2015 (8) TMI 1158 - AT - Income Tax

Set off of loss from trading in shares against profit earned - whether CIT(A) erred in holding that provisions of section 43(5), clause (d) is applicable from 25.01.2006 being the date of notification of Bombay Stock Exchange (BSE) & National Stock exchange(NSE) as recognized stock exchange, ignoring the fact that the provisions of section 43(5), clause (d) is inserted w.e.f. 01.04.2006? - Held that - In the light of the decision of DLF Commercial Developers Ltd. (2013 (7) TMI 334 - DELHI HIGH COURT) wherein in respect of the applicability of explanation to Sec. 73 vis- -vis derivative transaction u/s. 43(5) of the Act, the Hon ble High Court has held as under Section 43 defines, for the purpose of Sections 28 to 41, certain terms. These latter provisions fall in Chapter IV, in Section D, which deal with computation of business income. The said provisions provide for matters relating to computation of such income, rent taxes, insurance of buildings, repairs of plant and machinery, depreciation, reserves for shipping business, rehabilitation fund, expenditure on certain eligible objects or schemes, deductions, amounts not deductible, profits chargeable to tax, etc. The assessee is no doubt correct in contending that the only definition of derivatives is to be found in Section 43 (5); yet the Court cannot ignore or overlook that the definition to the extent it excludes such transactions from the mischief of the expression speculative transactions is confined in its application. Parliamentary intendment that such transactions are also excluded from the mischief of Explanation to Section 73 (4), however, is not borne out. It is no doubt, tempting to hold that since the expression derivatives is defined only in Section 43 (5) and since it excludes such transactions from the odium of speculative transactions, and further that since that has not been excluded from Section 73, yet, the Court would be doing violence to Parliamentary intendment. The stated objective of Section 73- apparent from the tenor of its language is to deny speculative businesses the benefit of carry forward of losses. As no distinguishing decision has been brought on record by the Ld. DR in favour of the Revenue, respectfully following the decision of the Hon ble High Court of Delhi and for the sake of completeness of adjudication, we direct the AO to allow the set off of loss against the gains. - Decided in favour of assessee. Rebate u/s. 88E - Held that - A perusal of the assessment order shows that the claim has been denied merely because the AO has treated the transaction as speculative loss. In our considered opinion, this cannot be any reason for declining the claim of rebate u/s. 88E of the Act as the claim is allowable from the business income be it speculative or not. We, therefore, decline to interfere with the findings of the Ld. CIT(A).- Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of Section 43(5), clause (d) of the Income Tax Act, 1961.
2. Set off of loss from trading in shares against profit earned up to 25.01.2006.
3. Credit of Security Transaction Tax (STT) in computing rebate under Section 88E.

Detailed Analysis:

1. Applicability of Section 43(5), clause (d):
The Revenue contended that the provisions of Section 43(5), clause (d) are applicable from 01.04.2006 and not from the date of the notification of the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) as recognized stock exchanges on 25.01.2006. The Assessing Officer (AO) observed that the notification was effective from 24.01.2006, and thus, the profit/loss on derivative transactions up to 24.01.2006 should be treated as speculative. However, the CIT(A) held that the notification comes into effect from its date of notification, and hence, the profit up to 25.01.2006 is speculative and should be set off against the loss incurred in trading in shares. The Tribunal upheld the CIT(A)'s decision, stating that the Revenue cannot improve upon the assessment order, and the proviso to Section 43(5) is applicable from 01.04.2006.

2. Set off of loss from trading in shares against profit earned up to 25.01.2006:
The AO treated the entire loss claimed by the assessee relating to share transactions and the loss resulting from the valuation of closing stock as speculative loss under the explanation to Section 73 of the Act. The CIT(A) directed the AO to verify and compute the profit earned up to 25.01.2006 and allow the set off against the loss from trading in shares. The Tribunal, referring to the decision of the Hon'ble Delhi High Court in the case of DLF Commercial Developers Ltd., held that the loss, even if treated as speculative, has to be set off against the gains. The Tribunal directed the AO to allow the set off of loss against the gains, dismissing the Revenue's grounds on this issue.

3. Credit of Security Transaction Tax (STT) in computing rebate under Section 88E:
The AO denied the rebate claimed under Section 88E, holding that the assessee's income was assessed under the head "Speculative income/loss." The CIT(A) held that since the income from trading in securities is taxable under the head business, whether speculative or not, the assessee is entitled to the claim of rebate under Section 88E. The Tribunal upheld the CIT(A)'s decision, stating that the claim is allowable from the business income, be it speculative or not.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all issues. The cross-objection of the assessee was dismissed as not pressed.