VIRENDRA KUMAR JAIN, MUMBAI V. ACIT 12(3), MUMBAI

ITA 1009/MUM/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1679 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2006-2007
• Appeal Filed On: 08-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K DAS
• Keywords: Speculation loss
• Section: 143(3); 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI. BEFORE SHRI R.V.EASWAR, SR.VP AND SHRI A.L. GEHL OT, AM I.T.A.NO.1009/MUM/2010 (ASSESSMENT YEAR: 2006-07) MR. VIRENDRA KUMAR JAIN 82, MAKER CHAMBERS III, NARIMAN POINT, MUMBAI-400 021. PAN:AABPJ1882J VS. THE ASSISTANT COMMISSIONER OF INCOME TAX -12(3), AAYAKAR BHAVAN, 1 ST FLOOR, MUMBAI-400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. VIJAY MEHTA RESPONDENT BY : MR. K.K.DAS, DR O R D E R PER R.V.EASWAR, SENIOR VICE PRESIDENT: THIS APPEAL IS BY THE ASSESSEE AND IT RELATES TO THE ASSESSMENT YEAR 2006 -07. THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS I N FUTURES AND OPTIONS, JOBBING ETC. THE APPEAL ARISES OUT OF THE ASSESSMENT MADE ON HIM UNDER SECTION 143(3) OF THE INCOME TAX ACT BY ORDER DATED 31.12.2008. 2. THOUGH AS MANY AS SIX GROUNDS HAVE BEEN TAKEN, T HE EFFECTIVE ISSUE IS WHETHER THE INCOME-TAX AUTHORITI ES WERE RIGHT IN LAW IN NOT ALLOWING THE SET OFF OF UNABSORBED SP ECULATION LOSS OF RS.4,55,30,494/- RELATING TO THE ASSESSMENT YEAR 2001-02 AGAINST THE SPECULATION INCOME FOR THE CURRENT YEAR . 3. THE FACTS GIVING RISE TO THE CONTROVERSY BRIEFLY ARE THESE. IN THE ASSESSMENT YEAR 2001-02, THE ASSESSEE SUFFERED LOSS IN THE SPECULATION BUSINESS AMOUNTING TO RS.4,55,30,494/-. THERE IS NO DISPUTE THAT THIS LOSS WAS ALLOWED TO BE CARRIED FORWARD TO THE SUBSEQUENT YEARS UNDER SECTION 73(2) OF THE INC OME TAX ACT. IN THE RETURN FILED FOR THE YEAR UNDER APPEAL WHICH IS THE ITA NO.1009/M/10 2 ASSESSMENT YEAR 2006-07, THE ASSESSEE CLAIMED THAT THE SPECULATION LOSS BROUGHT FORWARD FROM THE ASSESSMEN T YEAR 2001-02 SHOULD BE SET OFF AGAINST THE SPECULATION P ROFITS FOR THE YEAR UNDER APPEAL. THE ASSESSING OFFICER HOWEVER RE FUSED TO DO SO ON THE GROUND THAT UNDER SECTION 73(4), NO LOSS SHALL BE CARRIED FORWARD FOR MORE THAN FOUR ASSESSMENT YEARS IMMEDIATELY SUCCEEDING THE ASSESSMENT YEAR FOR WHIC H IT WAS FIRST COMPUTED. IT WAS HIS VIEW THAT THE SPECULATIO N LOSS WAS FIRST COMPUTED FOR THE ASSESSMENT YEAR 2001-02 AND THE ASSESSEE CANNOT CARRY FORWARD THE SAME BEYOND THE A SSESSMENT YEAR 2005-06. HE ACCORDINGLY REJECTED THE ASSESSEE S CLAIM. 4. ON APPEAL THE ASSESSEE CONTENDED THAT HE HAD A V ESTED RIGHT TO CARRY FORWARD THE SPECULATION LOSS FOR A P ERIOD OF EIGHT ASSESSMENT YEARS FOLLOWING THE ASSESSMENT YEAR 2001 -02 ACCORDING TO SECTION 73(4) AS IT STOOD BEFORE BEING AMENDED BY THE FINANCE ACT, 2005 WITH EFFECT FROM 01.04.2006, THAT BEFORE THE AMENDMENT THE ASSESSEE WAS BY LAW ALLOWED TO CA RRY FORWARD THE LOSS FOR EIGHT ASSESSMENT YEARS FOLLOWI NG THE ASSESSMENT YEAR 2001-02 AND SUCH VESTED RIGHT CANNO T BE TAKEN AWAY AND AT ANY RATE SECTION 73(4) DID NOT EX PRESSLY OR EVEN BY IMPLICATION TAKE AWAY SUCH A RIGHT. IT WAS FURTHER CONTENDED THAT THE RESULT OF THE AMENDMENT WAS ONLY THAT ANY LOSS COMPUTED FROM THE ASSESSMENT YEAR 2006-07 ONWA RDS WOULD BE ELIGIBLE TO BE CARRIED FORWARD ONLY FOR A PERIOD OF FOUR SUBSEQUENT ASSESSMENT YEARS. THIS CONTENTION WAS RE JECTED BY THE CIT(A) AND HENCE THE PRESENT APPEAL. 5. ON A CAREFUL CONSIDERATION OF THE RIVAL CONTENTI ONS, WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO SUCCEE D. IT IS A WELL SETTLED RULE OF INTERPRETATION THAT ANY VESTED RIGH T CAN BE TAKEN AWAY ONLY BY EXPRESS LANGUAGE OR BY NECESSARY IMPLI CATION. THIS IS SETTLED BY THE DECISION OF THE PRIVY COUNCIL IN DELHI CLOTH & ITA NO.1009/M/10 3 GENERAL MILLS COMPANY LTD. VS. INCOME TAX COMMISSIO NER, AIR 1927 (PC) 242 AND THE SAME HAS BEEN CITED WITH APP ROVAL BY THE SUPREME COURT IN THE CASE OF JOSE DACOSTA VS. B ASCORA SADASHIV SINAI NARCOMIN, AIR (1975) SC 1843. IN CIT , UP VS. SHAH SADIQ & SONS, (1987) 166 ITR 102, THE SUPREME COURT WAS CONCERNED WITH SECTION 24(2) OF THE INCOME TAX ACT, 1922, WHICH PROVIDED FOR A RIGHT TO SET OFF SPECULATION L OSSES AGAINST SPECULATION PROFITS AND IT FURTHER STATED THAT TO T HE EXTENT THE SPECULATION LOSS COULD NOT BE ABSORBED, THE ASSESSE E HAD A RIGHT TO CARRY FORWARD THE LOSSES FOR THE FUTURE YEARS TO BE SET OFF AGAINST SPECULATION PROFITS. THIS SECTION APPLIED T O ALL ASSESSEES INCLUDING A PARTNERSHIP FIRM. HOWEVER SECTION 75(2) OF THE 1961 ACT STATED THAT WHERE THE ASSESSEE IS A REGISTERED FIRM, ANY LOSS WHICH CANNOT BE SET OFF AGAINST ANY OTHER INCOME OF THE FIRM SHALL BE APPORTIONED BETWEEN THE PARTNERS AND THEY ALONE SHALL BE ENTITLED TO HAVE THE LOSS SET OFF AND CARRIED FO RWARD FOR SET OFF TO THE FUTURE YEARS. SECTION 75(2) ALSO PROVIDED TH AT NO REGISTERED FIRM CAN HAVE THE SPECULATION LOSS CARRI ED FORWARD AND SET OFF UNDER THE PROVISIONS OF SECTION 73. AS A RESULT OF THESE PROVISIONS, THERE WAS A PROHIBITION IN THE NE W ACT AGAINST A REGISTERED FIRM TO CARRY FORWARD ITS LOSSES INCLU DING SPECULATION LOSSES. THE ASSESSEE BEFORE THE SUPREME COURT HAD SPECULATION LOSSES QUANTIFIED IN ITS ASSESSMENTS FO R THE ASSESSMENT YEARS 1960-61 AND 1961-62 AND CLAIMED TH AT THE SAME SHOULD BE SET OFF AGAINST THE SPECULATION PROF ITS FOR THE ASSESSMENT YEAR 1962-63, FROM WHICH YEAR THE INCOME TAX ACT, 1961 CAME INTO FORCE. THE CLAIM WAS RESISTED BY THE INCOME-TAX AUTHORITIES, WHO CONTENDED THAT IN VIEW OF THE COMI NG INTO OPERATION OF THE 1961 ACT FROM 01.04.1962 AS WELL A S SECTION 75 THEREOF, EVEN IF THE ASSESSEE CAN BE SAID TO HAVE A VESTED RIGHT TO CARRY FORWARD THE SPECULATION LOSS FOR PREVIOUS YEA RS UNDER SECTION 24(2) OF THE 1922 ACT, THAT RIGHT CAME TO A N END WHEN THE NEW ACT CAME INTO FORCE. THIS CONTENTION WAS RE JECTED BY THE ITA NO.1009/M/10 4 SUPREME COURT. AT PAGE 108 OF THE REPORT, IT WAS HE LD AS FOLLOWS:- IN OUR OPINION, THE RIGHT GIVEN TO THE ASSESSEE FO R THE ASSESSMENT YEAR 1961-62 UNDER SECTION 24(2) OF THE 1922 ACT WAS AN ACCRUED RIGHT AND A VESTED RIGHT. IT COULD HAVE BEEN TAKEN AWAY EXPRESSLY OR B Y NECESSARY IMPLICATION. IT HAS NOT BEEN SO DONE. NEITHER SECTION 297(2)(B) NOR ANY OTHER SUB-CLAUSES OF SUB-SECTION (2) OF SECTION 297 INDICATES A CONT RARY INTENTION OF THE LEGISLATURE REGARDING ANY VESTED RIGHT OF THE ASSESSEE UNDER THE 1922 ACT. ON THE CONTRARY, SECTION 6(C) OF THE GENERAL CLAUSES ACT INDICATES THAT THAT RIGHT SHOULD BE PRESERVED. AGAIN AT PAGE 109 OF THE REPORT, THE SUPREME COURT OBSERVED AS UNDER:- THE FACT THAT THE RIGHT CREATED BY THE OPERATION O F SECTION 24(2) IS A VESTED RIGHT CANNOT, IN OUR OPIN ION, BE DISPUTED. SEE IN THIS CONNECTION THE OBSERVATION S OF THIS COURT IN GUJARAT ELECTRICITY BOARD VS. SHANTILAL R.DESAI (1969) 1 SCR 580, 587 AND ISHA VALIMOHAMAD VS. HAJI GULAM MOHAMAD & HAJI DADA TRUST (1975) 1 SCR 720, 723. UNDER THE INCOME-TAX ACT OF 1922, THE ASSESSEE WAS ENTITLED TO CARRY FORWARD THE LOSSES O F THE SPECULATION BUSINESS AND SET OFF SUCH LOSSES AGAINST PROFITS MADE FROM THAT BUSINESS IN FUTURE YEARS. THE RIGHT OF CARRYING FORWARD AND SET OFF ACCRUED TO THE ASSESSEE UNDER THE ACT OF 1922. A RIGHT WHICH HAD ACCRUED AND HAD BECOME VESTED CONTINUED TO BE CAPABLE OF BEING ENFORCED NOTWITHSTANDING THE REPEAL OF THE STATUTE UNDER WHICH THAT RIGHT ACCRUED UNLESS THE REPEALING STATU TE TOOK AWAY SUCH RIGHT EXPRESSLY. THIS IS THE EFFECT OF SECTION 6 OF THE GENERAL CLAUSES ACT, 1897. AGAIN AT PAGE 110 OF THE REPORT, THE IMPACT OF SECT ION 6(C) OF THE GENERAL CLAUSES ACT, 1897 WAS CONSIDERED AND IT WAS OBSERVED AS UNDER:- ITA NO.1009/M/10 5 IN THIS CASE, THE SAVINGS PROVISION IN THE REPEA LING STATUTE IS NOT EXHAUSTIVE OF THE RIGHTS WHICH ARE SAVED OR WHICH SURVIVE THE REPEAL OF THE STATUTE UNDER WHICH SUCH RIGHTS HAD ACCRUED. IN OTHER WORDS, WHATEVER RIGHTS ARE EXPRESSLY SAVED BY THE SAVINGS PROVISION STAND SAVED. BUT, THAT DOES NOT MEAN THAT RIGHTS WHICH ARE NOT SAVED BY THE SAVINGS PROVISION ARE EXTINGUISHED OR STAND IPSO FACTO TERMINATED BY THE MERE FACT THAT A NEW STATUT E REPEALING THE OLD STATUTE IS ENACTED. RIGHTS WHICH HAVE ACCRUED ARE SAVED UNLESS THEY ARE TAKEN AWAY EXPRESSLY. THIS IS THE PRINCIPLE BEHIND SECTION 6(C ) OF THE GENERAL CLAUSES ACT, 1897. THE RIGHT TO CARRY FORWARD LOSSES WHICH HAD ACCRUED UNDER THE REPEALED INCOME-TAX ACT OF 1922 IS NOT SAVED EXPRESSLY BY SECTION 297 OF THE INCOME TAX ACT, 1961. BUT IT IS NOT NECESSARY TO SAVE A RIGHT EXPRESSLY IN ORDER TO KEEP IT ALIVE AFTER THE REPEA L OF THE OLD ACT OF 1922. SECTION 6(C) SAVES ACCRUED RIG HTS UNLESS THEY ARE TAKEN AWAY BY THE REPEALING STATUTE. WE DO NOT FIND ANY SUCH TAKING AWAY OF THE RIGHTS BY SECTION 297 EITHER EXPRESSLY OR BY IMPLICATION. IT WAS ULTIMATELY HELD THAT THE ASSESSEE WAS ENTITL ED TO SET OFF THE SPECULATION LOSSES BROUGHT FORWARD FROM THE ASS ESSMENT YEARS 1960-61 AND 1961-62 AGAINST THE SPECULATION P ROFITS FOR THE ASSESSMENT YEAR 1962-63 NOTWITHSTANDING THE PRO VISIONS OF SECTION 75 OF THE INCOME TAX ACT, 1961. IN OUR OPIN ION, THIS JUDGEMENT COVERS THE PRESENT CASE ENTIRELY. IN SUB -SECTION (4) OF SECTION 73 OR IN ANY OTHER PROVISION, THERE IS NO E XPRESS LANGUAGE OR ANY IMPLICATION TO THE EFFECT THAT THE RIGHT OF THE ASSESSEE TO CARRY FORWARD THE SPECULATION LOSS FOR A PERIOD OF EIGHT SUBSEQUENT ASSESSMENT YEARS HAS BEEN TAKEN AW AY. THE AMENDMENT MADE BY THE FINANCE ACT, 2005 WITH EFFECT FROM 01.04.2006 IS MERELY TO SUBSTITUTE THE WORDS FOUR ASSESSMENT YEARS FOR THE WORDS EIGHT ASSESSMENT YEARS. IN OUR OPINION, THE ASSESSEES CONTENTION THAT ANY SPECULATION LOSS COMPUTED ITA NO.1009/M/10 6 FOR THE ASSESSMENT YEAR 2006-07 AND LATER ASSESSMEN T YEARS ALONE WOULD BE HIT BY THE AMENDMENT AND SUCH LOSS C AN BE CARRIED FORWARD ONLY FOR FOUR SUBSEQUENT ASSESSMENT YEARS IS CORRECT. THE VESTED RIGHT OF THE ASSESSEE HAS NOT BEEN TAKEN AWAY. 6. IT IS ALSO SIGNIFICANT, AS RIGHTLY POINTED OUT O N BEHALF OF THE ASSESSEE, THAT SUB-SECTION (4) OF SECTION 73 REFERS ONLY TO THE LOSS TO BE CARRIED FORWARD TO THE SUBSEQUENT YEARS. IT DOES NOT SAY ANYTHING ABOUT THE SET OFF OF THE SPECULATION L OSS BROUGHT FORWARD FROM THE EARLIER YEARS. THERE IS A DISTINC TION BETWEEN A LOSS BROUGHT FORWARD FROM THE EARLIER YEARS AND A L OSS TO BE CARRIED FORWARD TO THE SUBSEQUENT YEARS. THE SUB-SE CTION DEALS ONLY WITH THE SPECULATION LOSS TO BE CARRIED FORWAR D TO THE SUBSEQUENT YEARS AND IN THE VERY NATURE OF THINGS I T CANNOT APPLY TO SPECULATION LOSS QUANTIFIED IN ANY ASSESSM ENT YEAR BEFORE THE ASSESSMENT YEAR 2006-07. THE INCOME TA X RULES WHICH PRESCRIBE THE RETURN FORM FOR INDIVIDUALS HAV ING PROPRIETARY BUSINESS (ITR 4) ALSO MAKES A DISTINCTI ON BETWEEN THE LOSS BROUGHT FORWARD AND LOSS TO BE CARRIED FOR WARD. REFERENCE MAY BE MADE TO PAGE 1.369 OF THE INCOME T AX RULES BY TAXMAN (2009 - 46 TH EDITION). IN SCHEDULE BFLA, THE ASSESSEE IS REQUIRED TO GIVE DETAILS OF INCOME AFT ER SET OFF OF BROUGHT FORWARD LOSSES OF EARLIER YEARS. SCHEDULE CFL REQUIRES THE ASSESSEE TO GIVE DETAILS OF LOSSES TO BE CARRI ED FORWARD TO FUTURE YEARS. HEREIN WE ARE CONCERNED WITH THE ASS ESSEES RIGHT TO SET OFF THE BROUGHT FORWARD SPECULATION LOSSES A GAINST THE SPECULATION PROFITS FOR THE ASSESSMENT YEAR 2006-07 . SUB- SECTION (4) OF SECTION 73 DOES NOT DEAL WITH THIS SITUATION. HENCE, IT HAS NO APPLICATION. 7. THE LEARNED SENIOR D.R. REFERRED TO THE JUDGEMEN T OF THE HONBLE BOMBAY HIGH COURT IN ULTRAMARINE & PIGMENTS LTD. VS. ITA NO.1009/M/10 7 O.P.SRIVASTAVA, CIT, (2006) 286 ITR 86. IN THIS CAS E IT WAS HELD THAT SECTION 214(1A) IS PROCEDURAL IN NATURE AND A PPLIED TO ALL PENDING ACTIONS. WE ARE NOT CONCERNED WITH A PROCED URAL PROVISION. WE HAVE ALREADY SEEN THAT THE ASSESSEE H AD ACQUIRED A VESTED RIGHT TO HAVE THE SPECULATION LOSS COMPUTE D FOR THE ASSESSMENT YEAR 2001-02 CARRIED FORWARD TO THE SUBS EQUENT EIGHT YEARS AS PER SECTION 73(4) AS IT STOOD BEFORE THE AMENDMENT MADE BY THE FINANCE ACT, 2005. THAT SUCH A RIGHT IS A VESTED RIGHT CANNOT BE DOUBTED AFTER THE JUDGE MENT OF THE SUPREME COURT IN THE CASE OF CIT VS. SHAH SADIQ & S ONS (SUPRA). SINCE WE ARE CONCERNED WITH THE SUBSTANTIV E OR VESTED RIGHT, THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COU RT DEALING WITH PROCEDURAL PROVISION CAN HAVE NO APPLICATION. 8. IN THE RESULT, THE ASSESSEES CONTENTIONS ARE UP HELD AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW SET OFF OF THE SPECULATION LOSS BROUGHT FORWARD FROM THE ASSESSMEN T YEAR 2001-02 AGAINST THE SPECULATION PROFITS FOR THE YEA R UNDER APPEAL. THE APPEAL IS ALLOWED WITH NO ORDER AS TO C OSTS. ORDER PRONOUNCED ON THIS 31 ST DAY OF MAY, 2010. SD/- ( A.L.GEHLOT ) SD/- ( R.V.EASWAR ) ACCOUNTANT MEMBER SENIOR VI CE PRESIDENT MUMBAI, DATED 31 ST MAY, 2010. SOMU COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-XII, MUMBAI. 4. THE CIT(A)-23, MUMBAI 5. THE DR F BENCH /TRUE COPY/ BY ORDE R ASSTT. REGISTRAR, I.T.A.T, MUMBAI