there is no dispute that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This view is further fortified by the decision of the Hon ble Jurisdictional High Court in the case of CIT vs. HSBC Securities and Capital Markets India Pvt. Ltd., reported in 208 Taxman 439 (Bom). In this regard, it would be relevant to state the composition of gross total income in the case before the Hon ble Bombay High Court referred to supra as reproduced in para 4 of the High Court order which is as under:- (i) Business Profit - Rs.(-)1,72,31,711/- (ii) Income from other sources - Rs. 7,02,000/- Rs.(-)1,65,29,711 =========== 3.9. The assessee s case squarely falls in the same composition of gross total income with that of the Hon ble Bombay High Court referred to supra. In the case before the Hon ble Bombay High Court also the Assessing Officer of that case had applied provisions of Explanation to Section 73 of the Act and sought to treat the business loss as speculative loss. The Hon ble Bombay High Court had adjudicated the dispute before it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t off against the income from any other source under the head of profits and gains of business or profession. 8. In our view, the submission which has been urged on behalf of the Revenue cannot be accepted. Leaving aside for a moment, the exception, which is carved out by the explanation to Section 73, the explanation creates a deeming fiction by which a company is deemed to be carrying on a speculation business where any part of its business consists in the purchase and sale of shares of other companies. Now, the exception which is carved out applies to a situation where the gross total income of a company consists mainly of income which is chargeable under the heads Interest on securities , Income from house property , Capital gains and Income from other sources . Now, ordinarily income which arises from one source which falls under the head of profits and gains of business or profession can be set off against the loss which arises from another source under the same head. Sub-Section (1) of Section 73 however sets up a bar to the setting off of a loss which arises in respect of speculation business against the profits and gains of any other business. Consequently, a lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account in computing the income under that head, both being sources under the same head. The assessee had a dividend income of Rs. 4.7 lacs (income from other sources). The Tribunal was justified, in coming to the conclusion that the assessee fell within the purview of the exception carved out in the explanation to Section 73 and that consequently the assessee would not be deemed to be carrying on a speculation business for the purpose of Sec. 73(1). 9. In the circumstances, the appeal is dismissed but with no order as to costs. 3.10. Hence, the ratio laid down by the Hon ble Jurisdictional High Court becomes squarely applicable to the facts of the facts of the instant case before us. 3.11. The ld. DR vehemently relied on the decision of the Hon ble Supreme Court in the case of Snowtex Investment Limited vs. PCIT reported 414 ITR 227 dated 30/04/2019. We have perused the judgement of the Hon ble Supreme Court referred to supra. In the said case, that assessee had incurred loss in share trading activity and made profit from derivatives and had set off the losses with derivatives profit. We find from para 8 of the said judgement in page 240, the Hon ble Supreme Court h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. till para 33. Ultimately, the Hon ble Apex Court had only upheld the order of the Hon ble Calcutta High Court. We find the decision of the Hon ble Apex Court referred to supra is completely and effectively distinguishable with that of the assessee before us. Hence, we have no hesitation in holding that the said decision is not applicable to the facts before us and does not advance the case of the Revenue. On the contrary, the decision of the Hon ble Bombay High Court relied upon by the ld. AR in 208 Taxman 439 is directly on the issue before us. Hence, the same would have to be followed in the facts and circumstances of the instant case. Accordingly, the ground No.1 raised by the Revenue is dismissed. 4. The ground No.2 raised by the Revenue is not an independent ground. It is also on applicability to Explanation to Section 73 of the Act only. The decision rendered by us in ground No.1 would be applicable for ground No.2 also as it is emanating from those common facts. Accordingly, the grounds raised by the Revenue are dismissed. 5. In the result appeal of the Revenue is dismissed. Order pronounced on 08/08/2022 by way of proper mentioning in the notice board. - - T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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