2016 (6) TMI 1156 - AT - Income Tax

Treatment to loss - Disallowance of Business Loss by invoking Explanation to section 73 shown by the assessee as business loss as against speculation loss as treated by AO - prospective or retrospective applicability of the amendment brought in by Finance (No. 2) Act 2014 in Explanation to Section 73 - Held that - The Co-ordinate Bench of Mumbai ITAT in the case of Fiduciary Shares and after harmonizing all relevant aspects the amendment is held to be clarificatory and retrospective in nature which will cover assessee s case as well. The judgments cited by the ld. DR are prior to the amendment. In view thereof we see no infirmity in the order of the ld. AO in allowing set off of loss to the assessee. - Decided in favour of assessee

Summary

Issues involved:
Interpretation of Explanation to Section 73 for treatment of loss as business loss or speculation loss.

Detailed Analysis:

1. Issue: Interpretation of Explanation to Section 73
The dispute revolves around whether the loss incurred by the assessee should be treated as a business loss or speculation loss under Explanation to Section 73. The Assessing Officer (AO) treated the loss as speculation loss, disallowing its set off against business income in later years. The Commissioner of Income-Tax (Appeals) held that the Explanation to Section 73 was not applicable to the assessee's case, as the main business was trading in shares. The Commissioner emphasized that the exception in the Explanation applies to companies whose main business is not interest on securities, income from house property, capital gain, or income from other sources. Furthermore, the Commissioner highlighted that the amendment by Finance Act (No. 2) Act of 2014 clarified that in cases where share trading is the primary business, Section 73 exceptions do not apply.

2. Judicial Interpretation and Precedents:
The Revenue relied on judgments that held the main business being a share trader does not fall under the exceptions provided in Section 73. However, the assessee's counsel argued that the specific amendment in 2014 was retrospective and clarified that in cases where share trading is the main business, Section 73 exceptions do not apply. The counsel referred to a Mumbai Tribunal case where the amendment was held to be retrospective, allowing set off of losses against other business income. The counsel further cited a Supreme Court judgment stating that amendments to remove hardships are clarificatory and applicable retrospectively.

3. Decision and Analysis:
The ITAT, after considering the arguments and precedents, concluded that the amendment in 2014 to Explanation to Section 73 was clarificatory and retrospective in nature. Therefore, the loss incurred in share trading business by companies like the assessee should be treated as normal business loss, not speculation loss. The ITAT dismissed the Revenue's appeal, upholding the set off of loss to the assessee. The judgment highlighted the retrospective applicability of the amendment to Section 73, supporting the assessee's position based on the legislative intent to remove hardships faced by taxpayers. The decision emphasized the importance of interpreting tax laws in line with legislative amendments to provide relief to taxpayers.

In conclusion, the judgment delves into the interpretation of tax laws, specifically the Explanation to Section 73, and highlights the significance of legislative amendments in clarifying the treatment of losses for taxpayers engaged in share trading businesses. The decision provides clarity on the retrospective applicability of tax law amendments aimed at alleviating hardships faced by taxpayers, ensuring a fair and consistent application of tax provisions.