Income Tax Act, 1961: ss.43(5)(d), 73 – Assessment year 20082009 – Assessee-NBFC having sole business of share trading – Transacting in future and options – Whether the speculation loss is capable of set off against the profits of trading in future and options – Held: The loss which occurred to the assessee as a result of its activity of trading in shares (a loss arising from the business of speculation) is not capable of being set off against the profits which it has earned against the business of futures and options since the latter would not constitute profits and gains of a speculative business – Finance Act, 2005.
Income Tax Act, 1961: s.73 – Amended provisions brought on the statute book after the assessment year in question – Whether retrospective in nature – Held: The Parliament amended s.43(5) with effect from 1 April 2006 in relation to the business of trading in derivatives – However, in respect of trading in shares, Parliament brought about a specific amendment in the Explanation to s.73 with effect from 1 April 2015 – The latter amendment was intended to take effect from the date stipulated by Parliament – There is no reason to hold that it was clarificatory or that the intent of Parliament was to give it retrospective effect.
Dismissing the appeal, the Court
HELD : 1. 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. [Para 14] [694-C-E]
2. Section 73 deals with losses from speculation business. Under sub-Section (1) of Section 73, a loss computed in relation to speculation business carried on by an assessee can only be set off against the profits and gains of another speculation business. The Explanation to Section 73 contains a deeming fiction where certain businesses shall, for the purposes of the section, be deemed to be speculation businesses. The Explanation 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. While on the one hand, Parliament amended Section 43(5) with effect from 1 April 2006 as a result of which trading in derivatives on recognised stock exchanges fell outside the purview of the business of speculation, a corresponding amendment to the Explanation to Section 73 in respect of trading in shares was brought in only with effect from 1 April 2015. In the instant case, there is no dispute about the fact that the assessee was registered as an NBFC under the provisions of the Reserve Bank of India Act, 1934. Section 73(1) does not define specifically, the circumstances in which the principal business of a company would be regarded as a business of the specified description. It is evident that the assessee itself stated that share trading was its sole business during the assessment year in question i.e. A.Y. 20082009. The principal business of the assessee was not of granting loans and advances during the assessment year. As a consequence, the deeming fiction under Section 73 would be attracted. Hence, the finding of the High Court, on the first aspect, cannot be faulted. [Paras 16, 17, 20, 22] [695-E-F; 696-B-C, F ; 697-A, G]
3. The provisions of Section 43(5) were amended with effect from 1 April 2006. While amending the provisions of Section 43(5), the Parliament indeed was cognizant of the provisions which were contained in Section 73(4). A memorandum contained in the Finance Act, 2005 indicated that the provisions of Section 73(4) were proposed to be amended so as to reduce the period of carry forward of speculation losses from eight assessment years to four assessment years. Having introduced an amendment to Section 73(4), the Parliament would have, if it intended to bring about a parity with the provisions of Section 43(5) introduced a specific amendment. Parliament, however, did not do so by the Finance Act 2005. It was only with effect from 1 April 2015 that an amendment was brought about to exclude trading in shares from the deeming provision contained in the Explanation to Section 73. Parliament may have had reasons to allow the situation to continue until the amendment was brought into force, including its view in regard to the stability of the stock market. 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. [Paras 23, 24] [697-H; 698-A, C-G]
Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Private Ltd. (2015) 1 SCC 1 : [2014]
12 SCR 1037 – followed.
Allied Motors (P) Ltd. v. Commissioner of Income Tax, Delhi (1997) 3 SCC 472 : [1997] 2 SCR 780 ;
Commissioner of Income Tax v. Alom Extrusions Ltd. (2010) 1 SCC 489 : [2009] 15 SCR 1154 ; Vijay
Industries v. Commissioner of Income Tax (2019) 4 SCC
184 – relied on.
Commissioner of Income Tax v. Savi Commercial P. Ltd. (2015) 373 ITR 243 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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