DCIT, CHENNAI V. Aishwarya & Co. P. Ltd., CHENNAI

ITA 860/CHNY/2014

• Counselvise Citation: 86021714 RSA 2014
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 16-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 04-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: J SREE VIDYA; PUSHYA SEETHARAMAN
• Keywords: Business income; Transactions in derivatives; Speculation loss; Revenue expenditure
• Section: 28; 43(5)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , ! ' , # $% BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ ITA NO.860/MDS/2014 / ASSESSMENT YEAR : 2008-09 THE DEPUTY COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-I(1), CHENNAI - 34. APPELLANT) V. M/S. AISHWARYA & CO. P. LTD., 49, SECOND LINE BEACH, CHENNAI 600 001. PAN AAACA3161H RESPONDENT) / APPELLANT BY : SHRI A.V.SREEKANTH, JCIT / RESPONDENT BY : MS. PUSHYA SEETHARAMAN, SR. ADVOC ATE & MS. J. SREE VIDYA ! / DATE OF HEARING : 15.04.2015 '# ! / DATE OF PRONOUNCEMENT: 29.05.2015 & / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) DATED 26.12.2013. - - ITA 860 /14 2 2. THE ONLY GROUND RAISED BY THE REVENUE IN THIS AP PEAL IS WITH REGARD TO DELETION OF ADDITION OF ` 1,08,22,078/- BEING THE LOSS ON ACCOUNT OF FUTURES AND OPTIONS SET OFF AGAI NST THE BUSINESS PROFIT. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS E NGAGED IN THE BUSINESS OF BROKING AND TRADING IN SECURITIES. THE ASSESSEE FILED RETURN OF INCOME ON 27.9.2008 ADMITTING TOTAL INCOME OF ` 13,20,640/-. THE ASSESSEE INCURRED A LOSS TO THE T UNE OF ` 1,08,22,078/- FOR THE PERIOD IN QUESTION AND DEBITE D THE SAME TO TIS PROFIT AND LOSS ACCOUNT UNDER THE HEAD LOSS ON PURCHASE AND SALE IN FUTURE OPTIONS. THE ASSESSEE HAD CLAIMED THE SAME AS REVENUE EXPENDITURE, SINCE ACCORDING TO THE ASSESSE E, TRADING IN FUTURES AND OPTIONS IS NO LONGER SPECULATIVE TRANSA CTIONS AS PER PROVISO (D) TO SEC.43(5) INSERTED BY THE FINANCE AC T, 2005 W.E.F. 1.4.2006. HOWEVER, THE AO HELD THAT LOSS INCURRED OUT OF TRADING IN FUTURES AND OPTIONS IS SPECULATION LOSS AND HENC E COULD NOT BE ALLOWED TO BE SET OFF AGAINST BROKERAGE INCOME. AC CORDINGLY, HE COMPLETED THE ASSESSMENT U/S.143(3) OF THE ACT DETE RMINING TOTAL INCOME AT ` 1,21,52,718/- MAKING DISALLOWANCES OF ` 1,08,22,078/- ON LOSS ON PURCHASE AND SALE IN FUT URES AND - - ITA 860 /14 3 OPTIONS AND DISALLOWANCE U/S.14A OF ` 10,000/- ON THE DIVIDEND EARNED OF ` 98,992/-. AGGRIEVED BY THIS ASSESSMENT ORDER, THE ASSESSEE WENT IN APPEAL BEFORE THE COMMISSIONER OF INCOME- TAX(APPEALS). 4. ON APPEAL, THE COMMISSIONER OF INCOME-TAX(APPEAL S) AFTER GOING THROUGH THE FACTS OF THE CASE OBSERVED THAT T HE AO IS NOT JUSTIFIED IN TREATING THE LOSS OF RS.1,08,22 ,078/- AS SPECULATION LOSS. FURTHER, HE OBSERVED THAT THE ASS ESSEE HAS TRADED IN FUTURE AND OPTIONS IN A RECOGNIZED ST OCK EXCHANGE I.E NSE AND THIS WAS NOT DISPUTED BY THE A O. IN FACT, THE ASSESSEE HAS SUBMITTED A COMP L ETE STATEMENT OF TRADING IN FUTURE AND OPTIONS FOR AO'S VERIFICATION . THEREFORE IT IS NOT IN DISPUTE THAT THE TRANSACTIONS ONLY REL ATED TO THE FUTURES AND OPTIONS, WHICH ARE TYPES OF DERIVATIVES . DERIVATIVES ARE FINANCIAL INSTRUMENTS, WHOSE VALUE DEPENDS ON OR IS DERIVED FROM THE PERFORMANCE OF SECONDARY SOURCES SUCH AS AN UNDERLYING BOND, CURRENCY OR COMMODITY. IN THIS REGARD, THE ICAI GUIDANCE NOTE ON ACCOUNTING FOR EQ UITY INDEX AND EQUITY STOCK FUTURES AND OPTIONS DESCRIBE S OPTIONS AS UNDER: 'AN OPTION IS A TYPE OF - - ITA 860 /14 4 DERIVATIVE INSTRUMENT WHEREBY A PERSON GETS THE RIG HT TO BUY OR SELL AT AN AGREED AMOUNT AN UNDERLYING ASSET ON OR BEFORE THE SPECIFIED FUTURE DATE AND THE ICAI GUIDA NCE NOTE ON ACCOUNTING FOR EQUITY INDEX AND EQUITY STOC K FUTURES AND OPTIONS SAYS: 'FUTURES AND OPTIONS ARE BOTH STANDARDISED DERIVATIVE INSTRUMENTS TRADED ON A STO CK EXCHANGE. FROM THE ABOVE DEFINITIONS IT IS CLEAR TH AT FUTURES AND OPTIONS ARE ALSO DERIVATIVES, I.E. AN INSTRUMEN T WHOSE VALUE DEPENDS ON AN UNDERLYING SOURCE OR ASSET. FOR STOCK DERIVATIVES THE PRICE OF THE SHARES OF A PARTICULAR COMPANY IS THE UNDERLYING SOURCE. FOR AN INDEX DERIVATIVE, THE VALUE OF THE INDE X IS THE UNDERLYING SOURCE. THE ASSESSING OFFICER HAS TREATED THE LOSS ON TRADING OF FUTURE AND OPTIO NS AS LOSS IN SP EC UL A TI O N BU S INE S S B Y VIRTUE OF E X PL A NATION TO S EC 7 3 . H E H A S C OM E T O THAT C ONCLUSI O N BASED ON THE D E CISIONS WHEREIN IT HAS BEEN STATED T H AT THE LOSS SUFFER E D BY AN A S S E SS EE C OMPANY ON DEALING ITS SHARES ON ITS OWN ACCO U NT WAS A SP EC U LA TION LOSS AND T H EREFORE COULD NOT BE ALLOWED TO BE SET OFF AGAINST THE B ROKE RAG E INCOME , F A I L I NG TO SEE THAT IN THE PRESENT CASE, THE TRAD I NG WAS NOT IN STO CK S A ND SHARE S , BUT IN DERIVA T IVES . - - ITA 860 /14 5 4.1 FURTHER, CIT(A) OBSERVED THAT THE AO FA IL ED TO SEE THA T THE E XPLA NATION TO SEC . 73 WAS INTRODUCED TO PREVENT COMPANIES FROM TRADING IN TH E IR OWN GRO UP S H AR E S A N D SHOWI N G LOSSES TO BE SET OFF AGAINST BUS I N E SS P R OFITS . WHEN TH E L EG ISL A TU RE HAS DE C I DED TO E X EMPT THE DERIVAT I VES FROM THE PURV I EW OF ' S P E C ULA T I V E TRANSACTIONS ' O NLY AF T ER CONFIRMING THAT THERE WER E SU FF IC I ENT TRANSPAR E NCY IN TH E TRANSACTION S , I . E . ON L Y TRADING IN DERIVATIV E S CARRIED OUT IN A RECOG N IS E D STOCK EXC HANG E; THE L OS S I NCURRED BY TH E ASSESSEE ARISING OUT OF FORWARD AND OPT I ONS O U G H T T O BE SET OFF AGAINST REGULAR BUSINESS INCOME. T H E DERIVAT I VES INCLUDE CO NT RAC T W HICH D E RIV E S ITS VALUE FROM THE PRIC E S, OR INDEX O F PRIC E S, OF UNDERLYING SEC U R I T I E S. A S SUCH , THE E X P L ANATION TO SEC . 73 CANNOT APPLY TO DERIVA T I V ES, BUT ON L Y TO P UR C H ASE AND SAL E OF S H AR E S SIMPLICITER . FURTH E R A SPECULATIVE TRANSACTION AS PER S EC.4 3 ( 5) MEANS A TRANSACTION IN WH I CH THE CONTRACT FOR THE PURCHASE OR SA L E OF ANY C OMMODITY , I N C L UDIN G STOCKS AND SHARES, IS PERIODICALLY OR U L TIMATE L Y SETTLED O TH ER WISE THAN BY A C TUA L DE LI VERY OR TRANSFER OF C O MMOD I TY OR SCRIP . A DERIVATIVE CAN A LSO B E TRADED ON T H E VALUE OF THE UNDERLYING SHARES BUT IS NOT A TRADE IN ANY ACTUA L S T OCK. IT DO E S - - ITA 860 /14 6 NOT H AV E A PHYSICAL E X ISTENCE. DERIVATIVES ARE NOT A CONTRACT FOR P UR CH AS E O R SA L E OF ANY PHYSICAL COMMODITY A S SUCH . SO, THESE AR E NOT S PEC ULATIV E T R ANSA C TIONS IN THE STRICT SENSE OF TERMS OF S. 43(5), TH E RE F ORE THE LOSS O N I ACC OUNT OF D E RI V AT I V E C ANNOT B E TREATED AS SPECULATIO N L OSS . T H E DEA L I N GS IN DER I VA T IVE B E ING A SEPARAT E K IN D OF TRANSACTION, WITHOUT FORCE OF L AW, IT I S NOT POSSIBLE T O HO LD TH A T TH E TRANSACTION WAS SP EC ULATIVE IN NATUR E . 4.2 ACCORDING TO THE CIT(A), THE ASSESSEE HAS TRANS ACTED IN FUTURE AND OPTIONS AND THE LOSS INCURRED IN THIS RE GARD BY THE ASSESSEE SHOULD BE ALLOWED TO BE SET OFF AGAINST IT S BROKERAGE INCOME. THE AO DISALLOWED THE CLAIM BASED ON THE D ECISIONS, WHICH ARE SOLELY IN RELATION WITH COMPANIES ENGAGED IN PURE PURCHASE AND SALE OF SHARES AND DOES NOT HAVE ANYTH ING TO DO WITH DERIVATIVES. THE CIT(A) OBSERVED THAT THE AO HAS FAILED TO CONSIDER VARIOUS DECISIONS OF THE TRIBUNAL, WHICH C LEARLY STATE THAT THE TRANSACTIONS PERTAINING TO PURCHASE AND SA LE OF DERIVATIVES ARE NOT THE PURCHASE AND SALE OF SHARES . THEREFORE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING DI SALLOWANCE OF ` 1,08,22,078, SINCE THE ASSESSEE HAS CORRECTLY CLAIM ED SET OFF OF LOSSES ARISING FROM TRADING IN FUTURE AND OPTIONS ( DERIVATIVES) - - ITA 860 /14 7 FROM ITS BUSINESS PROFIT. AGAINST THIS, THE REVENU E IS IN APPEAL BEFORE US. 5. THE LD. DR SUBMITTED THAT THE LOSS ON SHARE TRAD ING TO A SHARE BROKER IS NOT A BUSINESS LOSS AND IT IS TO BE TREATED AS A SPECULATION LOSS BY VIRTUE OF EXPLANATION TO SEC.73 AND EXPLANATION 2 TO SEC.28, SINCE BROKERAGE INCOME ON SHARES AND SECURITIES DOES NOT FIND A PLACE IN THE LIST OF EXC EPTIONS PROVIDED IN THE EXPLANATION TO SEC.73 OF THE ACT. FURTHER, HE SUBMITTED THAT THE LOSS SUFFERED BY AN ASSESSEE ON DEALING IT S SHARES ON ITS OWN ACCOUNT WAS A SPECULATION LOSS AND THEREFORE, C OULD NOT BE ALLOWED TO BE SET OFF AGAINST BROKERAGE INCOME. HE RELIED ON THE FOLLOWING JUDGMENTS: (I) BLK SECURITIES P. LTD. (DEL), [2009] 27 SOT 14 2 (II) SPFL SECURITIES LTD. (DEL) (2006) 6 SOT 562 (III) PRIYASHA MEVEN FIN. LTD. (BOM) 24 SOT 422 6. THE LD. AR HAS SUBMITTED WRITTEN SUBMISSIONS, WH EREIN IT WAS STATED THAT FOR THE ASSESSMENT YEAR 2008-09, TH E ASSESSEE CLAIMED SET OFF OF LOSS FROM PURCHASE AND SALE IN F UTURE AND OPTIONS, AGAINST THE BUSINESS INCOME, AS DERIVATIVE S HAD BEEN EXCLUDED FROM THE DEFINITION OF SPECULATIVE BUSINE SS U/S.43(5) - - ITA 860 /14 8 BY SUB-CLAUSE (D) TO THE PROVISO INSERTED WITH EFFE CT FROM 1.4.2006. HE FURTHER SUBMITTED THAT THE DEPARTMENT HAS RELIED ON THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT V. DLF COMMERCIAL DEVELOPERS LTD., 35 TAXMAANN.COM 280(DEL HI), TO SUPPORT ITS VIEW, WHEREIN IT WAS HELD THAT SINCE TH E EXPLANATION TO SEC.73 IS APPLICABLE TO SALE OF SHARES, IT WOULD BE EQUALLY APPLICABLE TO DERIVATIVES ONCE REMOVED FROM IT A ND ENTIRELY DEPENDENT ON STOCKS AND SHARES FOR DETERMINATION OF THEIR VALUE. FURTHER, HE POINTED OUT THAT THE EXPLANATI ON TO SEC.73 WAS INTRODUCED TO PREVENT COMPANIES FROM TRADING IN THEIR WON GROUP SHARES AND SHOWING LOSSES TO BE SET OFF AGAIN ST BUSINESS PROFITS. THE LEGISLATURE DECIDED TO EXEMPT THE DER IVATIVES FROM THE PURVIEW OF SPECULATIVE TRANSACTIONS ONLY AFTE R CONFIRMING THAT THERE WERE SUFFICIENT TRANSPARENCY IN THE TRAN SACTIONS, I.E. ONLY TRADING IN DERIVATIVES CARRIED OUT IN A RECOGN IZED STOCK EXCHANGE. THE LD. AR HAS RELIED ON THE FOLLOWING D ECISIONS IN SUPPORT OF ITS STAND: 1. CIT V. FIRST SECURITIES P. LTD. (370 ITR 72 KA R.) 2. CIT V. NIRMAL TRADING CO. (82 ITR 782 CAL) 6.1 HE ALSO RELIED ON THE FOLLOWING CASES, WHICH RE LATE TO COMPANIES, THE TRANSACTIONS IN DERIVATIVES ARE TREA TED AS REGULAR - - ITA 860 /14 9 BUSINESS TRANSACTIONS AND NOT SPECULATIVE TRANSACTI ONS: 1. SHREE CAPITAL SERVICES LTD. V. ACIT [124 TTJ 740 (KOL)( SB)] 2. DCIT V. MADANLAL LIMITED [51 SOT 188 (KOL.)(URO) ] 3. DCIT V. PATERSON SECURITIES (P) LTD. [127 ITD 38 6-(CHE)] 4. DCIT V. SSKI INVESTORS SERVICES (P) LTD. [113 TT J 511 (MUMBAI)] 5. R.B.K.SECURITIES (P) LTD. V. ITO [118 TTJ 465-(M UMBAI)]. 6.2 FURTHER, ON THE ISSUE OF WHETHER THE DELHI HIGH COURT IS A BINDING PRECEDENT, HE SUBMITTED THAT THE KARNATAKA HIGH COURT HAS TAKEN A DIFFERENT VIEW AND WHERE TWO VIEWS ARE POSSIBLE, THE ONE IN FAVOUR OF THE ASSESSEE SHOULD BE FOLLOWED, A S HELD BY THE SUPREME COURT IN THE CASES OF CIT V. VEGETABLE PROD UCTS LTD. (88 ITR 192) AND CIR V. PODAR CEMENT (P) LTD. (226 ITR 625). HE HAS ALSO RELIED ON VARIOUS DECISIONS OF THE SUPR EME COURT AND HIGH COURTS IN SUPPORT OF HIS ARGUMENT. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IN THIS CASE, THE ASSESSEE IS ENGAGED I N THE BUSINESS OF SHARE TRADING WHICH INVOLVES STOCK AND SHARE BRO KING ACTIVITIES, PURCHASE AND SALE OF DELIVERY BASED SHA RES AND PURCHASE AND SALE OF NON-DELIVERY BASED SHARES I.E. DERIVATIVE TRADING. THE ASSESSEE INCURRED LOSS ON DELIVERY BA SED PURCHASE - - ITA 860 /14 10 AND SALE OF ` 1,08,22,078/-. THE ASSESSEE CLAIMED IT AS BUSINESS LOSS. THE AO DURING THE COURSE OF ASSESSM ENT PROCEEDINGS, CONSIDERED THIS LOSS AS SPECULATION LO SS AND NOT ALLOWED SET OFF AGAINST BUSINESS LOSS. ACCORDING T O THE AO, EXPLANATION TO SEC.73 IS APPLICABLE TO THE FACTS OF THE ASSESSEES CASE AND DISALLOWED THE CLAIM OF SET OFF OF LOSSES FROM DEALING OF SHARES. THE ASSESSEE CARRIED THE MATTER TO THE CIT (A), WHO ALLOWED THE CLAIM OF THE ASSESSEE BY HOLDING THAT T HE LOSS INCURRED BY THE ASSESSEE IN DERIVATIVE TRANSACTIONS TO BE SET OFF WITH THE PROFITS EARNED FROM DERIVATIVE TRANSACTION S. ACCORDING TO THE LD. DR, THE DERIVATIVE TRANSACTION CANNOT FALL UNDER SEC.73. EXPLANATION TO SEC.73 CREATES A DEEMING FICTION BY WHICH AMONG THE ASSESSEE, WHO IS A COMPANY, AS INDICATED IN THE SAID EXPLANATION DEALING WITH THE TRANSACTION OF SHARE A ND SUFFER LOSS, SUCH LOSS SHOULD BE TREATED TO BE SPECULATIVE TRANS ACTION WITHIN THE MEANING OF SEC.73 OF THE ACT, NOTWITHSTANDING T HE FACT THAT THE DEFINITION OF SPECULATIVE TRANSACTION MENTIONED IN SEC.43(5) OF THE ACT, THE TRANSACTION IS NOT OF THAT NATURE AS THERE HAS BEEN ACTUAL DELIVERY OF THE SCRIPS OF SHARE. AS PER THE DEFINITION OF SEC.43(5), TRADING OF SHARES WHICH IS DONE BY TAKIN G DELIVERY - - ITA 860 /14 11 DOES NOT COME UNDER THE PURVIEW OF THE SAID SECTION . SIMILARLY, AS PER CLAUSE (D) OF SEC.43(5), DERIVATIVE TRANSACT ION IN SHARES IS ALSO NOT SPECULATION TRANSACTION AS DEFINED IN THE SAID SECTION. THEREFORE, BOTH PROFIT/LOSS FROM ALL THE SHARE DELI VERY TRANSACTIONS AND DERIVATIVE TRANSACTIONS ARE HAVING THE SAME MEA NING, SO FAR AS SEC.43(5) OF THE ACT IS CONCERNED. AGAIN, IN VI EW OF THE FACT THAT BOTH DELIVERY TRANSACTIONS AND DERIVATIVE TRAN SACTIONS ARE NON-SPECULATIVE AS FAR AS SEC.43(5) IS CONCERNED, I T FOLLOWS THAT BOTH WILL HAVE THE SAME TREATMENT AS FAR AS APPLICA TION OF EXPLANATION TO SEC.73 IS CONCERNED. THEREFORE, AGG REGATION OF THE SHARE TRADING PROFIT AND LOSS FROM DERIVATIVE T RANSACTIONS SHOULD BE DONE BEFORE THE EXPLANATION TO SEC.73 IS APPLIED. THE ABOVE VIEW HAS BEEN TAKEN BY SPECIAL BENCH OF THIS TRIBUNAL, MUMBAI BENCH, IN THE CASE OF CIT V. CONCORD COMMERC IAL PVT. LTD. (2005) 95 ITD 117 (MUM)(SB). IN THIS CASE, TH E SPECIAL BENCH HELD THAT : BEFORE CONSIDERING WHETHER THE ASSESSEES CASE IS HIT BY THE DEEMING PROVISION OF EXPLANATION TO SEC. 73 OF THE ACT, THE AGGREGATE OF THE BUSINESS PROFIT / LOS S HAS TO BE WORKED OUT BASED ON THE NON-SPECULATIVE PROFI TS; EITHER IT IS FROM SHARE DELIVERY OR FROM SHARE DERIVATIVE. - - ITA 860 /14 12 8. FROM THE ABOVE, IT IS CONCLUDED THAT BOTH TRADIN G OF SHARES AND DERIVATIVE TRANSACTIONS ARE NOT COMING U NDER THE PURVIEW OF SECTION 43(5) OF THE ACT WHICH PROVIDES DEFINITION OF SPECULATIVE TRANSACTION EXCLUSIVELY FOR PURPOSES OF SECTION 28 TO 41 OF THE ACT. AGAIN, THE FACT THAT BOTH DELIVER Y BASED TRANSACTION IN SHARES AND DERIVATIVE TRANSACTIONS A RE NON- SPECULATIVE AS FAR AS SECTION 43(5) IS CONCERNED GO ES TO CONFIRM THAT BOTH WILL HAVE SAME TREATMENT AS REGARDS APPLI CATION OF THE EXPLANATION TO SECTION 73 IS CONCERNED, WHICH CREAT ES A DEEMING FICTION. NOW, BEFORE APPLICATION OF THE SAI D EXPLANATION, AGGREGATION OF THE BUSINESS PROFIT/LOSS IS TO BE WO RKED OUT IRRESPECTIVE OF THE FACT, WHETHER IT IS FROM SHARE DELIVERY TRANSACTION OR DERIVATIVE TRANSACTION. 8.1 NOW, THIS VIEW HAS BEEN CONFIRMED BY THE HONB LE CALCUTTA HIGH COURT IN THE CASE OF M/S. BALJIT SECU RITIES PVT. LTD. (88 CCH 313) AND HELD AS UNDER:- CLAUSE (D) OF SECTION 43(5) BECAME EFFECTIVE WITH EFFECT FROM 1ST APRIL, 2006. THEREFORE, PRIOR TO 1ST APRIL , 2006 ANY TRANSACTION IN WHICH A CONTRACT FOR THE PURCHAS E OR SALE OF ANY COMMODITY INCLUDING STOCKS AND SHARES W AS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN B Y THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCR IP WAS A SPECULATIVE TRANSACTION. SUB-SECTION 1 OF SECTION 73 PROVIDES AS FOLLOWS: - - ITA 860 /14 13 (1) ANY LOSS, COMPUTED IN RESPECT OF A SPECULATIO N BUSINESS CARRIED ON BY THE ASSESSEE, SHALL NOT BE S ET OFF EXCEPT AGAINST PROFITS AND GAINS, IF ANY, OF ANOTHE R SPECULATION BUSINESS. THE RESULTANT EFFECT WAS THAT ANY LOSS ARISING OUT OF SPECULATIVE TRANSACTION COULD ONLY HAVE BEEN SET OF F AGAINST PROFITS ARISING OUT OF SPECULATIVE TRANSACT ION. IN THE PRESENT CASE, THE ASSESSEE, AS ALREADY INDICATE D, HAS BEEN DEALING IN SHARES WHERE DELIVERY WAS IN FA CT TAKEN AND ALSO IN SHARES WHERE DELIVERY WAS NOT ULTIMATELY TAKEN. IN OTHER WORDS, THE ASSESSEE HAS BEEN DEALING IN ACTUAL SELLING AND BUYING OF SHARES AS A LSO DEALING IN SHARES ONLY FOR THE PURPOSE OF SETTLING THE TRANSACTION OTHERWISE THAN BY ACTUAL DELIVERY. THE QUESTION ARISE WHETHER THE LOSSES ARISING OUT OF TH E DEALINGS AND TRANSACTION IN WHICH THE ASSESSEE DID NOT ULTIMATELY TAKE DELIVERY OF THE SHARES OR GIVE DELI VERY OF THE SHARES COULD BE SET OFF AGAINST THE INCOME ARIS ING OUT OF THE DEALINGS AND TRANSACTIONS IN ACTUAL BUYING A ND SELLING OF SHARES. AN ANSWER TO THIS QUESTION IS TO BE FOUND IN THE EXPLANATION APPENDED TO SECTION 73 WHI CH READS AS FOLLOWS: EXPLANATION: WHERE ANY PART OF THE BUSINESS OF A COMPANY OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABL E UNDER THE HEADS INTEREST ON SECURITIES, OR A COMP ANY THE PRINCIPAL BUSINESS OF WHICH IS THE BU9SINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES) CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHE R COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE. IN ORDER TO RES OLVE THE ISSUE BEFORE US, THE SECTION HAS TO BE READ IN THE MANNER AS FOLLOWS: - - ITA 860 /14 14 EXPLANATION : WHERE ANY PART OF THE BUSINESS OF A COMPANY ( . . . .. .. .. .. .. .. .. . .. .. . ) CONSIST IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SAL E OF SUCH SHARES. IT WOULD, THUS, APPEAR THAT WHERE AN ASSESSEE, BEIN G THE COMPANY, BESIDES DEALING IN OTHER THINGS ALSO DEALS IN PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, THE ASSESSEE SHALL BE DEEMED TO BE CARRYING ON A SPECUL ATION BUSINESS. THE ASSESSEE, IN THE PRESENT CASE, PRINCI PALLY IS A SHARE BROKER, AS ALREADY INDICATED. THE ASSESSEE IS ALSO IN THE BUSINESS OF BUYING AND SELLING OF SHARES FOR SELF WHERE ACTUAL DELIVERY IS TAKEN AND GIVEN AND ALSO I N BUYING AND SELLING OF SHARES WHERE ACTUAL DELIVERY WAS NOT INTENDED TO BE TAKEN OR GIVEN. THEREFORE, THE ENTIR E TRANSACTION CARRIED OUT BY THE ASSESSEE, INDICATED ABOVE, WAS WITHIN THE UMBRELLA OF SPECULATIVE TRANSACTION. THERE WAS, AS SUCH, NO BAR IN SETTING OFF THE LOSS ARISIN G OUT OF DERIVATIVES FROM THE INCOME ARISING OUT OF BUYING A ND SELLING OF SHARES. THIS IS WHAT THE LEARNED TRIBUNA L HAS DONE. 9. FROM THE ABOVE DECISION OF THE CALCUTTA HIGH COU RT IN THE CASE OF BALJIT SECURITIES PVT. LTD. CITED SUPRA, TH E ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE. HENCE, WE CONFI RM THE ORDER OF THE CIT(A) AND THIS GROUND IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. - - ITA 860 /14 15 ORDER PRONOUNCED ON FRIDAY, THE 29 TH OF MAY, 2015 AT CHENNAI. SD/- SD/- ( $% &'( ) ) ( $ ( * + ) ,-.//.0.12345.65.7.48 ,-.345.699:.5 ;8 ' )< /JUDICIAL MEMBER ! )<=>>9?3@.3@A2BC25 $' /CHENNAI, D) /DATED, THE 29 MAY, 2015. MPO* )E FGHG /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. I8 /CIT(A) 4. I /CIT 5. GJ& K /DR 6. &LM /GF.