GAJENDRA KUMAR. T. AGARWAL, MUMBAI V. ITO 11(2)(3), MUMBAI

ITA 1798/MUM/2010

• Counselvise Citation: 179819914 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 28-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 08-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Transactions in derivatives; Retrospective amendment; Speculation loss; Assessment record; Capital expenditure
• Section: 143(3); 43(5); 32; 263; 28

Judgement Text

ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 1 OF 31 FIT FOR PUBLICATION IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI G BENCH, MUMBAI [CORAM : D MANMOHAN VP AND PRAMOD KUMAR AM] ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006-07 GAJENDRA KUMAR T AGARWAL ...APPELLANT C/O SHANKARLAL JAIN & ASSOCIATES 12 ENGINEERS BUILDING 265, PRINCESS STREET, MUMBAI 400 002 PAN : AABPA7286R VS. INCOME TAX OFFICER RESPONDENT WARD 11(2)(3), MUMBAI 400 020 APPEARANCES: S L JAIN, FOR THE APPELLANT PAVAN VAID, FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR : 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HA S CALLED INTO QUESTION CORRECTNESS OF IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX UNDER SECTION 263 OF THE INCOME TAX ACT, 1961, IN T HE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE ACT FOR THE ASSESSMENT YEAR 2 006-07, ON THE FOLLOWING GROUNDS: 1. THE LEARNED CIT ERRED IN HOLDING THAT THE ASSESS MENT ORDER, AS ORIGINALLY PASSED BY THE ASSESSING OFFICER UNDER SE CTION 143(3), IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E AS IN THE SAID ASSESSMENT ORDER THE LOSSES INCURRED BY THE ASSESSE E HAVE NOT BEEN CORRECTLY CARRIED FORWARD WITHOUT PROPERLY APPRECIA TING THE FACTS OF THE ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 2 OF 31 CASE AND LAW APPLICABLE THERETO. 2. THE LEARNED CIT ERRED IN HOLDING THAT BUSINESS I NCOME EARNED BY THE APPELLANT DURING THE YEAR, IN DERIVATIVES TRANSACTI ONS IN SHARES AMOUTING TO RS 1,91,48,060 BE SET OFF AGAINST BUSINESS LOSS CARRIED FORWARD OF RS 1,95,56,066 FOR ASSESSMENT YEAR 2005-06, AS AGAINST SUCH INCOME BEING SET OFF AGAINST THE LOSS OF ASSESSMENT YEAR 2001-02 INCURRED BY THE APPELLANT IN DERIVATIVES TRANSACTIONS. 3. THE LEARNED CIT IN NOT ACCEPTING THE APPELLANTS CLAIM THAT LOSS INCURRED BY THE APPELLANT IN EARLIER YEARS, BEING I N DERIVATIVES TRANSACTIONS, BE ENTITLED TO SET OFF AGAINST THE IN COME EARNED IN DERIVATIVES TRANSACTIONS IN ASSESSMENT YEAR 2006-07, WITHOUT PR OPERLY APPRECIATING THE FACTS OF THE CASE AND LAW APPLICABLE THERETO. 2. THE ASSESSEE IS A CHARTERED ACCOUNTANT BY PROFES SION, BUT IF HIS INCOME DETAILS AS CULLED OUT IN THE ASSESSMENT ORDER ARE ANYTHING TO GO BY, HE HAS FOUND GREENER PASTURES IN THE STOCK MARKETS. IN THE NET PROFIT OF RS 3,07,82,539 DISCLOSED BY THE ASSESSEE, WHILE PROFESSIONAL RECEIPTS ARE ONLY AT R S 18,00,000, MOST OF HIS REMAINING INCOME CONSISTS OF PROFITS FROM TRADING IN DERIVATI VES AND SHARES INCLUDING PROFITS FROM DEALING IN DERIVATIVES AT RS 1,91,48,060. HOWE VER, NE HAS NOT BEEN AS LUCKY IN DERIVATIVES DEALINGS IN ALL THE PRECEDING ASSESSMEN T YEARS. IN THE ASSESSMENT YEARS 2001-02, 2002-03, 2003-04 AND 2005-06, HE INCURRED LOSSES IN THE SAME ACTIVITY AMOUNTING TO RS 2,89,66,709, RS 2,34,286, RS 36,49, 488 AND RS 1,95,56,067. THERE WAS A PROFIT OF RS 55,31,230 IN THE ASSESSMENT YEAR 2004-05, BUT THE SAME WAS SET OFF AGAINST THE LOSS IN THE SAME ACTIVITY, CARRIED FORWARD FROM 2001-02, LEAVING LOSS OF RS 4,68,75,320. IN THE RELEVANT ASSESSMENT YEAR, I. E. ASSESSMENT YEAR INVOLVED IN THE DISPUTE BEFORE US, ASSESSEE CLAIMED SET OFF OF RS 1,91,48,060, OUT OF THE REMAINING LOSSES SO INCURRED IN DEALING IN DERIVATIVES, AGAIN ST PROFITS FROM DERIVATIVES IN THE PRESENT YEAR. THE SET OFF SO CLAIMED BY THE ASSESSE E WAS ALLOWED , AND THE BALANCE UNABSORBED LOSSES OF RS 2,27,27,262 WERE CARRIED FO RWARD. 3. ON A PERUSAL OF THE ASSESSMENT RECORDS, HOWEVER , LEARNED COMMISSIONER WAS OF THE VIEW THAT THE SET OFF SO GRANTED BY THE ASSESSING OFFICER RENDERED THE ASSESSMENT ORDER ERRONEOUS IN SO FAR AS IT IS PREJ UDICIAL TO THE INTEREST OF THE ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 3 OF 31 REVENUE TO THE EXTENT OF CARRY FORWARD OF LOSSES. IN RESPONSE TO SHOW CAUSE NOTICE ISSUED BY THE COMMISSIONER CALLING UPON THE ASSESSE E TO SHOW CAUSE AS TO WHY THE SET OFF SO GRANTED NOT BE WITHDRAWN, THE ASSESSEE, INTER ALIA, SUBMITTED THAT THE ASSESSEE HAS CARRIED OUT DERIVATIVE TRANSACTIO NS AND INCURRED LOSSES IN CERTAIN YEARS AND EARNED PROFITS IN CERTAIN OTHER YEARS AND THAT SINCE NATURE OF TRANSACTIONS, BEING DERIVATIVES TRADING, PROFIT AND LOSS IS MUTUALLY ADJUSTED AND BALANCE LOSS HAS BEEN CARRIED FORWARD IN EARLIER YE ARS, BEING ON DERIVATIVES TRANSACTIONS, CURRENT YEARS PROFITS, ALSO BEING IN DERIVATIVES TRANSACTIONS, IS THUS ENTITLED TO BE SET OFF AGAINST SUCH CARRIED FO RWARD LOSSES . LEARNED COMMISSIONER DID NOT ACCEPT THE PLEA SO ADVANCED BY THE ASSESSEE. HE TOOK NOTE OF THE AMENDMENT BROUGHT ABOUT IN SECTION 43(5), WITH EFFECT FROM 1 ST APRIL 2006, BY VIRTUE OF WHICH ELIGIBLE TRANSACTIONS OF DEALING IN DERIVATIVES WERE NO LONGER HIT BY THE DEFINITION OF SPECULATIVE TRANSACTIONS AND, ACCOR DINGLY, WERE REQUIRED TO BE TREATED AS A NORMAL NON-SPECULATIVE BUSINESS. LEARNED COMMISS IONER DECLINED THE SET OFF OF PAST LOSSES IN DEALING IN DERIVATIVES AGAINST THE P ROFITS IN DEALING IN DERIVATIVES IN THE CURRENT YEAR IN VIEW OF THE ABOVE SAID PROSPECTIVE AMENDMENT, WH ICH PROVIDES THAT THE ELIGIBLE TRANSACTION IN RESPECT OF A TRADI NG IN DERIVATIVES CARRIED OUT IN A RECOGNIZED STOCK EXCHANGE SHALL BE NOT BE TREATED AS SPECULATIVE TRANSACTION ... IT IS DENIAL OF THIS SET OFF WHICH IS CORE I SSUE IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 5. IN THE COURSE OF HEARING BEFORE US, AS INDEED I N THE ORDER OF THE LEARNED COMMISSIONER, A LOT OF EMPHASIS HAS BEEN PLACED ON WHETHER OR NOT THE TRANSACTIONS IN DERIVATIVES AMOUNTED TO SPECULATIVE TRANSACTION S UNDER SECTION 43(5) AT THE RELEVANT POINTS OF TIME, I.E. AT THE POINT OF TIME WHEN LOSSES WERE INCURRED IN PRECEDING ASSESSMENT YEARS , AS ALSO AT THE POINT OF TIME WHEN PROFITS ARE MADE IN THE SAME TYPE OF TRANSACTIONS, BUT, IN OUR HUMBLE U NDERSTANDING, THAT ASPECT OF THE MATTER IS STILL A STEP AWAY FROM ACTUAL AND CORE CO NTROVERSY INVOLVED IN THIS APPEAL, ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 4 OF 31 I.E. WHETHER OR NOT THE LOSSES INCURRED IN DEALING IN DERIVATIVES IN EARLIER ASSESSMENT YEARS ARE ELIGIBLE TO SET OFF AGAINST THE PROFITS F ROM THE SAME ACTIVITY POST AMENDMENT TO DEFINITION OF SPECULATION TRANSACTIONS UNDER S ECTION 43(5) WITH EFFECT FROM 1 ST APRIL 2006. UNDOUBTEDLY, THIS ISSUE INVOLVES EXAM INATION OF IMPACT OF AMENDMENT IN SECTION 43(5), ON WHICH SO MUCH EMPHASIS HAS BEEN P LACED BY THE PARTIES BEFORE US AND ALSO BEFORE THE LEARNED COMMISSIONER, BUT PERHA PS AT MORE FUNDAMENTAL AND CONCEPTUAL LEVEL, THIS ISSUE NEEDS TO BE EXAMINED R ATHER HOLISTICALLY IN THE LIGHT OF PROVISIONS REGARDING SET OFF AND CARRY FORWARD OF L OSSES, AND IN THE LIGHT OF HOW THOSE PROVISIONS HAVE BEEN INTERPRETED BY HONBLE COURTS ABOVE. 6. LET US FIRST DEAL WITH THE NATURE OF TRANSACTIO NS IN DERIVATIVES AND THE TREATMENT GIVEN TO THESE TRANSACTIONS IN THE INCOME TAX ACT, 1961. 7. AS TO WHAT IS THE NATURE OF A DERIVATIVE TRANSACTION, WE FIND USEFUL GUIDANCE FROM HONBLE MADRAS HIGH COURTS JUDGMENT IN THE CA SE OF RAJSHREE SUGARS & CHEMICALS LTD. VS. AXIS BANK LTD. REPORTED IN (2008 ) 8 MLJ 261, REFERRED TO WITH APPROVAL BY HONBLE BOMBAY HIGH COURT IN THE CASE O F BHARAT S RUIA VS CIT (2011 TIOL 238 HC ), IN THE FOLLOWING TERMS:- ' WHAT ARE THESE DERIVATIVES WHICH HAVE GAINED SUCH A GREAT DEAL OF NOTORIETY ? IN SIMPLE TERMS, DERIVATIVES ARE FINANCIAL INSTRUME NTS WHOSE VALUES DEPEND ON THE VALUE OF OTHER UNDERLYING FINANCIAL INSTRUMENTS. TH E INTERNATIONAL ACCOUNTING STANDARD (IAS) 39, DEFINES 'DERIVATIVES' AS FOLLOWS : ' A DERIVATIVE IS A FINANCIAL INSTRUMENT (A) WHOSE VALUE CHANGES IN RESPONSE TO THE CHANGE I N A SPECIFIED INTEREST RATE, SECURITY PRICE, COMMODITY PRICE, FOREIGN EXCHANGE R ATE, INDEX OF PRICES OR RATES, A CREDIT RATING OR CREDIT INDEX, OR SIMILAR VARIABLE (SOMETIMES CALLED THE 'UNDERLYING'); (B) THAT REQUIRES NO INITIAL NET INVESTMENT OR LITT LE INITIAL NET INVESTMENT RELATIVE TO OTHER TYPES OF CONTRACTS THAT HAVE A SIMILAR RESPON SE TO CHANGES IN MARKET CONDITIONS; AND (C) THAT IS SETTLED AT A FUTURE DATE. ' ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 5 OF 31 ACTUALLY, DERIVATIVES ARE ASSETS, WHOSE VALUES ARE DERIVED FROM VALUES OF UNDERLYING ASSETS. THESE UNDERLYING ASSETS CAN BE COMMODITIES, METALS, ENERGY RESOURCES, AND FINANCIAL ASSETS SUCH AS SHARES, BONDS AND FOREIGN CURRENCIES. 6. DERIVATIVES CAN BE USED AS INSURANCE COVER AGAIN ST CERTAIN TYPES OF BUSINESS RISKS SUCH AS FLUCTUATIONS IN THE RATE OF FOREIGN EXCHANG E, FLUCTUATIONS IN THE RATE OF INTEREST ON BORROWINGS, FLUCTUATIONS IN THE VALUE O F SPECIFIED ASSETS ETC. TO TAKE AN EXAMPLE, IT IS COMMON KNOWLEDGE THAT THE PRICE OF G OLD KEEPS FLUCTUATING. IF A MANUFACTURER OF GOLD JEWELLERY ANTICIPATES THAT HE WOULD REQUIRE A PARTICULAR QUANTITY OF GOLD AT A SPECIFIED DISTANCE OF TIME, H E MAY ENTER INTO A CONTRACT WITH THE SELLER OF GOLD BARS FOR THE SUPPLY OF THE SAME AT A FUTURE DATE, AT THE RATE SPECIFIED IN THE CONTRACT. THIS CONTRACT REDUCES THE RISK FOR TH E BUYER, AGAINST A POSSIBLE STEEP RISE IN THE PRICE OF GOLD. IT EQUALLY REDUCES THE R ISK OF THE SELLER AGAINST A STEEP FALL IN THE PRICE. THUS THE CONTRACT ACTS AS AN INSURANCE C OVER. WHEN THE TRANSACTION GOES THROUGH WITHOUT ANY DISPUTE, THE CONTRACT IS FULFIL LED. BUT WHEN THE TRANSACTION FAILS AND THE MOTIVE BEHIND THE TRANSACTION IS NOT NECESS ARILY THE SALE AND SUPPLY OF GOLD, BUT THE RECEIPT OR PAYMENT OF THE DIFFERENCE IN THE PRICE (DIFFERENCE BETWEEN THE PREVAILING PRICE AND THE PRICE FIXED IN THE CONTRAC T), MANY EYEBROWS ARE RAISED AND MANY QUESTIONS ARE ASKED. THIS IS THE POINT WHERE T HE TRANSACTION TAKES A DETOUR FROM A SIMPLE CONTRACT OF INSURANCE. 7. THERE ARE ATLEAST 4 CATEGORIES OF DERIVATIVES, C OMMONLY IN USE. SOME OF THEM ARE TRADED THROUGH EXCHANGES AND THEY ARE KNOWN AS EXCH ANGE-TRADED-DERIVATIVES (ETD). OTHERS ARE TRADED DIRECTLY BETWEEN THE PARTI ES AND THEY ARE KNOWN AS OVER- THE- COUNTER (OTC) DERIVATIVES. THE 4 CATEGORIES OF DERIVATIVES ARE AS FOLLOWS:- (1) FORWARDS: A CONTRACT BETWEEN TWO PARTIES. ONE P ARTY AGREES TO BUY A COMMODITY OR FINANCIAL ASSET ON A DATE IN THE FUTURE AT A FIX ED PRICE, WHILE THE OTHER AGREES TO DELIVER THAT COMMODITY OR ASSET AT THE PREDETERMINE D PRICE. THESE ARE NOT TRADED ON EXCHANGES BECAUSE THEY ARE NEGOTIATED DIRECTLY BETW EEN TWO PARTIES. (2) FUTURES: A CONTRACT ESSENTIALLY THE SAME AS A F ORWARD CONTRACT, EXCEPT THAT THE DEAL IS STRUCK VIA AN ORGANIZED AND REGULATED EXCHA NGE. THERE ARE THREE KEY DIFFERENCES BETWEEN FORWARDS AND FUTURES (I) FUTURE S CONTRACT IS GUARANTEED AGAINST DEFAULT (II) THEY ARE STANDARIZED AND (III) THEY AR E SETTLED ON A DAILY BASIS. (3) SWAPS: A SWAP IS AN AGREEMENT MADE BETWEEN TWO PARTIES TO EXCHANGE PAYMENTS ON REGULAR FUTURE DATES. SWAPS ARE OTC (OV ER THE COUNTER) PRODUCTS. SWAPS ARE USED TO MANAGE OR HEDGE RISK ASSOCIATED W ITH VOLATILE INTEREST RATES, CURRENCY EXCHANGE RATES, COMMODITY PRICES AND SHARE PRICES. SWAPS CAN BE CONSIDERED AS SERIES OF FORWARD CONTRACTS. (4) OPTIONS: AN OPTION GIVES THE HOLDER RIGHT TO BU Y OR SELL AN UNDERLYING ASSET AT A FUTURE DATE AT A PREDETERMINED PRICE. A CALL OPTION IS THE RIGHT TO BUY. THE BUYER OF A 'CALL OPTION' HAS THE RIGHT, BUT NOT THE OBLIGATION TO BUY AN AGREED QUANTITY OF A PARTICULAR COMMODITY OR FINANCIAL INSTRUMENT (UNDER LYING INSTRUMENT), FROM THE SELLER (OR WRITER) AT A CERTAIN TIME (THE EXPIRATIO N DATE) FOR A CERTAIN PRICE (STRIKE PRICE). THE BUYER PAYS A PREMIUM FOR THIS RIGHT. IN CONTRAST, A PUT OPTION IS THE RIGHT TO SELL. THE BUYER OF A 'PUT OPTION' HAS THE RIGHT, BUT NOT THE OBLIGATION TO SELL AN AGREED QUANTITY OF A PARTICULAR COMMODITY OR FINANC IAL INSTRUMENT (UNDERLYING ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 6 OF 31 INSTRUMENT), TO THE SELLER (OR WRITER) AT A CERTAIN TIME (THE EXPIRATION DATE) FOR A CERTAIN PRICE (STRIKE PRICE). WE HAVE A VARIETY OF OPTIONS SUCH AS AMERICAN AND EUROPEAN OPTIONS, DEPENDING UPON THE TIME OF EXERCI SE OF THE RIGHT. BOTH CALL OPTION AND PUT OPTION CAN BE COMBINED TO ACHIEVE 'ZERO COS T OPTION.' 8. TRADING IN THESE MARKETS ARE REGULATED INTERNATI ONALLY BY COMMODITY FUTURES TRADING COMMISSION (CFTC) AND INTERNATIONAL SWAPS A ND DERIVATIVES ASSOCIATION (ISDA) AND THE NATIONAL FUTURES ASSOCIATION (NFA). EXPERTS IN THE FIELD OF ECONOMIC, FINANCE AND INVESTMENT FEEL THAT DERIVATIVES ARE VA LUABLE BECAUSE THEY PROVIDE EFFICIENT WAYS TO MANAGE AND TRANSFER RISK. A BUSIN ESS OWNER WHO IS EXPOSED TO CHANGES IN MARKET PRICES CAN ENTER INTO AN APPROPRI ATE DERIVATIVES CONTRACT AND THE RISK CAN BE ASSUMED BY A TRADER OR SPECULATOR WHO I S PREPARED TO LIVE WITH UNCERTAINTY IN RETURN FOR THE PROSPECT OF ACHIEVING AN ATTRACTIVE RETURN. A LARGE FINANCIAL INSTITUTION CAN WITHSTAND MORE RISK THAN A SMALL CORPORATE AND THUS MAY CHOOSE TO ENGAGE IN DERIVATIVES PRODUCTS FOR A REAS ONABLE COMPENSATION. NOBEL LAUREATE KENNETH ARROW PREDICTED THAT THIS WOULD IN CREASE ECONOMIC PROSPERITY SINCE PEOPLE WOULD BE MORE PREPARED TO ENGAGE IN RI SK-TAKING ACTIVITIES. IT COULD ALSO SERVE TO IMPROVE THE QUALITY OF PREDICTION OF FUTURE EVENTS IN THE WORLD OF FINANCE AND INVESTMENTS. DERIVATIVES PROVIDE A GLOB AL NETWORK FOR INTELLIGENT ASSESSMENT, MANAGEMENT, AND DISTRIBUTION OF RISK ON A LARGE SCALE. ' 8. SECURITIES CONTRACTS (REGULATIONS) ACT 1956 SEE KS TO REGULATE THE BUSINESS OF DEALING IN SECURITIES, BUT THE DEFINITION OF EXPRE SSION 'SECURITIES', IN THE SAID ACT, WAS CONFINED TO SHARES, SCRIPS, STOCKS, BONDS, DEBENTUR ES, DEBENTURE STOCK OR OTHER MARKETABLE SECURITIES OF A LIKE NATURE IN OR OF ANY INCORPORATED COMPANY OR OTHER BODY CORPORATE. EFFECTIVE 22 ND FEBRUARY 2000, DEFINITION OF THE EXPRESSION 'SECURITIES' WAS EXTENDED TO INCLUDE DERIVATIVES, A ND DERIVATIVES WERE DEFINED TO INCLUDE (A) A SECURITY DERIVED FROM A DEBT INSTRUMENT, SHARE , LOAN WHETHER SECURED OR UNSECURED, RISK INSTRUMENT OR CONTRACT FOR DIFFEREN CES OR ANY OTHER FORM OF SECURITY (B) A CONTRACT WHICH DERIVES ITS VALUE FROM THE PRICES, OR INDEX OF PRICES OF UNDERLYING SECURITIES. SECTION 18A WAS ALSO INSERTED IN THE 1956 ACT WITH EFFECT FROM 22/2/2000 PROVIDES THAT THE CONTRACTS IN DERIVATIVE SHALL BE LEGAL AND VALID IF SUCH CONTRACTS ARE TRADED ON A RECOGNIZED STOCK EXCHANGE AND SETTLED O N THE CLEARING HOUSE OF THE RECOGNIZED STOCK EXCHANGE IN ACCORDANCE WITH THE RU LES AND BYE LAWS OF SUCH STOCK EXCHANGE. IN EFFECT THUS, THE TRANSACTIONS IN DERIVATIVES COU LD BE LEGALLY TRADED UNDER THE 1956 ACT WITH EFFECT FROM 22 ND FEBRUARY 2000, AND THE TRANSACTIONS IN DERIVATIVES WERE TO BE TREATED AS LEGAL AND VALID O NLY IF THEY ARE TRADED ON A RECOGNIZED STOCK EXCHANGE AND CLEARED ON THE CLEARI NG HOUSE OF RECOGNIZED STOCK ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 7 OF 31 EXCHANGE. IT WAS THUS PRACTICALLY IN THE FINANCIAL YEAR 2000-01, WHICH IS RELEVANT TO THE ASSESSMENT YEAR 2001-02, THAT TRADING IN DERIVA TIVES IN INDIA. 9. WHILE TRADING IN DERIVATIVES STARTED IN INDIA IN PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2001-02, INCOME TAX ACT 1961 DID NO T HAVE ANY CHANGES CORRESPONDING TO THIS NEW DEVELOPMENT IN SECURITIES MARKET. TRADING IN DERIVATIVES WAS NOT RECOGNIZED IN ITS OWN RIGHT, AND, AS SUCH, PROFITS AND LOSSES WERE TREATED AS PROFITS AND LOSSES OF SPECULATION BUSINESS. THE UND ERLYING PRINCIPLE WAS THIS. EVERY DERIVATIVE INSTRUMENT, BY DEFINITION, DERIVED ITS V ALUE FROM THE UNDERLYING ASSET OR SECURITY, AND DELIVERY OF SUCH UNDERLYING ASSET OR SECURITY WAS NEVER TAKEN. IN EFFECT THUS A DERIVATIVE TRANSACTION WAS TREATED AS A TRAN SACTION IN THE UNDERLYING ASSET OR SECURITIES WHICH NEVER CHANGED HANDS IN PHYSICAL DE LIVERY. SECTION 43(5) PROVIDES THAT SPECULATIVE TRANSACTION IS A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY INCLUDING STOCKS AND SHARE S IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY ACTUAL DELIVER Y OR TRANSFER OF THE COMMODITY OR SCRIPS . THERE ARE CERTAIN EXCEPTIONS TO THIS RULE, AS SE T OUT IN THE PROVISOS TO THIS SUB SECTION, BUT THESE EXCEPTIONS ARE NOT REALLY RELEVANT FOR THE PRESENT PURPOSES. A TRANSACTION IN DERIVATIVES WAS THUS CHARACTERIZED AS A SPECULATIVE TRANSACTION FOR THE PURPOSES OF THE INC OME TAX ACT. IN VIEW OF THIS DEFINITION OF SPECULATIVE TRANSACTION, READ WITH EX PLANATION TO SECTION 28 WHICH PROVIDES THAT WHERE SPECULATIVE TRANSACTIONS CARRIED ON BY AN ASS ESSEE ARE OF SUCH A NATURE AS TO CONSTITUTE A BUSINESS, THE BUSI NESS (HEREINAFTER REFERRED TO AS SPECULATION BUSINESS) SHALL BE DEEMED TO BE DI STINCT AND SEPARATE FROM ANY OTHER BUSINESS , THE PROFITS AND LOSSES FROM TRANSACTIONS IN DERIV ATIVES ,WHICH CONSTITUTED SPECULATION BUSINESS, WERE CHARACTERIZE D AS SPECULATION PROFITS AND LOSSES. THE RATIONALE BEHIND THIS CHARACTERIZATION OF BUSINESS INTO SPECULATION BUSINESS AND NON-SPECULATION BUSINESS IS THAT THE PROFITS AND GAINS OF NON- SPECULATION BUSINESS CAN NOT BE SET OFF, WHETHER WI THIN THE ASSESSMENT YEAR OR IN SUBSEQUENT ASSESSMENT YEARS, AGAINST LOSSES OF SPEC ULATION BUSINESS. THIS RESTRICTION HAS BEEN PLACED BECAUSE NON DELIVERY BA SED TRANSACTIONS, AS IT APPEARS FROM THE STAND TAKEN BY THE CENTRAL BOARD OF DIRECT TAXES, LEAVE SUBSTANTIAL SCOPE ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 8 OF 31 FOR GENERATING FICTITIOUS LOSSES THROUGH ARTIFICIAL TRANSACTIONS OR SHIFTING OF INCIDENCE OF LOSS FROM ONE PERSON TO ANOTHER ( CBDT CIRCULAR DATED 27 TH FEBRUARY 2006). THE IDEA IN SEGREGATING DELIVERY B ASED AND NON DELIVERY BASED TRANSACTION THUS WAS THAT THE ARTIFICIAL LOSSES GEN ERATED, OR SHIFTED, THROUGH SPECULATIVE TRANSACTIONS SHOULD NOT BE ADJUSTED AGA INST GENUINE BUSINESS PROFITS OF THE ASSESSEE. IN EFFECT THUS, WHEN A BUSINESS WAS C LASSIFIED AS SPECULATION BUSINESS, CERTAIN RESTRICTIONS WERE PLACED ON THE LOSSES OF S UCH BUSINESS BEING SET OFF AGAINST PROFITS OF OTHER BUSINESSES, I.E. NON SPECULATIVE B USINESSES, AND, TO THAT EXTENT, ASSESSEE WAS PUT TO DISADVANTAGE. OF COURSE, AS W E NOTE THIS CLASSIFICATION, WE ARE ALIVE TO THE CONTROVERSY WHETHER DELIVERY OF UNDER LYING ASSETS IN DERIVATIVES TRADING COULD HAVE TAKEN PLACE AT ALL, AND, WHETHER, BECAUS E OF THIS IMPOSSIBILITY OF DELIVERY AND BECAUSE ASSESSEE COULD NOT DO WHAT WAS IMPOSSIB LE ANYWAY, ASSESSEE COULD BE PLACED AT A DISADVANTAGE OF RATHER DISABLING PROVI SIONS OF SECTION 43(5). SEGREGATION OF SPECULATION AND NON- SPECULATION BUS INESS RESULTS IS NOT AN END IN ITSELF, BUT SUCH A SEGREGATION IS TO RESTRICT THE S ET OFF OF LOSSES INCURRED A PARTICULAR TYPE OF BUSINESS ACTIVITIES. ONE WAY OF LOOKING AT SECTION 43(5) IS TO HOLD, AS HAS BEEN HELD BY HONBLE BOMBAY HIGH COURT IN THE CASE OF BHARAT S RUIA (SUPRA), THAT THE VERY OBJECT OF SECTION 43(5) IS TO TREAT TRANS ACTIONS WHICH ARE SETTLED OTHERWISE THAN BY ACTUAL DELIVERY AS SPECULATIVE TRANSACTIONS , THOUGH, VIEWED FROM A RATHER ACADEMIC AND CONCEPTUAL POINT OF VIEW, TREATING A T RANSACTION AS SPECULATIVE TRANSACTION IS ONLY A MODALITY WITH THE OBJECTIVE O F ENSURING THAT THERE IS LEAST POSSIBLE SCOPE FOR GENERATING FICTITIOUS LOSSES TH ROUGH ARTIFICIAL TRANSACTIONS OR SHIFTING OF INCIDENCE OF LOSS FROM ONE PERSON TO AN OTHER. THE LINE OF DEMARCATION BEING VISUALIZED AND DRAWN UP BETWEEN SPECULATIVE A ND NON-SPECULATIVE TRANSACTION, FROM THIS PERSPECTIVE, IS NOT AN END B UT MEANS OF ACHIEVING THE END OF MINIMISING TAX MANOEUVRINGS. HOWEVER, THESE DISCUSSIONS, WHICH ARE SOMEWHAT ACADEMIC NOW, MUST NOT DETAIN US AT THIS STAGE. THE REASON IS THIS. HONBLE JURISDICTIONAL HIGH COURT HAS, IN THE CASE OF BHAR AT S RUIA (SUPRA), HELD THAT .. SECTION 43(5) OF THE ACT PROVIDES THAT A TRANSACTIO N FOR PURCHASE / SALE OF ANY COMMODITY WOULD BE A SPECULATIVE TRANSACTION IF IT IS SETTLED OTHERWISE THAN BY ACTUAL DELIVERY AND THAT .FOR THE PURPOSES OF SECTION 43(5), IT IS NOT ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 9 OF 31 NECESSARY THAT THE COMMODITY AGREED TO BE PURCHASED OR SOLD MUST BE CAPABLE OF ACTUAL DELIVERY. THUS, EVEN IN THE CASES OF TRANSACTIONS IN DERIVATI VES TRADING, IN THE ESTEEMED VIEWS OF THEIR LORDSHIPS, AS LONG A S DELIVERY OF UNDERLYING ASSET DOES NOT TAKE PLACE, THE TRANSACTIONS MUST BE HELD TO BE SPECULATIVE IN NATURE. THE VIEWS SO STATED BY THEIR LORDSHIPS ARE BINDING ON U S AND WE MUST, THEREFORE, PROCEED ON THE BASIS THAT EVEN WHEN PHYSICAL DELIVE RY OF UNDERLYING ASSET IS IMPOSSIBILITY, THE TRANSACTIONS ARE TO BE TREATED A S SPECULATIVE TRANSACTION SIMPLY BECAUSE THE TRANSACTION IS SETTLED OTHERWISE THAN B Y DELIVERY. 10. COMING BACK TO THE NARRATION OF RELATED DEVELO PMENTS, WE FIND THAT IT WAS BY WAY OF AMENDMENTS BROUGHT ABOUT BY THE FINANCE A CT, 2005 EFFECTIVE FROM 1 ST APRIL 2006, THAT INCOME TAX ACT, 1961 TOOK NOTE OF BUSINESS OF DEALING IN DERIVATIVES. CLAUSE (D) WAS INSERTED TO SECTION 43(5) AND THIS C LAUSE PROVIDED THAT, FOR THE PURPOSE OF SECTION 43(5), FOLLOWING SHALL NOT BE DE EMED TO BE A SPECULATIVE TRANSACTION: ( D ) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADI NG 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; EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, THE EXPRESSIONS (I) ELIGIBLE TRANSACTION MEANS ANY TRANSACTION (A) CARRIED OUT ELECTRONICALLY ON SCREEN-BASED SYST EMS THROUGH A STOCK BROKER OR SUB-BROKER OR SUCH OTHER INTERMEDIARY REGISTERED UND ER SECTION 12 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (1 5 OF 1992) IN ACCORDANCE WITH THE PROVISIONS OF THE SECURITIES CONTRACTS (RE GULATION) ACT, 1956 (42 OF 1956) OR THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (15 OF 1992) OR THE DEPOSITORIES ACT, 1996 (22 OF 1996) AND THE RUL ES, REGULATIONS OR BYE-LAWS MADE OR DIRECTIONS ISSUED UNDER THOSE ACTS OR BY BAN KS OR MUTUAL FUNDS ON A RECOGNISED STOCK EXCHANGE; AND (B) WHICH IS SUPPORTED BY A TIME STAMPED CONTRACT NOTE ISSUED BY SUCH STOCK BROKER OR SUB-BROKER OR SUCH OTHER INTERMEDIARY TO EV ERY CLIENT INDICATING IN THE CONTRACT NOTE THE UNIQUE CLIENT IDENTITY NUMBER ALLOTTED UNDER ANY ACT REFERRED TO IN SUB-CLAUSE (A) AND PERMANENT ACCOUNT NUMBER ALLOTTED UNDER THIS ACT; ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 10 OF 31 (II) RECOGNISED STOCK EXCHANGE MEANS A RECOGNISE D STOCK EXCHANGE AS REFERRED TO IN CLAUSE (F) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) AND WHICH FULFILS SUCH CONDITIONS AS MAY BE P RESCRIBED AND NOTIFIED THE CENTRAL GOVERNMENT FOR THIS PURPOSE;] 11. AS A RESULT OF THIS AMENDMENT, BROADLY SPEAKIN G, AS LONG AS THE TRANSACTIONS IN DERIVATIVES WERE BONAFIDE TRANSACTIONS SCREEN BASED SYSTEMS IN ACCORDANCE WITH THE RULES REGULATIONS AND BYE LAWS OF THE RESPECTIVE GOVERNING BODIES, EVIDENCED BY TIME STAMPED CONTRACTED NOTE AND CARRIED OUT THROUGH A RECOGNIZED STOCK EXCHANGES, THESE TRANSACTIONS COUL D NOT BE HELD TO BE SPECULATIVE TRANSACTIONS. THE NET RESULT OF THIS AMENDMENT WA S THAT THE LOSSES INCURRED IN SUCH DERIVATIVES TRANSACTIONS DID NOT SUFFER THE DISABIL ITIES AS A RESULT OF RELATED TRANSACTIONS BEING TERMED AS SPECULATIVE TRANSACTI ONS AND COULD BE FREELY SET OFF AGAINST OTHER NON- SPECULATION BUSINESSES OF THE AS SESSEE. WHILE INTRODUCING THIS AMENDMENT, HONBE FINANCE MINISTER, ON THE FLOOR OF THE LOK SABHA, STATED THAT AS HONBLE MEMBERS ARE AWARE, THERE HAVE BEEN SIGNIFIC ANT DEVELOPMENTS IN THE PAST DECADE IN THE CAPITAL MARKET INCLUDING THE INT RODUCTION OF TRADING IN FINANCIAL DERIVATIVES. WE HAVE ALSO ESTABLISHED A T RANSPARENT SYSTEM OF TRADING WITH ADEQUATE SAFEGUARDS FOR AUDIT TRAIL. H ENCE, I PROPOSE TO AMEND THE INCOME TAX ACT TO PROVIDE THAT TRADING IN DERIV ATIVES IN SPECIFIED STOCK EXCHANGES WILL NOT BE TREATED AS SPECULATIVE TRANS ACTIONS FOR THE PURPOSES OF THE INCOME TAX ACT. IT IS ALSO INTERESTING TO NOTE THAT ONLY SUCH DE RIVATIVE TRADING WAS TAKEN OUT OF THE SCOPE OF SPECULATIVE TRANSACT ION AS WAS ON THE RECOGNIZED STOCK EXCHANGES, AND IT IS TO BE SEEN IN THE LIGHT OF THE TREATMENT GIVEN TO DERIVATIVES TRADING OTC (OVER THE COUNTER), AS IS CLEAR FROM TH E OBSERVATION MADE BY HONBLE FINANCE MINISTER TO THE EFFECT, OVER THE COUNTER (OTC) DERIVATIVES PLAY A CRUCIAL ROLE IN MITIGATING THE RISKS OF CORPORATES, BANKS A ND OTHER FINANCIAL ENTITIES. THERE IS, HOWEVER, SOME AMBIGUITY REGARDING THE LEG ALITY OF OTC DERIVATIVE CONTRACTS WHICH HAS INHIBITED THEIR GROWTH. I, THER EFORE, PROPOSE TO TAKE MEASURES TO PROVIDE FOR CLEAR LEGAL VALIDITY OF SUC H CONTRACTS . THE DEMARCATION IN DERIVATIVES TRADING WAS THUS BETWEEN DERIVATIVES TRADING OVER THE COUNTER VIS-- ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 11 OF 31 VIS DERIVATIVES TRADING IN THE RECOGNIZED STOCK EXC HANGES. WHILE FORMER WERE NOT AFFECTED BY THE LEGISLATIVE AMENDMENT, THE LATTER W ERE COVERED BY THE LEGISLATIVE AMENDMENTS. BE THAT AS IT MAY, AND IN WHATEVER LIMI TED WAY, THE AMENDMENT WAS VIEWED AS A MEASURE OF RELIEF TO THE TAXPAYERS. T HE HINDU BUSINESS LINE, ON 1 ST MARCH 2005, ( WWW.THEHINDUBUSINESSLINE.IN/2005/03/01/ STORIES/2005030100642200.HTM) COMMENTED UPON THIS DEVELOPMENT AS FOLLOWS: TRADERS WELCOME TAX AMENDMENT FOR DERIVATIVES TRADI NG OUR BUREAU MUMBAI , FEB. 28 THE DERIVATIVES SEGMENT OF THE EQUITY MARKET RECEIV ED A BOOST FROM THE FINANCE BILL IN THE AMENDMENT OF THE INCOME TAX ACT FOR DERIVATIVES TRADE. STOCKBROKERS SEE IT AS A POSITIVE MOVE. THE FINANCE MINISTER, MR P. CHIDAMBARAM, IN HIS BUD GET SPEECH ON MONDAY SAID TRADING IN DERIVATIVES IN SPECIFIED STOCK EXCH ANGES WILL NOT BE TREATED AS 'SPECULATIVE TRANSACTIONS' FOR THE PURPOSES OF THE INCOME TAX ACT. IT MEANS THAT PROFIT IN THE DERIVATIVES MARKET CAN BE SET-OFF ALONG WITH LOSSES IN THE CASH MARKET OR VICE-VERSA. TILL NOW, THIS FACILITY WAS NOT AVAILABLE FOR TRADE S DONE IN THE DERIVATIVES MARKET. ... 12. WHAT CLEARLY EMERGES FROM THE ABOVE IS (I) THAT IT WAS NOT ON ACCOUNT OF A SOME SUDDEN DEVELOPMENT, WHICH CHANGED THE SECURITI ES MARKET OVERNIGHT, BUT TO KEEP PACE WITH, AS HONBLE FINANCE MINISTER PUT IT, SIGNIFICANT DEVELOPMENTS IN THE PAST DECADE ( EMPHASIS BY UNDERLINING SUPPLIED BY US NOW ) IN THE CAPITAL MARKET INCLUDING THE INTRODUCTION OF TRADING IN FIN ANCIAL DERIVATIVES ; (II) THAT THE RELIEF WAS MEANT FOR ONLY SUCH DERIVATIVES TRAD ING AS WAS DONE ON THE RECOGNIZED STOCK EXCHANGES; (III) THAT IT WAS THE FIRST TIME W HEN INCOME TAX ACT 1961 TOOK NOTE OF THE DERIVATIVES TRADING ; AND (IV) THAT THIS ME ASURE OF AMENDING SECTION 43(5) WAS A MEASURE TO BRING RELIEF TO THE ASSESSEE. AS A RESULT OF THE ABOVE AMENDMENT, LOSSES INCURRED IN DERIVATIVE TRADING ARE HELD TO B E ELIGIBLE FOR BEING SET OFF AGAINST NORMAL BUSINESS PROFITS, AS DERIVATE TRADING ITSELF IS TREATED AS A NON-SPECULATIVE ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 12 OF 31 BUSINESS, AND LOSSES OF ANY NON- SPECULATIVE BUSINE SSES CAN BE ADJUSTED PROFITS OF ANY NON-SPECULATIVE BUSINESS. IRONICALLY, HOWEVER, THIS APPARENTLY WELL-INTENDED MEASURE OF RELIEF TO THE TAXPAYERS DEALING IN DERIV ATIVES ON THE STOCK EXCHANGES PARTICULARLY IN THE MANNER IN WHICH IT HAS BEEN INT ERPRETED BY THE REVENUE AUTHORITIES, HAS RESULTED IN A SITUATION IN WHICH S OME OF THESE TAXPAYERS HAVE BEEN PUT AT A HUGE DISADVANTAGE. WHAT WAS MEANT TO BE A SOURCE OF RELIEF TO THE TAXPAYERS HAS ALSO TURNED INTO A CAUSE OF UNINTENDED DIFFICUL TIES FOR MANY TAXPAYERS. THE WAY IT HAS SO HAPPENED IS LIKE THIS. WHILE, AS IN THIS CASE, THE ASSESSEE HAS INCURRED LOSSES IN DERIVATIVES TRADING IN EARLIER ASSESSMENT YEARS, AND HE WANTS SUCH LOSSES TO BE SET OFF AGAINST THE PROFITS OF THE SAME ACTIVITY IN THI S ASSESSMENT YEAR, THE ASSESSEE HAS BEEN DECLINED SET OFF ON THE GROUND THAT THE LOSSES INCURRED IN PAST ARE TREATED AS LOSSES OF SPECULATION BUSINESS AND PROFIT EARNED NOW IS TREATED AS OF PROFITS OF NON- SPECULATION BUSINESS , AND SPECULATION LOSSES CAN NOT BE SET OFF AGAINST THE NON- SPECULATION PROFITS. GOING BY THIS INTERPRETATION, WHICH IS WHAT THE LEARNED COMMISSIONER HAS FOLLOWED IN THE IMPUGNED ORDER AS WELL, THUS, LOSSES FROM DERIVATIVES TRADING, IN THE ASSESSMENT YEARS PRIOR TO 2006-07, STAND KILLED, UNLESS, OF COURSE, ASSESSEE HAS SOME OTHER SPECULATION PROFIT S AGAINST WHICH THE SAME CAN BE SET OFF. 13. VIEWED IN THIS PERSPECTIVE, THE FUNDAMENTAL LEG AL ISSUE REALLY IS WHETHER THIS INTERPRETATION ABOUT THE INELIGIBILITY OF THE LOSSE S, INCURRED IN PAST IN THE ACTIVITY OF DEALING IN DERIVATIVES ON STOCK EXCHANGES AND CARRI ED FORWARD TO THE PRESENT ASSESSMENT YEAR, BEING SET OFF AGAINST THE PROFIT O F THE SAME ACTIVITY OF DEALING IN DERIVATIVES ON THE STOCK EXCHANGES, AS CANVASSED BY THE LEARNED COMMISSIONER, IS CORRECT. THE IMPACT OF AMENDMENT IN SECTION 43(5) W ITH EFFECT FROM 1 ST APRIL 2006, ON CHARACTERIZATION OF INCOME VIS--VIS SPECULATIVE OR NON-SPECULATIVE, MAY OR MAY NOT HAVE SOME BEARING ON THIS CORE ISSUE BUT DETERM INATION OF THIS IMPACT, BY ITSELF, IS NOT AN ANSWER TO THE QUESTION THAT WE MUST ADJUD ICATE IN THE PRESENT CONTEXT. IN OTHER WORDS, WHAT WE MUST REALLY DECIDE IS WHETHER , IN A SITUATION LIKE THE ONE ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 13 OF 31 BEFORE US, THE ASSESSEE WILL BE ENTITLED TO SET O FF THE LOSSES INCURRED BY HIM IN A BUSINESS, WHICH HAS BEEN TREATED AS SPECULATION BUS INESS IN THE RELEVANT ASSESSMENT YEARS IN WHICH THE LOSSES WERE INCURRED , AGAINST T HE PROFITS THE ASSESSEE HAS EARNED FROM THE SAME BUSINESS IN THE PRESENT ASSESSMENT YE AR WHEN THE SAID BUSINESS CANNOT BE TREATED AS SPECULATION BUSINESS DUE TO LE GISLATIVE AMENDMENTS IN SECTION 43(5) OF THE ACT. 14. IN ORDER TO BE ABLE TO DEAL WITH THIS QUESTION, IT WILL BE USEFUL TO NOW REFER TO, AND SET OUT, THE PROVISIONS OF THE ACT SO FAR AS TH E CARRY FORWARD AND SET OFF OF BUSINESS LOSSES IS CONCERNED. THESE PROVISIONS ARE AS FOLLOWS: SECTION 72 : CARRY FORWARD AND SET OFF OF BUSINESS LOSSES (1) WHERE FOR ANY ASSESSMENT YEAR, THE NET RESULT O F THE COMPUTATION UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' IS A LOSS TO THE ASSESSEE, NOT BEING A LOSS SUSTAINED IN A SPECULATION BUSINESS, A ND SUCH LOSS CANNOT BE OR IS NOT WHOLLY SET OFF AGAINST INCOME UNDER ANY HEAD OF INCOME IN ACCORDANCE WITH THE PROVISIONS OF SECTION 71, SO MUCH OF THE LOSS A S HAS NOT BEEN SO SET OFF OR, WHERE HE HAS NO INCOME UNDER ANY OTHER HEAD, THE WH OLE LOSS SHALL, SUBJECT TO THE OTHER PROVISIONS OF THIS CHAPTER, BE CARRIED FO RWARD TO THE FOLLOWING ASSESSMENT YEAR, AND (I) IT SHALL BE SET BE OFF AGAINST THE PROFITS AND GAINS, IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM AND ASSESS ABLE FOR THAT ASSESSMENT YEAR : PROVIDED THAT THE BUSINESS OR PROFESSION FOR WHICH THE LOSS WAS ORIGINALLY COMPUTED CONTINUED TO BE CARRIED ON BY HIM IN THE P REVIOUS YEAR RELEVANT FOR THAT ASSESSMENT YEAR; AND (II) IF THE LOSS CANNOT BE WHOLLY SET OFF, THE AMOU NT OF LOSS NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSESSMEN T YEAR AND SO ON: PROVIDED THAT WHERE THE WHOLE OR ANY PART OF SUCH L OSS IS SUSTAINED IN ANY SUCH BUSINESS AS IS REFERRED TO IN SECTION 33B WHICH IS DISCONTINUED IN THE CIRCUMSTANCES SPECIFIED IN THAT SECTION, AND THEREAFTER, AT ANY TIME BEFORE THE EXPIRY OF THE PERIOD OF THREE YEARS REFE RRED TO IN THAT SECTION, SUCH BUSINESS IS RE-ESTABLISHED, RECONSTRUCTED OR R EVIVED BY THE ASSESSEE, SO MUCH OF THE LOSS AS IS ATTRIBUTABLE TO SUCH BUSI NESS SHALL BE CARRIED FORWARD TO THE ASSESSMENT YEAR RELEVANT TO THE PREV IOUS YEAR IN WHICH THE BUSINESS IS SO RE-ESTABLISHED, RECONSTRUCTED OR REVIVED, AND - ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 14 OF 31 (A) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAI NS, IF ANY, OF THAT BUSINESS OR ANY OTHER BUSINESS CARRIED ON BY HIM AN D ASSESSABLE FOR THAT ASSESSMENT YEAR; AND (B) IF THE LOSS CANNOT BE WHOLLY SO SET OFF, THE AM OUNT OF LOSS NOT SO SET OFF SHALL, IN CASE THE BUSINESS SO RE-ESTABLISH ED, RECONSTRUCTED OR REVIVED CONTINUES TO BE CARRIED ON BY THE ASSESS EE, BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR AND SO ON FOR SEVEN ASSESSMENT YEARS IMMEDIATELY SUCCEEDING. (2) WHERE ANY ALLOWANCE OR PART THEREOF IS, UNDER S UB-SECTION (2) OF SECTION 32 OR SUB-SECTION (4) OF SECTION 35, TO BE CARRIED FOR WARD, EFFECT SHALL FIRST BE GIVEN TO PROVISIONS OF THIS SECTION. (3) NO LOSS (OTHER THAN THE LOSS REFERRED TO IN THE PROVISO TO SUB-SECTION (1) OF THIS SECTION) SHALL BE CARRIED FORWARD UNDER THIS S ECTION FOR MORE THAN EIGHT ASSESSMENT YEARS IMMEDIATELY SUCCEEDING THE ASSESSM ENT YEAR FOR WHICH THE LOSS WAS FIRST COMPUTED SECTION 73: LOSSES IN SPECULATION BUSINESS (1) ANY LOSS, COMPUTED IN RESPECT OF A SPECULATION BUSINESS CARRIED ON BY THE ASSESSEE, SHALL NOT BE SET OFF EXCEPT AGAINST PROFI TS AND GAINS, IF ANY, OF ANOTHER SPECULATION BUSINESS. (2) WHERE FOR ANY ASSESSMENT YEAR ANY LOSS COMPUTED IN RESPECT OF A SPECULATION BUSINESS HAS NOT BEEN WHOLLY SET OFF UNDER SUB-SECT ION (1), SO MUCH OF THE LOSS AS IS NOT SO SET OFF OR THE WHOLE LOSS WHERE THE ASSES SEE HAD NO INCOME FROM ANY OTHER SPECULATION BUSINESS SHALL, SUBJECT TO THE OT HER PROVISIONS OF THIS CHAPTER, BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR , AND - (I) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAI NS, IF ANY, OF ANY SPECULATION BUSINESS CARRIED ON BY HIM ASSESSABLE F OR THAT ASSESSMENT YEAR; AND (II) IF THE LOSS CANNOT BE WHOLLY SO SET OFF, THE A MOUNT OF LOSS NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSESSMEN T YEAR AND SO ON. (3) IN RESPECT OF ALLOWANCE ON ACCOUNT OF DEPRECIAT ION 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 R ELATION TO ANY OTHER BUSINESS. (4) NO LOSS SHALL BE CARRIED FORWARD UNDER THIS SEC TION FOR MORE THAN EIGHT ASSESSMENT YEARS IMMEDIATELY SUCCEEDING THE ASSESSM ENT YEAR FOR WHICH THE LOSS WAS FIRST COMPUTED. EXPLANATION : WHERE ANY PART OF THE BUSINESS OF A C OMPANY 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 S OURCES', OR A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANK ING OR THE GRANTING OF LOANS ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 15 OF 31 AND ADVANCES) CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THIS SECTIO N, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE B USINESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES. 15. AS EVIDENT FROM A PLAIN READING OF THE ABOVE STATUTORY PROVISIONS, THE BROAD SCHEME OF CARRY FORWARD AND SET OFF OF BUSINE SS LOSSES, SO FAR AS RELEVANT TO THE FACTS BEFORE US, IS LIKE THIS. THE PROFITS AND GAINS OF THE BUSINESS, FOR THE PURPOSE OF CARRY FORWARD AND SET OFF OF LOSSES, ARE CLASSIF IED IN TWO BASKETS OF SPECULATION BUSINESS AND OF NON-SPECULATION BUSINESS. THESE TWO CATEGORIES ARE MUTUALLY EXCLUSIVE AND THE LOSSES INCURRED OF EACH CATEGORY CAN ONLY BE SET OFF AGAINST PROFITS OF THE SAME CATEGORY. WHEN AN ASSESSEE INCURS LOSS, IN ANY OF THESE CATEGORIES, UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS AND PROFE SSION IN A PARTICULAR ASSESSMENT YEAR AND CANNOT SET IT OFF AGAINST ELIGIBLE INCOMES UNDER THE OTHER HEADS, THE LOSS SO INCURRED IS CARRIED FORWARD TO SUBSEQUENT YEAR AND, SUBJECT TO CERTAIN CONDITIONS - WHICH ARE NOT RELEVANT IN THE PRESENT CONTEXT, THE ASSESSEE CAN SET IT OFF AGAINST INCOME OF THE SAME BUSINESS, OR ANY OTHER BUSINESS, CARRIED ON BY THE ASSESSEE ASSESSABLE FOR THAT SUBSEQUENT YEAR. 16. INTERESTINGLY, WHILE SECTION 72(1)(II)(B) SPEC IFICALLY REFERS TO THE NORMAL BUSINESS LOSSES BEING SET OFF AGAINST PROFITS AND GAINS, IF ANY, OF THE SAME BUSINESS OR ANY OTHER BUSINESS CARRIED ON BY THE ASSESSE ASSESS ABLE IN THAT (SUBSEQUENT) YEAR, CORRESPONDING PROVISION IN SECTION 73, I.E. SECTION 73(2)(I) REFERS TO LOSS BEING SO CARRIED FORWARD AND SET OFF AGAINST PROFITS AND GA INS, IF ANY, OF ANY SPECULATION BUSINESS CARRIED ON BY THE ASSESSE ASSESSABLE IN TH AT (SUBSEQUENT) YEAR. HOWEVER, HONBLE CALCUTTA HIGH COURT HAS, IN THE CASE OF CIT VS SOORAJMAL BAIJNATH AGENCIES PVT LTD (272 ITR 325) , OBSERVED THAT THE WORD ANY USED IN SUB- SECTION (2) OF SECTION 73 IS INCLUSIVE AND THAT THE LOSS CARRIED FORWARD CAN BE SET OFF OR ADJUSTED AGAINST THE INCOME OF THE SAME SPECULATION BUSINESS OR AGAINST THE INCOME OF ANY OTHER SPECULATION BUSINES S CARRIED ON BY THE ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 16 OF 31 ASSESSEE IN THE FOLLOWING ASSESSMENT YEAR . THE LEGAL POSITION, AS IT EMERGES FROM THE READING OF STATUTORY PROVISION READ WITH HONBL E CALCUTTA HIGH COURTS ABOVE OBSERVATIONS, THUS IS THAT THE BUSINESS LOSS, SPECU LATIVE OR NON-SPECULATIVE, INCURRED BY AN ASSESSEE IN ONE ASSESSMENT YEAR CAN BE SET OF F AGAINST THE BUSINESS LOSS AGAINST THE PROFITS OF THE SAME BUSINESS, SPECULATI VE OR NON- SPECULATIVE, OR ANY OTHER BUSINESS IN THE SAME CATEGORY. 17. WHILE ON THE QUESTION OF ELIGIBILITY OF SET OFF OF LOSSES, INCURRED BY THE ASSESSEE IN A PARTICULAR ASSESSMENT YEAR, AGAINST P ROFITS OF THE SAME BUSINESS OR ANY OTHER BUSINESS IN THE SAME CATEGORY, I.E. SPECULATI VE OR NON-SPECULATIVE, IN A SUBSEQUENT ASSESSMENT YEAR, IT IS ALSO USEFUL TO M AKE A BRIEF REFERENCE TO HONBLE SUPREME COURTS JUDGMENT IN THE CASE OF CIT VS MANMOHAN DAS (59 ITR 699) . THAT WAS A CASE IN WHICH ASSESSEE INCURRED A BUSINE SS LOSS OF RS 38,027 IN THE ASSESSMENT YEAR 1950-51, BUT THE ASSESSING OFFICER, WHILE FRAMING ASSESSMENT ORDER FOR THE SAID ASSESSMENT YEAR, HELD THAT THE LOSS SO INCURRED BY THE ASSESSEE IS NOT IN THE NATURE OF BUSINESS LOSS, AND, ACCORDINGLY, THE SAME CANNOT BE CARRIED FORWARD. THE ASSESSEE DID NOT APPEAL AGAINST THE STAND SO TA KEN BY THE ASSESSING OFFICER. HOWEVER, WHEN ASSESSEE WAS DECLINED SET OFF OF THE LOSS OF RS 38,027 AGAINST PROFIT OF RS 34,445 IN THE SAME PURSUIT IN THE SUBSEQUENT ASSESSMENT YEAR, I.E. ASSESSMENT YEAR 1951-52, THE ASSESSEE CARRIED THE MATTER IN AP PEAL. THE STAND TAKEN BY THE ASSESSEE WAS THAT THE LOSS INCURRED BY THE ASSESSEE IN THE ASSESSMENT YEAR WAS IN THE NATURE OF BUSINESS LOSS AND THAT THE SAME IS TO BE CARRIED FORWARD AND SET OFF AGAINST THE PROFITS OF THE ASSESSEE, FROM SAME BUSI NESS, IN THE SUBSEQUENT YEAR. THESE CONTENTIONS WERE UPHELD BY A COORDINATE BENCH OF THIS TRIBUNAL AND THE VIEW SO TAKEN BY THE TRIBUNAL WAS CONFIRMED BY HONBLE A LLAHABAD HIGH COURT AND BY HONBLE SUPREME COURT. IT WAS IN THIS BACKDROP THAT HONBLE SUPREME COURT, INTER ALIA, OBSERVED AS FOLLOWS : SECTION 24(2) * CONFERS A STATUTORY RIGHT (SUBJECT TO CERTAIN COND ITIONS WHICH ARE NOT MATERIAL) UPON THE ASSESSEE WHO SUSTAINS A LOSS OF PROFITS IN ANY YEAR IN ANY BUSINESS, PROFESSION OR VOCATION TO CARRY FO RWARD THE LOSS AS IS NOT SET OFF UNDER SUB-SECTION (1) TO THE FOLLOWING YEAR, AN D TO SET IT OFF AGAINST HIS PROFITS AND GAINS, IF ANY, FROM THE SAME BUSINESS, PROFESSION OR VOCATION FOR ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 17 OF 31 THAT YEAR . WHETHER THE LOSS OF PROFITS OR GAINS IN ANY YEAR MAY BE CARRIED FORWARD TO THE FOLLOWING YEAR AND SET OFF AGAINST T HE PROFITS AND GAINS OF THE SAME BUSINESS, PROFESSION OR VOCATION UNDER SECTION 24(2) HAS TO BE DETERMINED BY THE INCOME-TAX OFFICER WHO DEALS WITH THE ASSESSMENT OF THE SUBSEQUENT YEAR. IT IS FOR THE INCOME-TAX OFFICER D EALING WITH THE ASSESSMENT IN THE SUBSEQUENT YEAR TO DETERMINE WHETHER THE LOS S OF THE PREVIOUS YEAR MAY BE SET OFF AGAINST THE PROFITS OF THAT YEAR. A DECISION RECORDED BY THE INCOME-TAX OFFICER WHO COMPUTES THE LOSS IN THE PRE VIOUS YEAR UNDER SECTION 24(3) THAT THE LOSS CANNOT BE SET OFF AGAINST THE I NCOME OF THE SUBSEQUENT YEAR IS NOT BINDING ON THE ASSESSEE . (EMPHASIS BY UNDERLING SUPPLIED BY US) * SECTION 24(2)(II) OF THE INCOME TAX ACT, 1922, IS IN PARI MATERIA WITH SECTION 73(2)(II) OF THE INCOME TAX ACT, 1961. SECTION 24( 2) OF 1922 ACT, INTER ALIA, PROVIDED THAT WHERE ANY ASSESSEE SUSTAINS A LOSS OF PROFITS OR GAINS IN ANY YEAR IN ANY BUSINESS, PROFESSION OR VOCATION, AND THE LO SS CANNOT BE WHOLLY SET OFF UNDER SUB-SECTION (1), SO MUCH OF THE LOSS AS IS NOT SO S ET OFF OR THE WHOLE LOSS WHERE THE ASSESSEE HAD NO OTHER HEAD OF INCOME SHALL BE CARRI ED FORWARD TO THE FOLLOWING YEAR, . (II) WHERE THE LOSS WAS SUSTAINED BY HIM IN ANY OTHER BUSINESS, PROFESSION OR VOCATION, IT SHALL BE SET OFF AGAINST THE PROFIT S AND GAINS, IF ANY, OF ANY BUSINESS, PROFESSION OR VOCATION CARRIED ON BY HIM IN THAT YE AR. 18. ONE OF THE QUESTIONS BEFORE THEIR LORDSHIPS WA S AS TO UNDER WHICH HEAD INCOME OF THE ASSESSEE, FROM HIS ASSOCIATION WITH A LLAHABAD BANK AS TREASURER, WAS TO BE TAXED, AND THIS QUESTION WAS TO BE DETERMINED QUA THE ASSESSMENT YEAR IN WHICH LOSS HAD INCURRED BECAUSE UNLESS SUCH LOSS WA S TO BE DETERMINED UNDER THE HEAD BUSINESS INCOME, THIS LOSS COULD NOT HAVE BE EN CARRIED FORWARD. DEALING WITH THE QUESTION AS TO WHAT WAS THE TRUE NATURE OF ASS ESSEES INCOME, I.E. WHETHER IT WAS TO BE ASSESSED UNDER THE HEAD SALARIES OR UNDER THE HEAD BUSINESS PROFITS, THEIR LORDSHIPS FURTHER OBSERVED AS FOLLOWS : .ON A CAREFUL CONSIDERATION OF THE COVENANTS, WE ARE OF THE VIEW THAT THE TREASURER WAS NOT A SERVANT OF THE ALLAHABAD BANK U NDER THE TERMS OF THE AGREEMENT DATED JANUARY 2, 1931, AND THE REMUNERATI ON RECEIVED BY HIM WAS NOT 'SALARIES' WITHIN THE MEANING OF SECTION 7 OF T HE INCOME-TAX ACT. BUT THAT IS NOT SUFFICIENT TO CONCLUDE THE MATTER IN FAVOUR OF THE ASSESSEE. THE BENEFIT OF SECTION 24(2) OF THE INDIAN INCOME-TAX ACT MAY BE A VAILED OF BY THE ASSESSEE ONLY IF THE LOSS SOUGHT TO BE SET OFF WAS SUFFERED UNDER THE HEAD 'PROFITS AND GAINS ... IN ANY BUSINESS, PROFESSION OR VOCATION'. IT IS DIFFICULT TO REGARD THE OCCUPATION OF THE TREASURER UNDER THE AGREEMENT AS A PROFESSION, FOR A PROFESSION INVOLVES OCCUPATION REQUIRING PURELY INT ELLECTUAL OR MANUAL SKILL, AND THE WORK OF THE TREASURER UNDER THE CONTRACT CA NNOT BE SO REGARDED. ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 18 OF 31 OCCUPATION OF A TREASURER IS NOT ONE OF THE RECOGNI ZED PROFESSIONS, NOR CAN IT BE SAID THAT IT PARTAKES OF THE CHARACTER OF A BUSI NESS OR TRADE. IN PERFORMING HIS DUTIES UNDER THE AGREEMENT, THE ASSESSEE EXERCI SED HIS SKILL AND JUDGMENT IN MAKING PROPER APPOINTMENTS AND MADE ARRANGEMENTS FOR SUPERVISING THE WORK DONE BY THE STAFF IN THE CASH DEPARTMENT OF TH E BANK'S BRANCHES. THE REMUNERATION RECEIVED BY HIM WAS FOR DUE PERFORMANC E OF THE DUTIES AND ALSO FOR THE GUARANTEE AGAINST LOSS ARISING TO THE BANK OUT OF THE ACTS OR OMISSIONS OF THE CASH AND OTHER STAFF OF THE BANK. TAKING INT O CONSIDERATION THE NATURE OF THE DUTIES PERFORMED, AND THE OBLIGATIONS UNDERTAKE N, TOGETHER WITH THE RIGHT TO REMUNERATION SUBJECT TO COMPENSATION FOR LOSS AR ISING TO THE BANK FROM HIS OWN ACTS AND OMISSIONS OR OF THE SERVANTS INTRODUCE D BY HIM INTO THE BUSINESS OF THE BANK, THE ASSESSEE MAY BE REGARDED AS FOLLOW ING A VOCATION. THE REMUNERATION MUST THEREFORE BE COMPUTED UNDER SECTI ON 10 OF THE INCOME-TAX ACT AND LOSS OF PROFIT SUFFERED IN THAT VOCATION IN ANY YEAR MAY BE CARRIED FORWARD TO THE NEXT YEAR AND BE SET OFF AGAINST THE PROFIT OF THE SUCCEEDING YEAR. 19. HONBLE SUPREME COURTS JUDGMENT DID NOT SPECIF ICALLY REFLECT WHETHER REVENUE HAD TAKEN ANY OBJECTION TO RE-DETERMINATIO N OF CHARACTER OF AN INCOME, WHICH WAS EARNED IN AN EARLIER ASSESSMENT YEAR, AND WHEN CHARACTERIZATION SO ASSIGNED HAD RECEIVED FINALITY. ONE COULD HAVE ENTE RTAINED A LITTLE DOUBT WHETHER MANMOHAN DAS JUDGMENT (SUPRA) MAY OR MAY NOT BE VIEWED AS AN AUTHORITY FOR THE PROPOSITION THAT SUCH AN OBJECTION, WHEN TAKEN, CAN BE REJECTED, . HOWEVER, HONBLE JURISDICTIONAL HIGH COURTS JUDGMENT IN THE CASE OF WESTERN INDIA OIL DISTRIBUTING LTD VS CIT (126 ITR 497 ), WHILE INTERPRETING THE SCOPE OF HONBLE SUPREME COURTS JUDGMENT IN THE CASE OF MANMOHAN DAS (SUPRA), SET THESE DOUBTS AT REST, AND THUS NIPPED THIS POSSIBLE CONTROVERSY IN THE BUD, BY OB SERVING AS FOLLOWS : IF THIS DECISION [HONBLE SUPREME COURTS JUDGMENT IN THE CASE OF MA NMOHAN DAS (SUPRA)] BE PROPERLY ANALYSED, IT WOULD SEEM THAT THE APPLI CATION OF THE PRINCIPLE OF FINALITY, WHICH HAS BEEN SUBMITTED FOR OUR ACCEPTANCE BY COUNSEL FOR THE REVENUE AND WHICH FOUND FAVOUR WITH THE TRI BUNAL HAS BEEN REJECTED BY THE SUPREME COURT IN A SUBSTANTIALLY SIMILAR SET UP WHEN IT OPINED THAT THE DECISION OF THE ITO IN THE PRECEDING YEAR THAT THE LOSS CANNOT BE SET OFF AGAINST THE INCOME OF THE SUBSEQUENT YEAR IS NOT BINDING ON THE ASSESSEE DESPITE THE FACT THAT HE HAS RESTED CONTENT WITH THAT DECISION AND NOT CARRIED FURTHER THE MATTER BY WAY OF APPEAL . TO PUT IT IN OTHER WORDS, IN THE ASSESSMENT YEAR 1950-51, THE ITO, DEALING WITH THE ASSESSEE'S CASE, HELD THAT THERE WAS A NET LOSS BUT THAT THIS COULD NOT BE CARRIED FORWARD INA SMUCH AS THE INCOME RECEIVED BY THE ASSESSEE WAS NOT FROM THE PURSUIT O F ANY BUSINESS, PROFESSION OR VOCATION. FOR THE SUC CEEDING YEAR 1951-52, THE ASSESSEE CONTENDED THAT HIS INCOME WAS FROM PURSUIT OF BUSINESS, PROFESSION OR VOCATION AND SOUGHT TO SET ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 19 OF 31 OFF THE PRECEDING YEAR'S LOSS AGAINST THE INCOME FO R THE SUCCEEDING YEAR. THIS CONTENTION WAS URGED DESPITE THE FACT THAT IN THE P RECEDING YEAR THE INCOME HAD BEEN HELD TO BE FROM A SOURCE OTHER THAN A BUSI NESS, PROFESSION OR VOCATION, AND ON THAT GROUND THE CARRYING FORWARD O F THE LOSS HAD NOT BEEN ALLOWED. IT WAS HELD BY THE COURT THAT THE INCOME O F THE ASSESSEE FOR BOTH THE YEARS MUST PROPERLY BE REGARDED AS HAVING ARISEN FR OM THE PURSUIT OF A VOCATION AND, FURTHER, THAT BECAUSE OF THIS THE ASS ESSEE WAS LIABLE TO HAVE THE PRECEDING YEAR'S LOSS SET OFF AGAINST THE INCOME FO R THE ASSESSMENT YEAR 1951- 52. IT BRUSHED ASIDE THE ARGUMENT OF THE REVENUE TH AT THE PRECEDING YEAR'S DECISION BY THE ITO HAD BECOME FINAL AND BY REASON OF SUCH FINALITY THE ASSESSEE IN 1951-52 WOULD NOT BE ENTITLED TO SET OF F THE LOSS INCURRED IN 1950- 51, ALTHOUGH THE CORRECT LEGAL POSITION WAS THAT TH E INCOME WAS FROM THE PURSUIT OF A BUSINESS, PROFESSION OR VOCATION AND T HAT, IF THIS WAS SO, THE ASSESSEE WAS ENTITLED TO CARRY FORWARD THE LOSS. [THESE VIEWS WERE APPROVED BY HONBLE SUPREME COURT IN THE JUDGMENT REPORTED AS CIT VS WESTERN OIL DISTRIBUTING LTD (249 ITR 517) . HOWEVER, SINCE HONBLE SUPREME COURTS JUDGMENT WAS RATHER B RIEF AND TO THE POINT, RELEVANT EXTRACTS HAVE BEEN REPRODUCED FROM HONBLE HIGH COURTS ORDER.] 20. IN OUR HUMBLE UNDERSTANDING, HONBLE SUPREME CO URTS JUDGMENT IN MANMOHAN DASS CASE (SUPRA), READ WITH HONBLE BOMBAY HIGH COURTS JUDGMENT IN THE CASE OF WESTERN OIL DISTRIBUTING LTD (SUPRA), IS THUS AUTHORITY FOR THREE SIGNIFICANT PROPOSITIONS. THESE PROPOSITIONS ARE SU MMED UP AS FOLLOWS: I. FIRST, THAT THE CALL, AS TO WHETHER A PARTICULAR BU SINESS LOSS, SPECULATIVE OR NON-SPECULATIVE, INCURRED BY THE ASS ESSEE IN AN EARLIER YEAR IS ELIGIBLE FOR SET OFF AGAINST BUSINE SS INCOME IN A SUBSEQUENT YEAR, IS TO BE TAKEN IN THE COURSE OF PR OCEEDINGS IN THE SUBSEQUENT ASSESSMENT YEAR, I.E. THE ASSESSMENT YEA R IN WHICH SET OFF IS CLAIMED. HONBLE SUPREME COURT HAS SET OUT THIS PROPOSITION AND THIS PROPOSITION WAS LATER CLARIFIED, IN UNAMBI GUOUS WORDS, BY HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF WE STERN INDIA OIL DISTRIBUTING LTD VS CIT (126 ITR 497), WHICH WAS AP PROVED BY HONBLE SUPREME COURT IN THE JUDGMENT REPORTED AS C IT VS WESTERN OIL DISTRIBUTING LTD (249 ITR 517). II. SECOND, THAT SECTION 24(2) OF THE 1922 ACT, WHICH I S THE SAME AS SECTION 73 (2) IN ALL MATERIAL RESPECTS, CONFERS A STATUTORY RIGHT UPON THE ASSESSEE WHO SUSTAINS A LOSS OF PROFITS IN ANY YEAR IN ANY BUSINESS, PROFESSION OR VOCATION TO CARRY FORWARD T HE LOSS AS IS NOT SET OFF UNDER SUB-SECTION (1) TO THE FOLLOWING YEAR , AND TO SET IT OFF AGAINST HIS PROFITS AND GAINS, IF ANY, FROM THE SAM E BUSINESS, ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 20 OF 31 PROFESSION OR VOCATION FOR THAT YEAR. THE PROPO SITION THAT IS SET OUT IS INFACT IN THE WORDS EMPLOYED BY THEIR LORDSH IPS AND IT DOES NOT NEED ANY ELABORATION. ONCE THIS STATUTORY RIGHT IS RECOGNIZED, IT IS A NATURAL COROLLARY OF THAT RECOGNITION THAT WHE N AN ASSESSEE INCURS A LOSS IN A BUSINESS, SPECULATIVE OR NON-SPE CULATIVE, IN AN YEAR, SUCH LOSS HAS TO BE, SUBJECT TO FULFILMENT OF OTHER PRECONDITIONS, IS TO BE SET OFF AGAINST THE PROFITS OF THE SAME BUSINESS IN SUBSEQUENT YEAR. III. THIRD, THAT IN THE COURSE OF PROCEEDINGS OF THE SUB SEQUENT ASSESSMENT YEAR, I.E. THE ASSESSMENT YEAR IN WHICH SET OFF OF LOSS IS CLAIMED, IT IS OPEN TO EVEN DECIDE THE TRUE NATURE AND CHARACTER OF LOSS INCURRED IN THE EARLIER RELEVANT ASSESSMENT YE AR. IN OTHER WORDS, EVEN A FINDING ABOUT THE NATURE OF LOSS, IN THE ASSESSMENT YEAR IN WHICH LOSS IS INCURRED, DOES NOT BIND THE ASSESSEE, AND THAT ASPECT OF THE MATTER CAN BE DECIDED AFRESH IN THE C OURSE OF PROCEEDINGS IN THE ASSESSMENT YEAR IN WHICH SET OFF IS CLAIMED. AS NOTED IN THIRD PARAGRAPH OF HONBLE SUPREME COURTS JUDGMENT ITSELF, IN MAKING HIS ORDER OF ASSESSMENT FOR THE YEAR 1950-51, THE INCOME-TAX OFFICER DECLARED THAT THE LOSS COMPUTED IN THAT YEAR COULD NOT BE CARRIED FORWARD TO THE NEXT YEAR UNDER SECTION 24(2) OF THE INCOME-TAX ACT, AS IT WAS NOT A BUSINESS LOSS AND YET, WHILE DEALING WITH THE ASSESSMENT PROCEEDINGS FOR THE ASS ESSMENT YEAR 1951-52, IT WAS HELD THAT LOSS INCURRED BY THE ASS ESSEE IN 1950-51 WAS BUSINESS LOSS IN NATURE. SIMILARLY, AS HELD BY HONBLE BOMBAY HIGH COURT IN THE CASE OF WESTERN INDIA OIL (SUPRA) AND AS CONFIRMED BY HONBLE SUPREME COURT, LOSSES DETERMIN ED UNDER THE HEAD INCOME FROM OTHER SOURCES , WHICH HAD ATTAIN ED FINALITY, WERE SUBSEQUENTLY TREATED AS BUSINESS LOSSES THOUGH FOR THE LIMITED PURPOSES OF ELIGIBILITY FOR SET OFF AGAINST PROFITS FROM SAME ACTIVITY IN SUBSEQUENT YEARS. 21. LET US NOW COME BACK TO THE FACTS OF THE CASE B EFORE US. IT IS NOT EVEN IN DISPUTE THAT THE ASSESSEE HAS EARNED PROFITS FROM T HE SAME BUSINESS IN WHICH LOSSES WERE INCURRED IN THE EARLIER YEARS. GOING BY THE PL AIN WORDS OF HONBLE SUPREME COURTS JUDGMENT, IN THE CASE OF MANMOHAN DAS (SUPR A), TO THE EFFECT THAT SECTION 24(2) OF 1922 ACT CONFERS A STATUTORY RIGHT UPON THE ASSESSEE WHO SUSTAINS A LOSS OF PROFITS IN ANY YEAR IN ANY BUSINESS, PROFES SION OR VOCATION TO CARRY FORWARD THE LOSS AS IS NOT SET OFF UNDER SUB-SECTIO N (1) TO THE FOLLOWING YEAR, AND TO SET IT OFF AGAINST HIS PROFITS AND GAINS, IF ANY, FROM THE SAME BUSINESS, PROFESSION OR VOCATION FOR THAT YEAR , IT IS CLEAR THAT SECTION 73(2), WHICH IS PARI ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 21 OF 31 MATERIA WITH SECTION 24(2) OF THE 1922 ACT, CONFERS A STAT UTORY RIGHT UPON THE ASSESSEE TO SET OFF SUCH LOSS AGAINST HIS PROFITS AND GAINS, IF ANY, FROM THE SAME BUSINESS.FOR THAT (SUBSEQUENT) YEAR . VIEWED IN THIS PERSPECTIVE, THE ASSESSEE IS ENTITLED TO SET OFF THE CARRIED FORWARD LOSSES OF T HE EARLIER ASSESSMENT YEARS, AS LONG AS ALL OTHER CONDITIONS ARE FULFILLED, FROM THE SAM E BUSINESS, AGAINST PROFITS OF THE BUSINESS IN THIS ASSESSMENT YEAR. UNDOUBTEDLY, THE WORDS EMPLOYED IN SECTION 73(2)(I) ARE PROFITS AND GAINS, IF ANY, OF ANY SPE CULATION BUSINESS CARRIED ON BY HIM ASSESSABLE FOR THAT ASSESSMENT YEAR BUT, IN THE LI GHT OF LAW INTERPRETED BY HONBLE CALCUTTA HIGH COURT IN SOORAJMAL BAIJNATH AGENCIES CASE (SUPRA), THE WORD ANY USED IN SUB-SECTION (2) OF SECTION 73 IS INCL USIVE AND, THEREFORE, THE LOSS CARRIED FORWARD CAN THUS BE SET OFF OR ADJUSTED AG AINST THE INCOME OF THE SAME BUSINESS, OR AGAINST THE INCOME OF ANY OTHER BUSINE SS IN THAT CATEGORY, I.E. SPECULATION OR NON-SPECULATION, CARRIED ON BY THE A SSESSEE IN THE FOLLOWING ASSESSMENT YEAR . FOR THIS SHORT REASON ALONE, IN OUR CONSIDERED VI EW, THE SET OFF OF LOSSES INCURRED BY THE ASSESSEE IN THE SAME BUSINES S IN PRECEDING YEARS, IF OTHERWISE ELIGIBLE, MUST BE ALLOWED. IN COMING TO THIS CONCLU SION, WE HAVE TAKEN NOTE OF, AND RELIED UPON, LEARNED COUNSELS STATEMENT AT THE BAR THAT THERE IS NO CHANGE WHATSOEVER IN THE NATURE OF BUSINESS DEALING OF THE ASSESSEE INASMUCH AS IT WAS ALL ALONG ON THE BASIS OF SCREEN BASED TRANSACTIONS, EV IDENCED BY THE SAME TYPE OF DATE STAMPED CONTRACT NOTES AND ON THE SAME STOCK EXCHAN GES. AS WE HOLD SO, WE MUST ALSO DEAL WITH HONBLE BOMBAY HIGH COURT S JUDGMENT IN THE CASE OF BHARAT S RUIA VS CIT (2011 TIOL 238 HC ) WHEREIN HONBLE BOMBAY HIGH COURT HAD AN OCCASION TO DEAL WITH THE CHARACTERIZATION OF INCOM E FROM DEALING IN DERIVATIVES PRIOR TO AND POST THE AMENDMENT IN SECTION 43(5) BY THE VIRTUE OF FINANCE ACT, 2005. LEARNED DEPARTMENTAL REPRESENTATIVE HAS PLACED HEAV Y RELIANCE ON THIS DECISION AND CONTENDED THAT ONCE HONBLE JURISDICTIONAL HIGH COURT HOLD THAT PRE 2006-07 LOSSES IN DERIVATIVES TRADING WERE SPECULATION LOSS ES, AND WHEN ADMITTEDLY PROFITS OF DERIVATIVES TRADING ARE NOT PROFITS OF SPECULATION BUSINESS, THE SET OFF OF THESE TYPES OF BUSINESS RESULTS CANNOT BE GIVEN. IN BHARAT S RU IAS CASE, THE ASSESSEE HAD SUFFERED LOSS IN THE ASSESSMENT YEAR 2003-04, I.E. ONE OF THE ASSESSMENT YEARS PRIOR TO ASSESSMENT YEAR 2006-07, WHICH HE CLAIMED IS TO BE CARRIED FORWARD AS BUSINESS ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 22 OF 31 LOSS, NOT BEING IN THE NATURE OF SPECULATION LOSS. THE ONLY DIFFERENCE IN SPECULATION LOSS AND NON-SPECULATION LOSS OBVIOUSLY WAS THE LIM ITATION ON THE PROFITS AGAINST WHICH SUCH LOSSES COULD BE SET OFF, BUT THE ISSUE I N DISPUTE NEVERTHELESS REMAINED CONFINED TO THE NATURE OF LOSS CARRIED FORWARD. THE ASSESSING OFFICER HELD THAT IT IS A LOSS OF SPECULATION BUSINESS AND LIABLE TO BE CARRI ED FORWARD AS SUCH. WHEN THE MATTER TRAVELLED IN APPEAL BEFORE A COORDINATE BENC H OF THIS TRIBUNAL, IT WAS HELD THAT THE LOSS IS A NORMAL BUSINESS LOSS, SINCE AMEN DMENT IN SECTION 43(5) IS ONLY CLARIFICATORY IN NATURE AND MUST RELATE BACK TO THE EARLIER ASSESSMENT YEARS AS WELL. HOWEVER, THE STAND SO TAKEN BY THE COORDINATE BENCH DID NOT FIND FAVOUR WITH HONBLE HIGH COURT, AND THEIR LORDSHIPS REVERSED TH E ACTION OF THE COORDINATE BENCH BY OBSERVING, INTER ALIA, AS FOLLOWS: 33) .. ORDINARILY A TRANSACTION IN A COMMO DITY RELATES TO PURCHASE / SALE OF AN ASSET WHICH IS TANGIBLE AND W HICH IS CAPABLE OF BEING DELIVERED. HOWEVER, SECTION 18A OF THE 1956 ACT INS ERTED WITH EFFECT FROM 22/2/2000 PROVIDES THAT NOTWITHSTANDING ANYTHING CO NTAINED IN ANY OTHER LAW FOR THE TIME BEING IN FORCE, CONTRACTS IN DERIVATIV E (LIKE FUTURES CONTRACTS) SHALL BE LEGAL AND VALID IF SUCH CONTRACTS ARE TRADED ON A RECOGNIZED STOCK EXCHANGE AND SETTLED ON THE CLEARING HOUSE OF A RECOGNIZED S TOCK EXCHANGE IN ACCORDANCE WITH THE RULES AND BYE-LAWS OF SUCH STOCK EXCHANGE. THUS, BY OPERATION OF LAW, THE TRANSACTIONS IN FUTURES ARE MADE LEGAL AND VALI D EVEN IF THE UNDERLYING SECURITIES PERMITTED TO BE PURCHASED / SOLD UNDER T HE FUTURES CONTRACTS ARE NOT TANGIBLE AND INCAPABLE OF ACTUAL DELIVERY, PROVIDED SUCH TRANSACTIONS ARE TRADED ON A RECOGNIZED STOCK EXCHANGE AND SETTLED ON THE C LEARING HOUSE OF A RECOGNIZED STOCK EXCHANGE. MOREOVER, SECTION 43(5) OF THE ACT PROVIDES THAT A TRANSACTION FOR PURCHASE / SALE OF ANY COMMODITY WO ULD BE A SPECULATIVE TRANSACTION IF IT IS SETTLED OTHERWISE THAN BY ACTU AL DELIVERY. FOR THE PURPOSES OF SECTION 43(5), IT IS NOT NECESSARY THAT THE COMMODI TY AGREED TO BE PURCHASED OR SOLD MUST BE CAPABLE OF ACTUAL DELIVERY. THEREFORE, FUTURE CONTRACTS FOR PURCHASE / SALE OF AN UNDERLYING SECURITY PERMITTED TO BE TR ADED ON THE STOCK EXCHANGE AND SETTLED OTHERWISE THAN BY ACTUAL DELIVERY WOULD BE SPECULATIVE TRANSACTIONS UNDER SECTION 43(5) OF THE ACT. 34) IT IS CONTENDED THAT THE EXPRESSION 'COMMODITY' DOES NOT INCLUDE 'STOCKS & SHARES', HOWEVER, FOR THE PURPOSES OF SECTION 43(5) , THE EXPRESSION 'COMMODITY' HAS BEEN EXPANDED TO INCLUDE 'STOCKS & SHARES' AND SINCE TRANSACTIONS IN DERIVATIVES ARE NOT SPECIFICALLY INCLUDED IN SECTIO N 43(5), THE SAME WOULD FALL OUTSIDE THE PURVIEW OF SECTION 43(5). WE SEE NO MER IT IN THE ABOVE CONTENTIONS. THE EXPRESSION 'COMMODITY' WOULD COVER ALL ARTICLES OF TRADE INCLUDING STOCKS & SHARES. EVEN UNDER SECTION 43(5), THE EXPRESSION 'C OMMODITY' IS NOT EXPANDED TO INCLUDE 'STOCKS & SHARES'. IN FACT, USE OF 'COMMA' IN BETWEEN THE WORD 'COMMODITY' AND THE WORDS 'INCLUDING STOCKS & SHARE S' IN SECTION 43(5) MAKE IT ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 23 OF 31 CLEAR THAT TRANSACTIONS FOR PURCHASE OF ANY COMMODI TY WOULD INCLUDE TRANSACTION FOR PURCHASE OR SALE OF STOCKS & SHARES . IN OTHER WORDS, SECTION 43(5) DOES NOT SEEK TO EXPAND THE SCOPE OF EXPRESSI ON 'COMMODITY' BUT MERELY EMPHASIZES THAT THE TRANSACTION IN COMMODITY INCLUD ES TRANSACTIONS IN STOCKS & SHARES. THEREFORE, TRANSACTIONS IN FUTURES CONTRACT S LIKE TRANSACTIONS IN STOCKS & SHARES WHEN SETTLED OTHERWISE THAN BY ACTUAL DELIVE RY WOULD BE SPECULATIVE TRANSACTIONS UNDER SECTION 43(5) OF THE ACT. 35) THE ARGUMENT THAT SECTION 43(5) REFERS TO CONTR ACTS WHICH ARE CAPABLE OF SETTLEMENT BY ACTUAL DELIVERY WHEREAS THE TRANSACTI ONS IN FUTURES ARE INCAPABLE OF SETTLEMENT AND THEREFORE, TRANSACTIONS IN FUTURE S WOULD FALL OUTSIDE THE SCOPE OF SECTION 43(5) IS ALSO WITHOUT ANY MERIT, BECAUSE , THE VERY OBJECT OF SECTION 43(5) IS TO TREAT TRANSACTIONS WHICH ARE SETTLED OT HERWISE THAN BY ACTUAL DELIVERY AS SPECULATIVE TRANSACTIONS. AS NOTED EARL IER, SECTION 43(5) REFERS TO CONTRACTS FOR PURCHASE / SALE OF ANY COMMODITY AND IT IS NOT RESTRICTED TO CONTRACTS WHICH ARE CAPABLE OF PERFORMANCE BY ACTUA L DELIVERY. THEREFORE, THE FACT THAT THE FUTURES CONTRACTS ARE SETTLED OTHERWI SE THAN ACTUAL DELIVERY CANNOT BE A GROUND TO HOLD THAT THE FUTURES CONTRACTS ARE NOT SPECULATIVE TRANSACTIONS UNDER SECTION 43(5) OF THE ACT. 36) THE EXCEPTIONS ENUMERATED IN THE PROVISO TO SEC TION 43(5) CLEARLY PROVIDE THAT WHERE SPECULATIVE TRANSACTIONS ARE CARRIED OUT WITH A VIEW TO GUARD AGAINST LOSS IN RESPECT OF CONTRACTS FOR ACTUAL DEL IVERY IN CASES REFERRED TO IN CLAUSE (A), (B) & (C) OF THE PROVISO, THEN, SUCH SP ECULATIVE TRANSACTIONS SHALL NOT BE DEEMED TO BE SPECULATIVE TRANSACTIONS. SO FAR AS THE TRANSACTIONS COVERED UNDER CLAUSE (D) ARE CONCERNED, THEY ARE DEEMED NOT TO BE SPECULATIVE TRANSACTIONS ONLY WITH EFFECT FROM 1/4/2006. THEREF ORE, THE TRANSACTIONS COVERED UNDER CLAUSE (D) WOULD NOT BE TREATED AS SP ECULATIVE TRANSACTIONS ONLY WITH EFFECT FROM 1/4/2006. 37) THE ARGUMENT ADVANCED ON BEHALF OF THE ASSESSEE THAT CLAUSE (D) INSERTED TO THE PROVISO TO SECTION 43(5) BY FINANCE ACT, 1995 W ITH EFFECT FROM 1/4/2006 IS CLARIFICATORY AND HENCE RETROSPECTIVE IN NATURE, CA NNOT BE ACCEPTED, BECAUSE, FIRSTLY, THE LEGISLATURE BY FINANCE ACT, 1995 HAS S PECIFICALLY PROVIDED THAT CLAUSE (D) TO THE PROVISO TO SECTION 43(5) SHALL COME INTO OPERATION PROSPECTIVELY WITH EFFECT FROM 1/4/2006. SECONDLY, INSERTION OF CLAUSE (D) WAS NOT NECESSITATED ON ACCOUNT OF THE FACT THAT THE PROVISIONS OF SECTION 43(5) WERE UNWORKABLE OR INTERPRETATION OF SECTION 43(5) RESULTED IN UNINTEN DED CONSEQUENCES. THIRDLY, EVEN AFTER INSERTION OF CLAUSE (D), ALL TRANSACTION S IN DERIVATIVES ARE NOT TAKEN OUTSIDE THE PURVIEW OF SECTION 43(5). IT IS ONLY TH OSE DERIVATIVE TRANSACTIONS WHICH ARE COVERED UNDER CLAUSE (D) ARE TAKEN OUTSID E THE PURVIEW OF SECTION 43(5) AND THE REST OF THE TRANSACTIONS IN DERIVATIV ES WOULD CONTINUE TO BE COVERED UNDER SECTION 43(5) OF THE IT ACT. IN THESE CIRCUMSTANCES, THE ARGUMENT THAT CLAUSE (D) INSERTED TO THE PROVISO TO SECTION 43(5) HAS RETROSPECTIVE EFFECT CANNOT BE ACCEPTED. 22. IN THE LIGHT OF THE VIEWS SO EXPRESSED BY HONB LE JURISDICTIONAL HIGH COURT, WE MUST PROCEED ON THE BASIS THAT THE LOSSES INCURRED IN THE ASSESSMENT YEARS PRIOR TO ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 24 OF 31 2006-07, IN DEALING IN DERIVATIVES, MUST BE HELD TO BE LOSSES OF SPECULATION BUSINESS. TO THAT EXTENT, THE ISSUE IS COVERED AGAINST THE AS SESSEE. HOWEVER, THE QUESTION WHETHER SUCH LOSSES OF DEALING IN DERIVATIVES, WHIC H HAVE BEEN TREATED AS LOSSES OF SPECULATION BUSINESS, CAN BE SET OF AGAINST THE PRO FITS OF THE SAME BUSINESS ACTIVITY IN THE ASSESSMENT YEAR 2006-07, DID NOT REALLY COME UP FOR ADJUDICATION BEFORE HONBLE JURISDICTIONAL HIGH COURT, AND THEIR LORDSH IPS DID NOT ALSO HAVE ANY OCCASION TO EXAMINE THE SCOPE OF STATUTORY PROVISIO NS REGARDING CARRY FORWARD AND SET OFF OF BUSINESS LOSSES AND THE MANNER IN WHICH HONBLE COURTS HAVE INTERPRETED THE SAME. IN OUR HUMBLE UNDERSTANDING, THEREFORE, THIS DECISION CAN NOT BE VIEWED AS AN AUTHORITY FOR THE PROPOSITION THAT LOSSES INC URRED IN DEALING IN DERIVATIVES, PRIOR TO THE ASSESSMENT YEAR 2006-07, CANNOT BE SET OFF AGAINST THE PROFITS OF THE SAME BUSINESS IN THE ASSESSMENT YEAR 2006-07 OR LAT ER ASSESSMENT YEARS. THAT ASPECT OF THE MATTER DID NOT COME UP FOR CONSIDERAT ION BEFORE THEIR LORDSHIPS. SIMILARLY, THE SCOPE OF PROVISIONS FOR SET OFF AND CARRY FORWARD OF LOSSES DID NOT COME UP FOR CONSIDERATION BEFORE A COORDINATE BENCH OF T HIS TRIBUNAL IN THE CASE OF ACIT VS SHREEGOPAL PUROHIT (33 SOT 1) . THE COORDINATE BENCH APPARENTLY PROCEEDED ON THE ASSUMPTION THAT IF A LOSS IS CHARACTERIZED A S SPECULATION LOSS, IN ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR IN WHICH LOSS W AS INCURRED, AND PROFITS FROM THE SAME BUSINESS IN A SUBSEQUENT YEAR IS CHARACTER IZED AS NON-SPECULATION BUSINESS PROFIT, THE FORMER CANNOT BE SET OFF AGAINST THE LA TTER AN ASSUMPTION, AS WE HAVE SEEN EARLIER IN THIS DECISION, IS CONTRARY TO THE L AW LAID DOWN BY HONBLE SUPREME COURTS IN MANMOHAN DASS CASE (SUPRA). NONE OF THE SE DECISIONS THUS DEAL WITH THE ISSUE WHICH HAS COME UP FOR OUR CONSIDERATION. 23. IN VIEW OF THE ABOVE DISCUSSIONS, THOUGH SUBJEC T TO CERTAIN CONDITIONS WHICH ARE NOT RELEVANT FOR THE PRESENT PURPOSES, THE ASSE SSEE WAS INDEED ENTITLED TO SET OFF THE LOSS INCURRED, IN THE ASSESSMENT YEARS PRIOR TO THE ASSESSMENT YEAR 2006-07, IN THE BUSINESS OF DEALING IN DERIVATIVES, AGAINST THE PROFITS EARNED IN THE ASSESSMENT YEAR 2006-07 AND LATER ASSESSMENT YEARS. ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 25 OF 31 24. IT IS ALSO IMPORTANT TO BEAR IN MIND THAT WHE THER THE BUSINESS IN THE ASSESSMENT YEARS IN WHICH LOSS HAD INCURRED WAS SPE CULATIVE OR NON-SPECULATIVE, THIS ASPECT OF THE MATTER IS ALSO, IN VIEW OF HONB LE SUPREME COURTS JUDGMENT IN MANMOHAN DASS CASE (SUPRA) , TO BE DECIDED IN THE COURSE OF THESE PROCEEDINGS, AND THE VIEWS OF THE ASSESSING OFFICER IN THE ASSESSMEN T YEAR IN WHICH LOSS HAD INCURRED ARE OF NO SIGNIFICANCE. IN OUR HUMBLE UNDERSTANDI NG, WHATEVER BE THE STATUS OF FINALITY OF CHARACTERIZATION OF INCOME IN THE ASSES SMENT, WHICH STANDS ON A DIFFERENT FITTING ANYWAY, THE NORMS APPLIED IN DETERMINATION OF CHARACTER OF INCOME, FOR THE PURPOSE OF ELIGIBILITY OF SET OFF, IN THE ASSESSMEN T YEAR IN WHICH LOSS IS INCURRED AND IN THE ASSESSMENT YEAR IN WHICH SET OFF IS CLAIMED, MUST BE THE SAME. IT IS MORE SO FOR THE REASON THAT AS A RESULT OF THIS CHARACTERIZ ATION OF INCOME, AND AS HELD IN THE CASE OF WESTERN OIL DISTRIBUTING LTD (SUPRA), ONLY THE SET OFF IS TO BE DETERMINED AND THE CHARACTERIZATION IN ASSESSMENT, WHICH HAS ATTAI NED FINALITY ANYWAY, REMAINS UNCHANGED. WHEN WE GO BY THE THEORY OF A VESTED RIGHT BEING CONFERRED ON THE ASSESSEE, BY THE VIRTUE OF SECTION 73(2) AND FOR SE TTING OFF THE LOSSES INCURRED BY THE ASSESSEE IN ONE YEAR AGAINST THE PROFITS OF SUBSEQU ENT YEAR, WHICH, AS WE HAVE SEEN IN THE FOREGOING DISCUSSIONS, HAS THE SANCTION OF H ONBLE SUPREME COURT, THIS QUESTION IS A WHOLLY ACADEMIC QUESTION. HOWEVER, WH EN WE ARE EXAMINING WHETHER A BUSINESS IS A SPECULATIVE BUSINESS OR NOT AND THI S EXAMINATION IS WITH RESPECT OF THE NATURE OF THE BUSINESS, RATHER THAN MODALITY OF TAXABILITY OF BUSINESS IN A PARTICULAR ASSESSMENT YEAR, NORMALLY WE CANNOT HAVE DIFFERENT NORMS FOR DIFFERENT YEARS. IT IS A PECULIAR SITUATION IN WHICH THE LAW GOVERNING DEFINITION OF SPECULATIVE TRANSACTION ITSELF HAS UNDERGONE A CHANGE WITHIN TH E RELEVANT PERIOD, AND, THEREFORE, THERE CANNOT BE A UNIFORM VIEW IN RESPECT OF THE EN TIRE PERIOD OF BUSINESS. HAVING SAID THAT, IF AT ALL A UNIFORM FINDING ON THE NATUR E OF BUSINESS IS NEEDED TO BE GIVEN, AS WE BELIEVE IS WARRANTED ON THE FACTS OF THIS CAS E, THE NATURE OF THE BUSINESS MUST BE HELD TO BE NON-SPECULATIVE BUSINESS IN NATURE, S INCE, IN VIEW OF THE LAW AS IT STANDS NOW, THE BUSINESS CANNOT BE SAID TO BE SPECU LATIVE BUSINESS IN NATURE. THIS FINDING, IN VIEW OF OUR UNDERSTANDING OF LAW LAID D OWN BY HONBLE BOMBAY HIGH COURT IN THE CASE OF WESTERN OIL DISTRIBUTING LTD ( SUPRA), IS RELEVANT ONLY FOR THE PURPOSE OF THE SET OFF IN THE PRESENT ASSESSMENT YE AR AND IT WILL HAVE NO BEARING ON ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 26 OF 31 THE EARLIER ASSESSMENTS WHICH HAVE RECEIVED FINALIT Y. THIS MAY SOMEWHAT INCONGRUOUS AT THE FIRST SIGHT, BUT THEN THIS IS HO W HONBLE COURTS HAS INTERPRETED THE LEGAL POSITION AND, TO OUR LIMITED UNDERSTANDIN G, THIS SEEMS TO BE THE ONLY WAY TO IRON OUT THE WRINKLES OF COMPLEXITIES, AND ALLEVIAT E GENUINE HARDSHIP, CAUSED DUE TO CHANGE IN DEFINITION OF SPECULATIVE TRANSACTION WITHOUT VISUALIZING, AND PROVIDING FOR, ALL THE COROLLARIES OF THIS LEGISLATIVE AMENDM ENT. AS WE SAY SO, WE ARE ALIVE TO THE FACT THAT WHATEVER BE THE NATURE OF HARDSHIP FACED BY THE ASSESSEE, IT IS NOT OPEN TO US, OR FOR THAT PURPOSE ANY JUDICIAL BODY, TO SUPPL Y ANY CASUS OMISSUS , BUT THEN ALL THAT WE ARE DOING IS TO GIVE A HARMONIOUS INTERPRET ATION TO THE LAW, EVEN THOUGH JUDGE MADE LAW TO A LARGE EXTENT, AS IT EXISTS. W HILE LOSS INCURRED BY THE ASSESSEE IN PRECEDING ASSESSMENT YEARS IS CERTAINLY SPECULATION BUSINESS LOSS FOR THE PURPOSES OF ASSESSMENT IN THE RELEVANT ASSESSMENT YEARS, IN CONGRUOUS AS IT SOUND, IT IS STILL REQUIRED TO BE TREATED AS NON-SPECULATION BUSINESS LOSS FOR THE LIMITED PURPOSES OF SET OFF OF CARRIED FORWARD OF LOSSES AGAINST CURREN T YEARS PROFITS. 25. LET US ALSO NOT LOSE SIGHT OF THE FACT THAT THE ONLY PURPOSE OF SEGREGATING LOSSES OF SPECULATION AND NON-SPECULATION BUSINESS IS TO ENSURE THAT THE LOSSES INCURRED BY THE ASSESSEE IN SPECULATION BUSINESS, W HICH LACK SUFFICIENT TRANSPARENCY, AND LEAVE THE SCOPE FOR GENERATING FICTITIOUS LOSSE S THROUGH ARTIFICIAL TRANSACTIONS OR SHIFTING OF INCIDENCE OF LOSS FROM ONE PERSON TO AN OTHER, ARE NOT ALLOWED TO BE SET OFF AGAINST PROFITS OF ANOTHER BUSINESS OTHER THAN A SI MILAR BUSINESS. THIS ASPECT OF THE MATTER ALSO BECOME CLEAR FROM THE OBSERVATIONS IN CBDT CIRCULAR DATED 27 TH FEBRUARY 2006, EXPLAINING THE AMENDMENTS MADE TO SE CTION 43(5) VIDE FINANCE ACT 2005, AS FOLLOWS: EXISTING PROVISIONS OF CLAUSE (5) OF SECTION 43 DEF INE SPECULATIVE TRANSACTION TO MEAN A TRANSACTION IN WHICH A CONTRACT FOR THE P URCHASE OR SALE OF ANY COMMODITY INCLUDING STOCKS AND SHARES IS SETTLED OT HERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS. TH E PROVISO TO SECTION 43(5) LISTS OUT CERTAIN TRANSACTIONS WHICH ARE NOT DEEMED TO BE SPECULATIVE TRANSACTIONS. SYSTEMIC AND TECHNOLOGICAL CHANGES INTRODUCED BY SE BI HAVE RESULTED IN SUFFICIENT TRANSPARENCY IN THE STOCK MARKETS AND HA VE TO A LARGE EXTENT CURBED ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 27 OF 31 THE SCOPE FOR GENERATING FICTITIOUS LOSSES THROUGH ARTIFICIAL TRANSACTIONS OR SHIFTING OF INCIDENCE OF LOSS FROM ONE PERSON TO AN OTHER. THE SCREEN BASED COMPUTERIZED TRADING PROVIDES FOR AUDIT TRAIL. IN T HE WAKE OF THESE DEVELOPMENTS, THE PRESENT DISTINCTION BETWEEN SPECU LATIVE AND NON- SPECULATIVE TRANSACTIONS, IN RESPECT OF TRADING IN DERIVATIVES OF SECURITIES IS LOSING RELEVANCE. THE FINANCE ACT, 2005 HAS, ACCORDINGLY, AMENDED SEC TION 43(5) TO PROVIDE THAT AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DE RIVATIVES OF SECURITIES CARRIED OUT ON A RECOGNISED STOCK EXCHANGE SHALL NOT BE DEE MED AS SPECULATIVE TRANSACTION.. 26. AS WE HAVE POINTED OUT EARLIER, THE SYSTEMIC A ND TECHNOLOGICAL CHANGES BROUGHT ABOUT BY THE SEBI (SECURITIES AND EXCHANGE BOARD OF INDIA) WHICH, AS PER CBDTS OWN STAND, LEAD TO DERIVATIVES DEALINGS BEIN G SPECIFICALLY TAKEN OUT OF THE AMBIT OF SPECULATIVE TRANSACTIONS WERE NOT OVERNI GHT CHANGES BUT THE CHANGES WHICH WERE BROUGHT ABOUT, AS HONBLE FINANCE MINIST ER NOTED IN THE RELEVANT BUDGET SPEECH REFERRED TO EARLIER IN THIS ORDER, BY SIGNI FICANT DEVELOPMENTS OVER THE PAST DECADE. THE SCREEN BASED TRADING, WITH AUDIT TRAIL , WAS AS MUCH IN EXISTENCE IN 2001-02 AS IT WAS IN 2006-07. THE NATURE OF BUSINES S THUS WAS THE SAME IN EVERY SIGNIFICANT MANNER, AND THERE WAS NO OTHER EARLIER OCCASION WHEN DERIVATIVES TRADING WAS TAKEN NOTE OF THE INCOME TAX ACT, 1961 . A SCHOOL OF THOUGHT WAS THUS INDEED POSSIBLE, AT LEAST UNTIL A SPECIAL BENCH OF THIS TRIBUNAL AND UNTIL HONBLE JURISDICTIONAL HIGH COURT RULED TO THE CONTRARY, TH AT AMENDMENT IN SECTION 43(5) WAS NO MORE THAN CLARIFICATORY IN NATURE. SEVERAL C OORDINATE BENCHES OF THIS TRIBUNAL, SUCH AS IN THE CASE OF P.S. KAPUR VS.ACI T (120 TTJ 422), HELD SO. AS THESE DECISIONS WERE AVAILABLE AT THE POINT OF TIME WHEN ASSESSING OFFICER ALLOWED SET OFF IN THE ASSESSMENT ORDER, AND NO CONTRARY BINDING DE CISION WAS AVAILABLE AT THAT POINT OF TIME, THE VIEW ADOPTED BY THE ASSESSING OF FICER WAS AT LEAST A POSSIBLE VIEW OF THE MATTER AND IT COULD NOT BE SUBSTITUTED BY AN OTHER POSSIBLE VIEW, AS TAKEN IN THE IMPUGNED ORDER, BY THE COMMISSIONER. HONBLE SUPREME COURTS JUDGMENT , IN THE CASE OF CIT VS G M STAINLESS STEEL LTD ( 263 ITR 255 ), SUPPORTS THE PROPOSITION THAT CORRECTNESS OF AN ASSESSMENT ORDER , IN THE CONTEXT OF SECTION 263, IS TO BE EXAMINED IN THE LIGHT OF INTERPRETATION OF LA W AS WAS AVAILABLE AS AT THE POINT OF TIME WHEN ASSESSMENT ORDER WAS PASSED. THAT WAS A C ASE IN WHICH HONBLE SUPREME ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 28 OF 31 COURT NOTED THAT WHILE THE LAW, AS IT WAS FINALLY L AID DOWN BY HONBLE SUPREME COURT ITSELF AND WHICH MUST, THEREFORE, BE TREATED TO BE CORRECT POSITION OF LAW ALWAYS, WAS CONTRARY TO THE VIEW ADOPTED IN THE ASSESSMENT ORDE R, THE ASSESSMENT ORDER COULD NOT BE SAID TO BE ERRONEOUS BECAUSE THE SAME WAS IN ACCORDANCE WITH THE JUDICIAL PRECEDENTS AVAILABLE TO THE ASSESSING OFFICER AS AT THE TIME OF ASSESSMENT. VIEWED THUS, AT THE MINIMUM, THE VIEW ADOPTED BY THE ASSES SING OFFICER COULD NOT BE SUBJECTED TO REVISION PROCEEDINGS UNDER SECTION 263 . THE ASSESSEE APPELLANT MUST SUCCEED FOR THIS REASON AS WELL. 27. AS A RESULT OF THE AMENDMENT IN SECTION 43(5) WITH EFFECT FROM 1 ST APRIL 2006, LOSSES INCURRED IN DERIVATIVE TRADING ARE HEL D TO BE ELIGIBLE FOR BEING SET OFF AGAINST NORMAL BUSINESS PROFITS, AS DERIVATE TRADIN G ITSELF IS TREATED AS A NON- SPECULATIVE BUSINESS, AND LOSSES OF ANY NON- SPECUL ATIVE BUSINESSES CAN BE ADJUSTED PROFITS OF ANY NON-SPECULATIVE BUSINESS. IRONICALLY , HOWEVER, THIS APPARENTLY WELL- INTENDED MEASURE OF RELIEF TO THE ASSESSEE HAS RESU LTED IN AN ABSURD SITUATION IN WHICH PAST LOSSES OF DERIVATIVES TRADING CANNOT BE SET OFF AGAINST PROFITS OF DERIVATIVES TRADING ITSELF. WHAT WAS MEANT TO BE A SOURCE OF RELIEF HAS TURNED INTO A CAUSE OF MISERY. THAT IS CLEARLY AN ABSURDITY. AS T O WHAT SHOULD BE DONE IN SUSCH A SITUATION, WE FIND GUIDANCE FROM THE OBSERVATIONS M ADE BY HONBLE SUPREME COURT , IN THE CASE CIT VS HINDUSTAN BULK CARRIERS LTD (259 ITR 449) , AS FOLLOWS: A CONSTRUCTION WHICH REDUCES THE STATUTE TO A FUTIL ITY HAS TO BE AVOIDED. A STATUTE OR ANY ENACTING PROVISION THEREIN MUST BE S O CONSTRUED AS TO MAKE IT EFFECTIVE AND OPERATIVE ON THE PRINCIPLE EXPRESSED IN MAXIM UT RES MAGIS VALEAT QUAM PEREAT I.E., A LIBERAL CONSTRUCTION SHOULD BE PUT UPON WRITTEN INSTRUMENTS, SO AS TO UPHOLD THEM, IF POSSIBLE, AND CARRY INTO EFFECT THE INTENTION OF THE PARTIES. [ SEE BROOMS LEGAL MAXIMS (10TH EDITION), PAGE 361, CRAIES ON STATUTES (7TH EDITION) PAGE 95 AND MAXWELL ON STATUTES (11TH EDITION) PAGE 221.] A STATUTE IS DESIGNED TO BE WORKABLE AND THE INTERP RETATION THEREOF BY A COURT SHOULD BE TO SECURE THAT OBJECT UNLESS CRUCIAL OMIS SION OR CLEAR DIRECTION MAKES THAT END UNATTAINABLE - WHITNEY V. COMMISSIONER OF INLAND REVENUE [1926] AC 37 P. 52 REFERRED TO IN CIT V. S. TEJA SINGH AIR 1959 SC 352, GURSAHAI SAIGAL V. CIT AIR 1963 SC 1062. ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 29 OF 31 THE COURTS WILL HAVE TO REJECT THAT CONSTRUCTION WH ICH WILL DEFEAT THE PLAIN INTENTION OF THE LEGISLATURE EVEN THOUGH THERE MAY BE SOME INEXACTITUDE IN THE LANGUAGE USED - SALMON V. DUNCOMBE [1886] 11 AC 627 P. 634 (PC), CURTIS V. STOVIN [1889] 22 CBD 513 REFERRED TO IN S. TEJA SINGHS CASE ( SUPRA ). IF THE CHOICE IS BETWEEN TWO INTERPRETATIONS, THE N ARROWER OF WHICH WOULD FAIL TO ACHIEVE THE MANIFEST PURPOSE OF THE LEGISLATION WE SHOULD AVOID. WHENEVER IT IS POSSIBLE TO DO SO, IT MUST BE DONE T O CONSTRUE THE PROVISIONS WHICH APPEAR TO CONFLICT SO THAT THEY HARMONISE. IT SHOULD NOT BE LIGHTLY ASSUMED THAT PARLIAMENT HAD GIVEN WITH ONE HAND WHA T IT TOOK AWAY WITH THE OTHER. 28. HONBLE SUPREME COURT, IN THE CASE OF K.P. VARGHESE V. ITO ( 131 ITR 597) , HAS FURTHER HELD THAT THE TASK OF INTERPRETATION IS NOT A MECHANICAL TASK AND, QUOTED WITH APPROVAL, JUSTICE HANDS OBSERVATION THAT ' IT IS ONE OF THE SUREST INDEXES OF A MATURE AND DEVELOPED JURISPRUDENCE NOT TO MAKE A FO RTRESS OUT OF THE DICTIONARY BUT TO REMEMBER THAT STATUTES ALWAYS HAV E SOME PURPOSE OR OBJECT TO ACCOMPLISH, WHOSE SYMPATHETIC AND IMAGINATIVE DI SCOVERY IS THE SUREST GUIDE TO THEIR MEANING '. THEIR LORDSHIPS, INTER ALIA , OBSERVED AS FOLLOWS: '. . . THE TASK OF INTERPRETATION OF A STATUTORY EN ACTMENT IS NOT A MECHANICAL TASK. IT IS MORE THAN A MERE READING OF MATHEMATICAL FORMULA E BECAUSE FEW WORDS POSSESS THE PRECISION OF MATHEMATICAL SYMBOLS. IT IS AN ATT EMPT TO DISCOVER THE INTENT OF THE LEGISLATURE FROM THE LANGUAGE USED BY IT AND IT MUST ALWAYS BE REMEMBERED THAT LANGUAGE IS AT BEST AN IMPERFECT INSTRUMENT FO R THE EXPRESSION OF HUMAN THOUGHT AND, AS POINTED OUT BY LORD DENNING, IT WOU LD BE IDLE TO EXPECT EVERY STATUTORY PROVISION TO BE 'DRAFTED WITH DIVINE PRES CIENCE AND PERFECT CLARITY'. WE CAN DO NO BETTER THAN REPEAT THE FAMOUS WORDS OF JU DGE LEARNED HAND WHEN HE SAID : . . . IT IS TRUE THAT THE WORDS USED, EVEN IN THEI R LITERAL SENSE, ARE THE PRIMARY AND ORDINARILY THE MOST RELIABLE SOURCE OF INTERPRE TING THE MEANING OF ANY WRITING : BE IT A STATUTE, A CONTRACT OR ANYTHING E LSE. BUT IT IS ONE OF THE SUREST INDEXES OF A MATURE AND DEVELOPED JURISPRUDENCE NOT TO MAKE A FORTRESS OUT OF THE DICTIONARY; BUT TO REMEMBER THAT STATUTES ALWAY S HAVE SOME PURPOSE OR OBJECT TO ACCOMPLISH, WHOSE SYMPATHETIC AND IMAGINA TIVE DISCOVERY IS THE SUREST GUIDE TO THEIR MEANING. WE MUST NOT ADOPT A STRICTLY LITERAL INTERPRETATION OF . . . BUT WE MUST CONSTRUE ITS LANGUAGE HAVING REGARD TO THE OBJECT AND PURPOSE WH ICH THE LEGISLATURE HAD IN VIEW IN ENACTING THAT PROVISION AND IN THE CONTEXT OF THE SETTING IN WHICH IT OCCURS. WE CANNOT IGNORE THE CONTEXT AND THE COLLECTION OF THE PROVISIONS IN WHICH . . ., APPEARS, BECAUSE, AS POINTED OUT BY JUDGE LEARNED H AND IN THE MOST FELICITOUS ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 30 OF 31 LANGUAGE : INTERPRET . . . THE MEANING OF SENTENCE MAY BE MORE THAN THAT OF THE SEPARATE WORDS, AS A MELODY IS MORE THAN THE NOTES, AND NO DEGREE OF PARTICULARITY CAN EVER OBVIATE RECOURSE TO THE SETTING IN WHICH A LL APPEAR, AND WHICH ALL COLLECTIVELY CREATE. . . .' 29. IN VIEW OF THE GUIDANCE SO GIVEN BY THEIR LORDS HIPS, WE HAVE TO PROCEED ON THE BASIS THAT DESPITE INEXACTITUDE IN THE LANGUAG E USED, AS WAS THE EXPRESSION APPROVED BY HONBLE SUPREME COURT, THE PROVISIONS O F CARRY FORWARD AND SET OFF ARE TO BE CONSTRUED IN A MANNER SO AS NOT TO DEFEAT THE PLAIN AND UNAMBIGUOUS INTENTION OF THE LEGISLATURE. IN OUR CONSIDERED VIEW, THIS A MENDMENT WAS TO PROVIDE RELIEF TO THE TAXPAYERS AND IS TO BE VIEWED AS BENEFICIAL PRO VISIONS, AS SUCH, AND ONE CANNOT POSSIBLY PROCEED ON THE BASIS THAT THE OBJECT OF MA KING AMENDMENT IN SECTION 43(5) WAS TO KILL THE BROUGHT FORWARD LOSSES OF DEALING I N DERIVATIVES OR MAKE THEM INELIGIBLE FOR BEING SET OFF AGAINST THE PROFITS OF THE SAME BUSINESS IN SUBSEQUENT YEARS. WHATEVER MAY BE CHARACTERIZATION OF INCOME F OR THE PURPOSE OF INTRA ASSESSMENT YEAR SET OFF IN THE RELEVANT ASSESSMENT YEAR, AND IRRESPECTIVE OF THE FACT THAT SUCH A CHARACTERIZATION HAS ACHIEVED FINALITY IN ASSESSMENT, THE LOSSES AND PROFITS FROM DEALING IN DERIVATIVES MUST BE CHARACT ERIZED ON A UNIFORM BASIS IN THE ASSESSMENT YEAR IN WHICH SET OFF IS CLAIMED. VIEWED IN THIS PERSPECTIVE ALSO, THE CLASSIFICATION OF BUSINESS FOR THE LIMITED PURPOSE OF SET OFF OF PAST LOSSES, INTO SPECULATIVE AND NON-SPECULATIVE, IS TO BE DONE ON A UNIFORM BASIS, AND, WHICHEVER WAY ONE LOOKS AT IT, THE LOSSES INCURRED IN THE SAM E BUSINESS IN EARLIER ASSESSMENT YEARS ARE TO BE TREATED AS ELIGIBLE FOR SET OFF AGA INST PROFITS OF THE SAME BUSINESS, SUBJECT TO FULFILMENT OF OTHER CONDITIONS, IN THE S UBSEQUENT ASSESSMENT YEARS. FOR THIS REASON ALSO, THE ASSESSEE DESERVES TO BE GRANT ED SET OFF OF BROUGHT FORWARD LOSSES FROM BUSINESS OF DEALING IN DERIVATIVES, INC URRED IN ASSESSMENT YEARS PRIOR TO ASSESSMENT YEAR 2006-07 AGAINST PROFITS OF THE SAM E BUSINESS IN ASSESSMENT YEARS 2006-07 AND SUBSEQUENT ASSESSMENT YEARS. 30. FOR THE REASONS SET OUT ABOVE, WE ARE OF THE CO NSIDERED VIEW THAT THE ASSESSEE WAS INDEED ELIGIBLE FOR SETTING OF LOSSES OF BUSINE SS OF DEALING IN DERIVATIVES, INCURRED IN THE ASSESSMENT YEARS PRIOR TO THE ASSESSMENT YEA R 2006-07, AGAINST THE PROFITS OF ITA NO. 1798/MUM/2010 ASSESSMENT YEAR: 2006- 07 PAGE 31 OF 31 THE SAME BUSINESS IN ASSESSMENT YEAR 2006-07. THERE WAS NO INFIRMITY IN THE ASSESSING OFFICER GRANTING THE SAID SET OFF. THE A SSESSMENT ORDER, SUBJECTED TO IMPUGNED REVISION PROCEEDINGS, THUS COULD NOT BE HE LD TO BE ERRONEOUS .AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. ACCORDI NGLY, WE QUASH THE IMPUGNED REVISION PROCEEDINGS, AND SET ASIDE LEARNED COMMISS IONERS ORDER IN CHALLENGE BEFORE US. 31. IN THE RESULT, THE APPEAL IS ALLOWED. PRONOUNCE D IN THE OPEN COURT TODAY ON __31 ST DAY OF MAY, 2011. SD/- SD/- (D MANMOHAN ) (PRAMOD KUMAR) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI; 31 ST DAY OF MAY , 2011 .