D.C.I.T Cir - 5,kolkata, Kolkata V. M/s Raima Equities Pvt Ltd, Kolkata

ITA 1994/KOL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4692 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 1 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 08-08-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 21-06-2013
• Court: TRIBUNAL
• Department Lawyers: DIVAKAR CHAKRABORTY
• Assessee Lawyers: SHRIASHOK KR TULSYAN; AMIT K
• Keywords: Business income; Transactions in derivatives; Retrospective amendment; Speculation loss
• Section: 43B; 143(3); 43(5)

Judgement Text

1 ITA NO. 1994/KOL/2013 RAIMA EQUITIES PVT. LTD. AY 2009-10 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA [BEFORE SHRI M. BALAGANESH, AM & SHRI K. NARASIMHA CHARY, JM] I.T.A NO. 1994/KOL/2013 ASSESSMENT YEAR: 2009-10 DEPUTY COMMISSIONER OF INCOME-TAX, VS. M/S. RAIM A EQUITIES PVT. LTD. CIRCLE-5, KOLKATA. (PAN: AABCE2177Q) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 08.08.2016 DATE OF PRONOUNCEMENT: 11.08.2016 FOR THE APPELLANT: SHRI DIVAKAR CHAKRABORTY, J CIT, SR. DR FOR THE RESPONDENT: SHRIASHOK KR. TULSYAN, FCA & SHRI AMIT KUMAR, ACA ORDER PER SHRI M. BALAGANESH, AM: THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF C IT(A)-VI, KOLKATA VIDE APPEAL NO. 78/CIT(A)-VI/CIR-5/2011-12/KOL DATED 07.01.2013. AS SESSMENT WAS FRAMED BY DCIT, CIRCLE-5, KOLKATA U/S. 143(3) & 115WE(3) OF THE IN COME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR AY 2009-10 VIDE HIS ORDER DATE D 28.09.2011. 2. AT THE OUTSET, WE FIND THAT THERE IS A DELAY OF 63 DAYS IN FILING THE APPEAL BEFORE US BY THE REVENUE WHICH IS SUPPORTED WITH CONDONATION PET ITION. IN VIEW OF THE CONCESSION GIVEN BY THE LD AR FOR CONDONATION OF DELAY, WE HEREBY CO NDONE THE DELAY AND ADMIT THE APPEAL OF THE REVENUE FOR ADJUDICATION. 3. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA IS JUSTIFIED IN TREATING THE SHARE TRADING LOSS OF RS. 2,07,38,602/ - AS NORMAL BUSINESS LOSS INSTEAD OF SPECULATION LOSS IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSES SEE IS A MEMBER OF THE NATIONAL STOCK EXCHANGE (NSE) HAVING ITS MAIN BUSINESS AS STOCK BR OKING. IN ADDITION TO THE BROKING BUSINESS, IT ALSO DEALS IN SHARES AND DERIVATIVES F OR SELF. DURING THE YEAR, THE ASSESSEE HAS INCURRED LOSS IN DELIVERY BASED SHARE TRANSACTIONS AND PROFITS IN THE TRANSACTIONS IN THE 2 ITA NO. 1994/KOL/2013 RAIMA EQUITIES PVT. LTD. AY 2009-10 DERIVATIVES SEGMENT AND JOBBING. THE ASSESSEE REPO RTED THE FOLLOWING INCOME FROM SHARE TRANSACTIONS AS BELOW:- INCOME FROM BROKERAGE 85,55,143 PROFIT FROM DERIVATIVES (F&O) 4,11,05,676 PROFIT FROM SPECULATION IN SHARE TRADING (WITHOUT D ELIVERY) 86,34,063 LOSS FROM DELIVERY BASED TRANSACTIONS IN SHARE TRAD ING (2,86,80,084) THE LD AO INVOKED THE PROVISIONS OF EXPLANATION TO SECTION 73 OF THE ACT AND TREATED THE LOSS INCURRED ON DELIVERY BASED SHARE TRADING AS SP ECULATION LOSS. THE LD AO PLACED RELIANCE ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PRASAD AGE NTS (P) LTD VS ITO REPORTED IN (2009) 180 TAXMAN 178 (B OM) WHEREIN THEIR LORDSHIPS HAD OBSERVED THAT THE LOSSES INCURRED BY A COMPANY CARR YING ON BUSINESS OF PURCHASE AND SALE OF SHARES SHALL BE DEEMED TO BE CARRYING ON SPECULA TION BUSINESS AS PER EXPLANATION TO SECTION 73 OF THE I.TAX ACT. IT WAS FURTHER HELD T HAT EXPLANATION TO SECTION 73 CANNOT BE READ TO MEAN ONLY WHEN THERE IS PURCHASE AND SALE O F SHARES IN COURSE OF A FINANCIAL YEAR BUT IT WILL COVER BOTH, SHARES WHICH ARE STOCK IN T RADE AND SHARES WHICH ARE TRADED IN COURSE OF FINANCIAL YEAR FOR PURPOSE OF CONSIDERING LOSS A ND PROFIT FOR THAT YEAR. 5. THE ASSESSEE SUBMITTED THAT THE EXPLANATION TO SECTION 73 OF THE ACT IS NOT APPLICABLE IN THE FACTS OF THE CASE AS IT HAS NOT I NCURRED ANY BUSINESS LOSS WHICH IT INTENDS TO SET OFF OR CARRY FORWARD. THE ASSESSEE HAD NOT INC URRED ANY OPERATIONAL LOSS DURING THE YEAR AS IS EVIDENT FROM THE AUDITED PROFIT AND LOSS ACCO UNT. ALL THE FOUR SEGMENTS OF THE BUSINESS ON OWN ACCOUNT OF THE ASSESSEE CONSIDERED TOGETHER RESULTED IN OPERATIONAL PROFIT OF RS. 2,10,59,656/-. IT WAS FURTHER SUBMITTED THAT FOR TH E PURPOSE OF EXPLANATION TO SECTION 73 OF THE ACT, IT IS NECESSARY TO ARRIVE AT THE RESULT OF PURCHASE AND SALE OF SHARES AND DERIVATIVES TAKEN TOGETHER FOR THE FOLLOWING REASONS :- I) THE ASSESSEE'S PRIMARY AND ONLY BUSINESS IS TO D EAL IN SHARES AND SECURITIES INCLUDING DERIVATIVES FOR CLIENTS AND ALSO FOR SELF. II) BOTH PURCHASE & SALE OF SHARES BY PHYSICAL DELI VERY AND PURCHASE & SALE OF SHARES OF F&0 (DERIVATIVE) DOES NOT COME UNDER SPECULATION AS PER SEC. 43 (5) OF THE I. TAX ACT . III) THE TRANSACTIONS OF PURCHASE AND SALE OF SHARE S AND DERIVATIVES ARE CARRIED OUT BY THE BROKER AND PAYMENTS ARE SETTLED IN A CONSOLIDATED M ANNER CONSIDERING THE DEBIT/CREDIT IN ONE SEGMENT (PURCHASE & SALES) WITH THE CREDIT/DEBIT WI TH THE OTHER SEGMENT (DERIVATIVES). 3 ITA NO. 1994/KOL/2013 RAIMA EQUITIES PVT. LTD. AY 2009-10 IV) THE RESULTS OF BOTH SHARES AND DERIVATIVES ARE INTER DEPENDENT FOR THE PRIMARY REASON, THAT DERIVATIVES ARE USED AS A TOOL FOR PROTECTING THE LOSSES IN THE STOCK OF SHARES AND SECURITIES. THE CBDT ALSO FOR THE SIMILAR REASON HA S TREATED THE DERIVATIVE TRANSACTIONS AT PAR WITH THE PURCHASE AND SALE OF SHARES. V) FROM THE ACCOUNTS, IT IS CLEAR THAT THE LOSS ON PURCHASE AND SALES OF SHARES IS RS.2,86,80,084/- AGAINST THAT THERE IS A PROFIT ON FUTURES AND OPTIONS OF RS. 4,11,05,676/- AND PROFIT FROM SPECULATION TRANSACTION OF RS.86,34,063 /-. THE NET RESULT OF THE PROFIT FROM SHARES COMES TO RS. 2,10,59,655/-. AS APPARENTLY THERE IS NO LOSS ON SHARE TRADING ACT IVITIES, SINCE BOTH TRADING OF SHARES AS WELL AS FUTURES AND OPTIONS ARE OF THE SAME NATURE SO FA R AS INCOME TAX ACT IS CONCERNED, ASSESSEE'S CASE IS NOT HIT BY THE EXPLANATION TO SE C. 73 OF THE I. TAX ACT. AS DELIVERY BASED SHARE TRADING AS WELL AS TRADING IN F&O (DERIVATIVES) ARE NOT HIT BY THE PROVISION OF SEC 43(5) OF THE INCOME TAX ACT, BOTH ARE NON-SPECULATIVE SHARE TRADING ACTIVITIES. HENCE BOTH ARE TO BE CONSIDERED ON THE SAME FOOTING. AS PER INCOME TAX ACT, BOTH ARE OF THE SAME NATURE AND THEREFORE INCOME FR OM BOTH THE TRANSACTIONS IS TO BE CLUBBED TO WORK OUT THE SHARE TRADING INCOME OF THE ASSESSE E. EXPLANATION TO SEC. 73 OF THE I. TAX ACT WILL HIT ONLY IN CASE OF AGGREGATE OF SHARE TRA DING IS LOSS. IN THE CASE OF THE ASSESSEE, THE AGGREGATE OF SHARE TRADING IS PROFIT AND HENCE, THE RE IS NO QUESTION OF APPLICATION OF EXPLANATION TO SEC. 73 OF THE ACT. SO FAR AS ALLOCA TION OF EXPENDITURE IS CONCERNED, NOWHERE IN THE ACT, IT IS PROVIDED THAT EXPENDITURE SHOULD BE ALLOCATED WITH RESPECT TO SUCH TRANSACTIONS. THE LD AO, HOWEVER, HELD THAT ONLY THE LOSS DERIVED FROM SHARE TRADING ACTIVITY WAS IN THE NATURE OF LOSS FROM SPECULATION BUSINESS UNDER EXPL ANATION TO SEC. 73 OF THE ACT. THE LD CITA APPRECIATED THE CONTENTIONS OF THE ASSESSEE AN D GRANTED RELIEF TO THE ASSESSEE. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON TH E FOLLOWING GROUNDS:- 1. THAT THE LD. CIT(A) HAS ERRED IN TREATING THE NET LOSS ARISING OUT OF SHARE TRANSACTIONS AS SHARE TRADING LOSS INSTEAD OF SPECULATION LOSS. 2. THAT THE LD. CIT(A) HAS ERRED IN HOLDING THE LO SS OF RS.2,07,38,602/- AS SHARE TRADING LOSS INSTEAD OF SPECULATION LOSS. THE SAID CARRY FORWAR D LOSS CAN BE SET OFF AGAINST SPECULATION INCOME ONLY IN SUBSEQUENT YEARS. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE HAD DERIVED INCOME FROM T HE FOLLOWING CATEGORIES:- 4 ITA NO. 1994/KOL/2013 RAIMA EQUITIES PVT. LTD. AY 2009-10 A) STOCK BROKING B) DERIVATIVE TRADING FUTURE AND OPTIONS (F&O) C) SPECULATIVE TRADING INVOLVING NON DELIVERY D) TRADING INVOLVING DELIVERIES WE FIND THAT THE PRIMARY AND ONLY BUSINESS OF THE A SSESSEE IS TO DEAL IN SHARES AND SECURITIES INCLUDING DERIVATIVES AND WORK AS BROKER ON BEHALF OF CLIENTS AND EARN BROKERAGE THEREON. WE FIND THAT ALL THESE ACTIVITIES CUMULATIVELY RELA TE TO PURCHASE AND SALE OF SHARES. WE FIND THAT THE ASSESSEE HAS INCURRED LOSS IN DELIVERY BAS ED SHARE TRANSACTIONS AND PROFITS IN THE TRANSACTIONS OF DERIVATIVES SEGMENT , PROFIT FROM S PECULATION TRANSACTIONS AND HAD ALSO DERIVED BROKERAGE INCOME. THE LD AR HAD ARGUED TH AT BOTH PURCHASE AND SALE OF SHARES BY PHYSICAL DELIVERY AND PURCHASE AND SALE OF SHARES I N DERIVATIVE (F&O) SEGMENT DOES NOT COME UNDER SPECULATION AS PER SECTION 43(5) OF THE ACT. THE LD DR VEHEMENTLY SUPPORTED THE ORDER OF THE LD AO. 6.1. WE FIND THAT THE TRANSACTIONS OF PURCHASE AN D SALE OF SHARES AND DERIVATIVES ARE CARRIED OUT BY THE ASSESSEE AND PAYMENTS ARE SETTLE D IN A CONSOLIDATED MANNER CONSIDERING THE DEBIT / CREDIT IN ONE SEGMENT (PURCHASE & SALE OF SHARES) WITH THE CREDIT / DEBIT WITH THE OTHER SEGMENT (DERIVATIVES). THE RESULTS OF BOTH S HARES AND DERIVATIVES ARE INTER DEPENDENT FOR THE PRIMARY REASON, THAT DERIVATIVES ARE USED A S A TOOL FOR PROTECTING THE LOSSES IN THE STOCK OF SHARES AND SECURITIES. THE CBDT ALSO FOR THE SIMILARLY REASON HAS TREATED THE DERIVATIVE TRANSACTIONS AT PART WITH THE PURCHASE A ND SALE OF SHARES. WE FIND THAT THE ARGUMENTS OF THE LD AR ARE ACCEPTABLE AS THE CAPITA L MARKET OPERATIONS OF THE ASSESSEE CONSISTS OF TWO DISTINCT AND SEPARATE PARTS. THE F IRST PART OF HIS BUSINESS RELATES TO TRADING IN SHARES. THE SECOND PART OF HIS BUSINESS RELATES TO F&O OPERATIONS. THE ASSESSEE HAS MAINTAINED SEPARATE TRADING ACCOUNTS FOR THIS PURPO SE. THE LD AO INVOKED EXPLANATION TO SECTION 73 OF THE ACT TO THE FIRST PART, NAMELY , D EALING IN SHARES. THEREBY THE LOSS ARISING FROM SUCH OPERATION WAS TREATED BY HIM AS LOSS FROM SPECULATION. HE ALSO APPLIED CLAUSE (D) OF PROVISO TO SECTION 43(5) TO THE F & O OPERATIONS (DERIVATIVES) AND TREATED THE PROFITS FROM SUCH OPERATIONS AS NORMAL BUSINESS PROFITS. THUS, HE DID NOT PERMIT THE SET OFF OF THE LOSS FROM DEALING IN SHARES WITH PROFITS FROM OPERATIONS IN FUTURES. THE PROFITS FROM F&O IN 5 ITA NO. 1994/KOL/2013 RAIMA EQUITIES PVT. LTD. AY 2009-10 SHARES OPERATIONS AMOUNTED TO RS. 4,11,05,676/- AND LOSS FROM TRADING IN SHARES AMOUNTED TO RS. 2,86,80,084/-. 6.2. WE ARE IN AGREEMENT WITH THE ARGUMENTS ADVAN CED BY THE LD AR THAT IN THE CASE OF A STOCK BROKER, THERE IS A COMMON TERMINAL, ONE MEMBE RSHIP OF THE STOCK EXCHANGE, COMMON BANK ACCOUNT AND THE COMMON WORK FORCE WITH THE HEL P OF WHICH THE BUSINESS OF PROPRIETARY TRADING AS WELL AS TRADING ON BEHALF OF THE CLIENTS ARE CONDUCTED. THEREFORE IT COULD BE SAFELY CONCLUDED THAT THE ENTIRE BUSINESS OF THE ST OCK BROKER CONSTITUTED AS ONE SINGLE COMPOSITE INDIVISIBLE BUSINESS AND THEREFORE INCOME OR LOSS CANNOT BE ARTIFICIALLY BIFURCATED. THE ASSESSEE HAD MAINTAINED ONE SINGLE INDIVISIBLE AND COMPOSITE BUSINESS ESTABLISHMENT FOR CARRYING ON THE BUSINESS TRANSACTIONS INVOLVING PURCHASE & SALE OF SHARES & SECURITIES. EVEN THOUGH FOR THE PURPOSE OF ACCOUNTING DIFFERENT NOMENCLATURES AND SEGMENT HEADS OF ACCOUNTS WERE USED, YET THE UNDERLYING TRANSACTIONS GIVING RISE TO INCOME CHARGEABLE UNDER THE HEAD PROFITS & GAINS OF BUSINESS INVOLVED PURCH ASE & SALE OF SHARES. IN THE IMPUGNED ORDER THE AO OBSERVED THAT IN THE ACTIVITY OF PURCH ASE & SALE OF SHARES (INVOLVING DELIVERY OF SHARES) THE ASSESSEE HAD INCURRED LOSS. ENTIRE S UCH LOSS WAS TREATED BY THE AO TO BE LOSS INCURRED IN 'SPECULATION BUSINESS' WITHIN THE MEANI NG OF EXPLANATION TO SEC 73. IT IS NOT IN DISPUTE THAT THE ASSESSEE CONDUCTED TRANSACTIONS IN SHARES BOTH IN CASH SEGMENT AND FUTURES SEGMENT. THE LD AR ARGUED THAT AS PER THE PRUDENT P RACTICE FOLLOWED BY SHARE TRADERS, THE TRADING BETS ARE HEDGED BY THE TRADERS BY TAKING CO NTRARY OR OPPOSITE POSITIONS IN CASH AND FUTURE SEGMENTS. BY SIMULTANEOUSLY EXECUTING THE TR ADES IN THE SHARES/SECURITIES OF THE SAME COMPANY IN CASH AND FUTURES SEGMENTS, A TRADER HED GES HIS TRADING RISKS BY TAKING OPPOSITE POSITION IN THE TWO MARKET SEGMENTS. HOWEVER THE TR ANSACTION IN CASH AND FUTURES SEGMENTS ARE INTRINSICALLY RELATED TO EACH OTHER BECAUSE THE SHARE / SECURITY TRANSACTED IN CASH SEGMENT FORMS OR CONSTITUTES UNDERLYING SECURITY FOR THE TR ANSACTION CARRIED OUT IN THE FUTURES MARKET. THE TRANSACTIONS IN THE FUTURES SEGMENT ARE CARRIED OUT BY THE TRADERS AS 'HEDGE' FOR THE RISKS TAKEN IN THE CASH SEGMENT. IT IS FOR THIS REASON IT WAS CLAIMED THAT THE ASSESSEE'S TRADING TRANSACTIONS AND DERIVATIVE TRANSACTIONS COULD NOT BE CONSIDERED IN ISOLATION OF EACH OTHER. IT WAS SUBMITTED THAT FOR TAX PURPOSES THE CHARACTER O F TRADING TRANSACTIONS IN BOTH CASH AND FUTURES SEGMENTS SHOULD BE CONSIDERED CUMULATIVELY. ONCE THE INCOME/LOSS EARNED IN CASH AND FUTURES SEGMENT IS CONSIDERED ON AGGREGATE BASI S, THE EXPLANATION TO SEC 73 WILL HAVE NO APPLICATION TO THE ASSESSEE'S CASE. THE LD AR FU RTHER SUBMITTED THAT IN RESPECT OF SHARE BROKING ACTIVITY, THE UNDERLYING TRANSACTIONS GIVIN G RISE TO INCOME INVOLVED PURCHASE & SALE 6 ITA NO. 1994/KOL/2013 RAIMA EQUITIES PVT. LTD. AY 2009-10 OF SHARES. WE FIND THAT EXPLANATION TO SEC 73 OF TH E I T ACT IS APPLICABLE NOT TO INCOME OR LOSS. THE SAID EXPLANATION DEFINES THE TERMS 'SPECU LATION BUSINESS' TO MEAN THAT PART OF THE ASSESSEE'S BUSINESS WHICH CONSISTS OF PURCHASE & SA LE OF SHARES. SINCE THE ASSESSEES BUSINESS OF STOCK BROKING CONSISTED 'PURCHASE & SAL ES OF SHARES', THE INCOME ARISING FROM THE SAID ACTIVITY WAS LIABLE TO BE CONSIDERED AS PR OFIT OR LOSS ARISING FROM DEEMED SPECULATIVE BUSINESS AND THEREFORE THE INCOME ARISI NG FROM STOCK BROKING WAS ALSO INTEGRAL PART OF ASSESSEES DEEMED SPECULATIVE BUSINESS ENTI TLED FOR SET OFF AGAINST LOSS ARISING DEEMED SPECULATION BUSINESS. WE FIND THAT AMENDMEN T HAS BEEN BROUGHT IN THE FINANCE ACT 2005 W.E.F. 1.4.2006 WHEREIN TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES CARRIED OUT IN A RECOGNIZED STOCK EXCHANGE SHALL NOT BE TREATED AS S PECULATIVE TRANSACTION. THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ITO VS ARENA TEXTILES & INDUSTRIES LTD IN ITA NO. 1019/KOL/2011 DATED 29.12.2011 HAS HELD THAT THE TRANSACTION DONE BY DELIVERY AS WELL AS THE TRANSACTION OF DERIVATIVE OF SHARES , PROFIT /L OSS IS NOT HIT BY SECTION 43(5) OF THE ACT AND THEREFORE HELD THAT THE AGGREGATION OF SHARE TRADIN G LOSS AND PROFIT FROM DERIVATIVE TRANSACTIONS SHOULD BE DONE BEFORE THE APPLICATION OF THE EXPLANATION TO SECTION 73 OF THE ACT. WE ALSO FIND THAT THE SPECIAL BENCH OF MUMBAI TRIBUNAL IN THE CASE OF CIT VS CONCORD COMMERCIAL PVT LTD REPORTED IN (2005) 95 IT D 117 (MUM) (SB) HAD HELD THAT BEFORE MAKING APPLICATION OF EXPLANATION TO SECTION 73 OF THE ACT, SET OFF OF ALL BUSINESS INCOME SHOULD BE ALLOWED. THE LD AR ARGUED THAT THE INCOME FROM SHARE TRADING, SPECULATIVE TRANSACTIONS AND DERIVATIVE TRANSACTION S (F&O) ARE TO BE HELD CUMULATIVELY AS SPECULATIVE TRANSACTIONS AND THE PROFIT AND LOSS TO BE ADJUSTED AMONG THOSE HEADS OF INCOME. FROM THE ANALYSIS OF ABOVE DECISIONS, IT COULD BE S AFELY CONCLUDED THAT FOR AN ASSESSEE WHO IS IN THE BUSINESS OF SHARES , THE NET PROFIT IS TO BE DETERMINED BY CONSIDERING THE DERIVATIVE AND NON DERIVATIVE TRANSACTIONS AS DIFFERENT MODES OF CARRYING OUT THE SAID BUSINESS WHICH IS ONE AND INSEPARABLE. WE HOLD THAT BEFORE EXPLANATI ON TO SECTION 73 OF THE ACT IS APPLIED, THE SHARE TRADING LOSS AND PROFIT FROM DERIVATIVE T RANSACTIONS ARE TO BE AGGREGATED AS THEY ARE OF THE SAME NATURE. HENCE THE SHARE TRADING LOSS F ROM DELIVERY BASED TRANSACTIONS ARE TO BE SET OFF FROM THE PROFIT FROM DERIVATIVE TRANSACTION S. ONCE THIS IS DONE, THE RESULTANT FIGURE IS ONLY SURPLUS AND HENCE IN THE ABSENCE OF ANY LOS S, THE APPLICATION OF EXPLANATION TO SECTION 73 OF THE ACT DOES NOT COME INTO PLAY AT AL L. 6.3. WE FIND THAT SIMILAR ISSUE WAS ALSO ADJUDICA TED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS DLF COMMERCIAL DEVELOPERS LTD RE PORTED IN (2013) 35 TAXMANN.COM 7 ITA NO. 1994/KOL/2013 RAIMA EQUITIES PVT. LTD. AY 2009-10 280 (DEL HC) WHEREIN IT WAS HELD THAT THE EXPLANATION TO SECTI ON 73 DOES NOT DIFFERENTIATE BETWEEN DERIVATIVES AND DELIVERY BASED SHARES. THE HONBLE HIGH COURT NOTED THAT THE DERIVATIVES WERE ASSETS WHOSE VALUES WERE DERIVED F ROM THE UNDERLYING ASSETS. DERIVATIVES WERE TRANSACTED WHERE THE UNDERLYING ASSETS WERE SH ARES OF OTHER BODIES CORPORATE. THE HONBLE HIGH COURT HELD THAT IF THE LOSS INCURRED I N PURCHASE AND SALE OF UNDERLYING ASSETS WAS HIT BY PROVISIONS OF EXPLANATION TO SECTION 73 , THEN BY EQUAL MEASURE, LOSS INCURRED IN THE DERIVATIVE TRANSACTIONS WHERE SHARES CONSTITUTE D THE UNDERLYING ASSETS, WERE EQUALLY HIT BY THE EXPLANATION TO SECTION 73. THE HIGH COURT A CCORDINGLY HELD THAT LOSS INCURRED BY THE ASSESSEE IN DERIVATIVE TRANSACTION WAS LIABLE TO BE ASSESSED AS LOSS OF DEEMED SPECULATION BUSINESS EVEN THOUGH FOR THE PURPOSE OF SECTION 43( 5) THE TRANSACTIONS IN DERIVATIVES WERE NOT SPECULATIVE TRANSACTIONS . AT THIS STAGE IT IS PERTINENT TO NOTE THAT SECTION 73 PROVIDES THAT THE SPECULATION BUSINESS LOSS CAN BE SET OFF ONLY AGAINST PROFIT EARNED FROM ANY OTHER SPECULATION BUSINESS. A BUSINESS WHICH FALLS WITHIN THE SCOPE OF SPECULATION BUSINE SS UNDER THE EXPLANATION TO SECTION 73, REMAINS SO, IRRESPECTIVE OF THE FACT WHETHER THE AS SESSEE INCURS LOSS OR EARNS INCOME IN SUCH BUSINESS. IN THE CIRCUMSTANCES, IF THE LOSS INCURRE D IN DERIVATIVES IS HELD BY THE DELHI HIGH COURT TO BE LOSS IN SPECULATION BUSINESS THEN BY EQ UAL MEASURE, PROFIT DERIVED FROM DERIVATIVE TRANSACTIONS WOULD CONSTITUTE PROFIT DER IVED FROM SPECULATION BUSINESS. ACCORDINGLY, THE ASSESSEE IS ENTITLED TO SET OFF TH E LOSS INCURRED ON SHARE TRADING BUSINESS WITH THE PROFIT EARNED FROM DERIVATIVE TRANSACTIONS . 6.3.1. FROM THE AFORESAID FINDINGS AND THE RATIO L AID DOWN IN THE AFORESAID JUDICIAL PRECEDENTS RELIED UPON, IT COULD BE SAFELY CONCLUDE D THAT THE PROVISIONS OF EXPLANATION TO SECTION 73 OF THE ACT WOULD NOT BE APPLICABLE IN TH E INSTANT CASE IN THE ABSENCE OF SPECULATION LOSS IF CONSOLIDATED BUSINESS INCOME IS CONSIDERED. 6.4. THE LD AR ALSO MADE AN ALTERNATIVE ARGUMENT THAT THE ASSESSEES CASE FALLS UNDER THE SECOND LIMB OF THE EXCEPTION TO EXPLANATION TO SECT ION 73 OF THE ACT BY STATING THAT THE PRINCIPAL BUSINESS OF THE ASSESSEE IS DEALING IN SH ARES. HE ARGUED THAT THOUGH THIS AMENDMENT WAS BROUGHT IN BY THE FINANCE (NO. 2) ACT , 2014 W.E.F. 1.4.2015, HE SAID THAT THE SAME IS TO BE CONSTRUED AS RETROSPECTIVE IN OPE RATION. IN THIS REGARD, WE HOLD THAT IT IS NOT IN DISPUTE THAT THE PRINCIPAL BUSINESS OF THE ASSESSEE IS TRADING IN SHARES. WE FIND THAT THE AMENDMENT WAS BROUGHT BY FINANCE ACT 2014 W.E.F . 1.4.2015 BY INSERTION OF THE 8 ITA NO. 1994/KOL/2013 RAIMA EQUITIES PVT. LTD. AY 2009-10 EXPRESSION PRINCIPAL BUSINESS OF WHICH IS THE BUS INESS OF TRADING IN SHARES OR BANKING 6.4.1. IT WOULD BE PERTINENT TO REFER TO THE RECOM MENDATIONS OF WANCHOO COMMITTEE REPORT OF DECEMBER 1971 PURSUANT TO WHICH THE EXPLANATION TO SECTION 73 OF THE ACT WAS INSERTED BY THE TAXATION LAWS (AMENDMENT) ACT, 1975 W.E.F. 0 1.04.1977 , THE RELEVANT PORTION OF WHICH IS EXTRACTED HEREUNDER:- A TAX AVOIDANCE DEVICE OFTEN RESORTED TO BY BUSINE SS HOUSES CONTROLLING GROUPS OF COMPANIES IS MANIPULATION OF RESULTS FROM DEALINGS IN SHARES OF THE COMPANIES CONTROLLED BY THEM. IN OUR OPINION, SUCH MANIPULATION IN SHARE DEALINGS FOR TH E PURPOSE OF TAX AVOIDANCE CAN BE CHECKED EFFECTIVELY IF THE RESULTS OF DEALINGS IN SHARES BY SUCH COMPANIES ARE TREATED FOR TAX PURPOSES IN A MANNER ANALOGOUS TO SPECULATION. NO DOUBT, CO MPANIES WHOSE MAIN BUSINESS ACTIVITIES CENTRE AROUND INVESTMENT IN SHARES WILL HAVE TO BE LEFT OUT. ACCORDINGLY, WE RECOMMEND THAT THE RESULTS OF DEALINGS IN SHARES BY COMPANIES, OTH ER THAN INVESTMENT, BANKING AND FINANCE COMPANIES, SHOULD BE TREATED IN A MANNER ANALOGOUS TO SPECULATION BUSINESS. 6.4.2. WE FIND THAT IN ORDER TO ACHIEVE THE REAL O BJECTIVE OF CURBING TAX AVOIDANCE METHODS RESORTED TO BY BUSINESS HOUSES CONTROLLING THEIR GR OUP COMPANIES, THE LEGISLATURE BY INSERTING AN AMENDMENT TO EXPLANATION TO SECTION 73 OF THE ACT BY FINANCE ACT 2014 , HAS EXTENDED THE EXCEPTION CARVED OUT IN THE EXPLANATIO N BY PUTTING ALL THE COMPANIES, THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF TRAD ING IN SHARES INTO THE EXCEPTION. WE FIND THAT THE AMENDMENT BROUGHT IN BY THE FINANCE ACT 20 14 IN EXPLANATION TO SECTION 73 OF THE ACT APPEARS TO BE MADE IN ORDER TO CLARIFY THE REAL INTENTION BEHIND THE INSERTION THEREOF, BY REMOVING THE OBVIOUS HARDSHIP CAUSED TO VARIOUS ASS ESSEES WHOSE MAIN BUSINESS IN TRADING IN SHARES. THE AMENDMENT HAS REMOVED THE ANAMOLY A ND BROUGHT THE AMBIT OF THE EXPLANATION TO SECTION 73 OF THE ACT IN LINE WITH T HE INTENTION OF THE LEGISLATURE BY PLACING THE COMPANIES WHOSE PRINCIPAL BUSINESS IS TRADING I N SHARES AS PART OF THE EXCEPTION TO EXPLANATION TO SECTION 73 OF THE ACT, BECAUSE SUCH COMPANIES WERE NOT THE COMPANIES FOR WHOM THE EXPLANATION WAS INSERTED. 6.4.3. WE FIND THAT THOUGH THIS AMENDMENT IS MADE EFFECTIVE ONLY FROM ASST YEAR 2015-16 ONWARDS, THE REAL INTENTION BEHIND INTRODUCTION OF THIS AMENDMENT, IN OUR OPINION, IS CURATIVE IN NATURE. IN OUR CONSIDERED OPINION, THE AMENDMENT, IF NOT HELD RETROSPECTIVE, WOULD RESULT IN HARDSHIP TO THE ASSESSEE IN THE FOL LOWING MANNER:- 9 ITA NO. 1994/KOL/2013 RAIMA EQUITIES PVT. LTD. AY 2009-10 (A) THE ASSESSEE ENGAGED IN TRADING OF SHARES WOULD BE TREATED AS SPECULATION BUSINESS UPTO ASST YEAR 2014-15. THAT ASSESSEE MIGHT BE HAVING L OSSES ELIGIBLE TO BE CARRIED FORWARD UNDER THE HEAD SPECULATION BUSINESS. (B) THE PROVISIONS OF SECTION 73 OF THE ACT PROVIDE S THAT THE BROUGHT FORWARD SPECULATION LOSS COULD BE SET OFF ONLY AGAINST SPECULATION PROF ITS. (C ) PURSUANT TO THE AMENDMENT BY FINANCE ACT 2014 SUPRA, THE LOSS DERIVED FROM THE PRINCIPAL BUSINESS OF TRADING IN SHARES WOULD NOT B E CONSTRUED AS SPECULATIVE IN NATURE. THE LOGICAL COROLLARY IS PROFIT DERIVED THEREON ALSO WO ULD BE TREATED ONLY AS NORMAL BUSINESS PROFITS AND NOT SPECULATIVE PROFITS. (D) IN THIS SITUATION, THE BROUGHT FORWARD SPECULAT ION LOSS COULD NEVER BE ELIGIBLE TO SET OFF AGAINST THE PROFITS WHEN THERE IS ABSOLUTELY NO CHA NGE IN THE BUSINESS ACTIVITIES OF THE ASSESSEE (I.E TRADING IN SHARES AS ITS PRINCIPAL BU SINESS) . THAT LOSS WOULD GET LAPSED FOR NO FAULT OF THE ASSESSEE THEREBY CREATING GENUINE HARD SHIP TO THE ASSESSEE. WE FEEL THAT THE INSERTION IN EXPLANATION TO SECTION 73 OF THE ACT B Y THE FINANCE ACT 2014 SHOULD BE LOOKED INTO FROM THIS PERSPECTIVE WHICH WOULD CREATE GENUI NE HARDSHIP TO THE ASSESESE IF NOT HELD TO BE CURATIVE IN NATURE. HENCE WE HOLD THAT THE SAID AMENDMENT SHOULD BE GIVEN RETROSPECTIVE EFFECT ONLY. IN OUR CONSIDERED OPINION, THE AMENDME NT WOULD NOT SERVE ITS OBJECT IN THE INSTANT CASE UNLESS IT IS CONSTRUED RETROSPECTIVE I N OPERATION. 6.4.4. WE DRAW SUPPORT FROM THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS ALOM EXTRUSIONS LTD REPORTED IN 319 ITR 306 (SC) WHEREIN THEIR LORDSHIPS WERE CONSIDERING THE AMENDMENT MADE BY FINANCE ACT 2003 BY OMITTING THE SECOND PROVISO TO SECTION 43B OF THE ACT W.E.F. 01.04.2004 AND BRINGI NG ABOUT UNIFORMITY IN THE FIRST PROVISO BY EQUATING TAX, DUTY, CESS AND FEES WITH CONTRIBUT ION TO WELFARE FUNDS (VIZ PROVIDENT FUND ETC) . THE HONBLE APEX COURT HELD THAT THE AFORES AID AMENDMENT IN SECTION 43B OF THE ACT BY FINANCE ACT 2003 IS CURATIVE IN NATURE AND WOULD THEREFORE APPLY RETROSPECTIVELY W.E.F. 01.04.1988. 6.4.5. IN THE CASE OF ALLIED MOTORS PVT LTD VS CIT REPORTED IN 224 ITR 67 7 (SC), THE QUESTION BEFORE THE HONBLE APEX COURT WAS WHETHER SALES TAX COLLECTED BY THE ASSESSEE AND PAID AFTER THE END OF THE RELEVANT PREVIOUS YEAR BU T WITHIN THE TIME ALLOWED UNDER THE 10 ITA NO. 1994/KOL/2013 RAIMA EQUITIES PVT. LTD. AY 2009-10 RELEVANT SALES TAX LAW SHOULD BE DISALLOWED U/S 43B OF THE ACT. THE ITO DISALLOWED THE DEDUCTION OF SALES TAX COLLECTED BY THE ASSESSEE FO R THE LAST QUARTER OF THE ACCOUNTING YEAR AS THE SAME WAS PAID IN THE SUBSEQUENT YEAR. THE AFORE SAID DIFFICULTY WAS CURED BY THE INSERTION OF THE FIRST PROVISO W.E.F. 01.04.1988. THE HONBLE APEX COURT HELD THAT WHEN A PROVISO IS INSERTED TO REMEDY UNINTENDED CONSEQUENC ES AND TO MAKE THE PROVISION WORKABLE, THE PROVISO WHICH SUPPLIES AN OBVIOUS OMISSION IN T HE SECTION AND WHICH IS READ TO BE READ INTO THE SECTION TO GIVE IT A REASONABLE INTERPRETA TION, IT COULD BE READ AS RETROSPECTIVE IN OPERATION TO GIVE EFFECT TO THE SECTION AS A WHOLE. THE HONBLE APEX COURT HELD THAT THE FIRST PROVISO TO SECTION 43B OF THE ACT WAS CURATIV E IN NATURE AND HENCE RETROSPECTIVE IN OPERATION, I.E. W.E.F. 01.04.1984 FROM WHEN THE SEC TION WAS BROUGHT ON THE STATUTE. 6.4.6. THE HONBLE APEX COURT IN THE CASE OF CIT VS J.H.GOTLA REPORTED IN (1985) 156 ITR 323 (SC) AT PAGE 339 AND 340 HAD OBSERVED AS UNDER:- IN THE CASE OF K P VARGHESE VS ITO (1981) 131 ITR 597 , THIS COURT EMPHASIZED THAT A STATUTORY PROVISION MUST BE SO CONSTRUED, IF POSSIB LE, THAT ABSURDITY AND MISCHIEF MAY BE AVOIDED. WHERE THE PLAIN LITERAL INTERPRETATION OF A STATUTO RY PROVISION PRODUCES A MANIFESTLY UNJUST RESULT WHICH COULD NEVER HAVE BEEN INTENDED BY THE LEGISLATURE, THE COURT MIGHT MODIFY THE LANGUAGE USED BY THE LEGISLATURE SO AS TO ACHIEVE T HE INTENTION OF THE LEGISLATURE AND PRODUCE A RATIONAL CONSTRUCTION. THE TASK OF INTERPRETATION OF A STATUTORY PROVISION IS AN ATTEMPT TO DISCOVER THE INTENTION OF THE LEGISLATURE FROM THE LANGUAGE USED. IT IS NECESSARY TO REMEMBER THAT LANGUAGE IS AT BEST AN IMPERFECT INSTRUMENT FO R THE EXPRESSION OF HUMAN INTENTION. IT IS WELL TO REMEMBER THE WARNING ADMINISTERED BY JUDGE LEARNED HAND THAT ONE SHOULD NOT MAKE A FORTRESS OUT OF THE DICTIONARY BUT REMEMBER THAT STATUTES ALWAYS HAVE SOME PURPOSE OR OBJECT TO ACCOMPLISH AND SYMPATHETIC AND IMAGINATIVE DISCO VERY IS THE SUREST GUIDE TO THEIR MEANING. WE HAVE NOTED THE OBJECT OF S.16(3) OF THE ACT WHIC H HAS TO BE READ IN CONJUNCTION WITH S.24(2) IN THIS CASE FOR THE PRESENT PURPOSE. IF THE PURPOS E OF A PARTICULAR PROVISION IS EASILY DISCERNIBLE FROM THE WHOLE OF THE SCHEME OF THE ACT WHICH IN THIS CASE, IS TO COUNTERACT THE EFFECT OF TRANSFER OF ASSETS SO FAR AS COMPUTATION OF INCOME OF THE ASSESSEE IS CONCERNED, THEN BEARING THAT PURPOSE IN MIND, WE SHOULD FIND OUT TH E INTENTION FROM THE LANGUAGE USED BY THE LEGISLATURE AND IF STRICT LITERAL CONSTRUCTION LEAD S TO AN ABSURD RESULT, I.E., RESULT NOT INTENDED TO BE SUBSERVED BY THE OBJECT OF THE LEGISLATION FO UND IN THE MANNER INDICATED BEFORE, THEN ANOTHER CONSTRUCTION IS POSSIBLE APART FROM STRICT LITERAL CONSTRUCTION THEN THAT CONSTRUCTION SHOULD BE PREFERRED TO THE STRICT LITERAL CONSTRUCT ION. THOUGH EQUITY AND TAXATION ARE OFTEN STRANGERS , ATTEMPTS SHOULD BE MADE THAT THESE DO N OT REMAIN ALWAYS SO AND IF A CONSTRUCTION RESULTS IN EQUITY RATHER THAN IN INJUSTICE, THEN SU CH CONSTRUCTION SHOULD BE PREFERRED TO THE LITERAL CONSTRUCTION. FURTHERMORE, IN THE INSTANT C ASE, WE ARE DEALING WITH AN ARTIFICIAL LIABILITY CREATED FOR COUNTERACTING THE EFFECT ONLY OF ATTEMP TS BY THE ASSESSEE TO REDUCE TAX LIABILITY BY TRANSFER. IT HAS ALSO BEEN NOTED HOW FOR VARIOUS P URPOSES THE BUSINESS FROM WHICH PROFIT IS INCLUDED OR LOSS IS SET OFF IS TREATED IN VARIOUS S ITUATIONS AS THE ASSESSEES INCOME. THE SCHEME OF THE ACT AS WORKED OUT HAS BEEN NOTED BEFORE. 6.5. RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENTS RELIED UPON HEREINABOVE, WANCHOO COMMITTEE REPORT OF DECEMBER 1971 AND OUR FINDINGS GIVEN IN PARA 6.4.3 ABOVE , WE HOLD 11 ITA NO. 1994/KOL/2013 RAIMA EQUITIES PVT. LTD. AY 2009-10 THAT THE AMENDMENT BROUGHT IN BY THE FINANCE ACT 20 14 SHOULD BE CONSTRUED AS CURATIVE IN NATURE AND HENCE TO BE GIVEN RETROSPECTIVE APPLICAB ILITY. IT IS NOT IN DISPUTE THAT THE PRINCIPAL BUSINESS OF THE ASSESSEE IN THE INSTANT C ASE IS TRADING IN SHARES. IF THE AMENDMENT SUPRA IS GIVEN RETROSPECTIVE EFFECT, THEN THE SAME WOULD AUTOMATICALLY FALL UNDER THE EXCEPTION PROVIDED IN THE EXPLANATION TO SECTION 73 OF THE ACT AND ACCORDINGLY THE LOSS INCURRED ON DELIVERY BASED SHARE TRANSACTIONS SHOUL D NOT BE CONSTRUED AS SPECULATION LOSS. HENCE THE GROUNDS RAISED BY THE REVENUE IN THIS REG ARD ARE DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.08.2016. SD/- SD/- (K. NARASIMHA CHARY) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED : 11TH AUGUST, 2016 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT DCIT, CIRCLE-5, KOLKATA. 2 RESPONDENT M/S. RAIMA EQUITIES PVT. LTD., 1, R. N. MUKJHERJEE ROAD, MARTIN BURN BUILDING, 1 ST FLOOR, KOLKATA-700 001.. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .