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2016 (8) TMI 735 - AT - Income TaxTreatment to share trading loss - normal business loss or speculation loss - assessee is a member of the National Stock Exchange (NSE) having its main business as stock broking - Held that - the amendment brought in by the Finance Act 2014 should be construed as curative in nature and hence to be given retrospective applicability. It is not in dispute that the principal business of the assessee in the instant case 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 should not be construed as speculation loss. Hence the grounds raised by the revenue in this regard are dismissed. - Decided in favour of assessee.
Issues Involved:
1. Delay in filing the appeal. 2. Classification of share trading loss as normal business loss or speculation loss. 3. Applicability of Explanation to Section 73 of the Income Tax Act. 4. Retrospective application of the amendment to Explanation to Section 73 introduced by Finance Act 2014. Issue-wise Detailed Analysis: 1. Delay in Filing the Appeal: The appeal by the revenue was delayed by 63 days. The delay was supported by a condonation petition, and the concession given by the respondent's representative led to the Tribunal condoning the delay and admitting the appeal for adjudication. 2. Classification of Share Trading Loss: The primary issue was whether the share trading loss of ?2,07,38,602 should be treated as a normal business loss or a speculation loss. The assessee, a member of the National Stock Exchange, engaged in stock broking and trading in shares and derivatives, reported losses from delivery-based share transactions and profits from derivatives and jobbing. The Assessing Officer (AO) treated the loss from delivery-based share trading as speculation loss under Explanation to Section 73 of the Income Tax Act, relying on the decision in Prasad Agents (P) Ltd vs ITO. 3. Applicability of Explanation to Section 73: The assessee argued that Explanation to Section 73 was not applicable because: - The primary business was dealing in shares and securities, including derivatives. - Both delivery-based share trading and derivatives trading are non-speculative as per Section 43(5). - Transactions in shares and derivatives were interdependent and settled in a consolidated manner. - The net result of share trading, including derivatives, was a profit of ?2,10,59,655, thus not triggering Explanation to Section 73. The Tribunal agreed with the assessee, noting that the entire business of stock broking, including trading in shares and derivatives, was a single composite business. The Tribunal cited the Special Bench decision in CIT vs Concord Commercial Pvt Ltd, which held that set-off of all business income should be allowed before applying Explanation to Section 73. The Tribunal concluded that the share trading loss should be set off against the profit from derivatives, resulting in a net profit, thus negating the application of Explanation to Section 73. 4. Retrospective Application of Amendment: The assessee also argued that the amendment to Explanation to Section 73 by Finance Act 2014, which excluded companies whose principal business is trading in shares from being treated as speculation business, should be applied retrospectively. The Tribunal supported this view, referencing the Wanchoo Committee Report and judicial precedents, including CIT vs Alom Extrusions Ltd and Allied Motors Pvt Ltd vs CIT. The Tribunal held that the amendment was curative, intended to remove hardship, and should be applied retrospectively. Consequently, the assessee's principal business of trading in shares fell under the exception, and the loss from delivery-based share transactions should not be treated as speculation loss. Conclusion: The Tribunal dismissed the revenue's appeal, holding that the share trading loss should be treated as a normal business loss and not a speculation loss, and the retrospective application of the amendment to Explanation to Section 73 was justified. The appeal of the revenue was dismissed, and the order was pronounced in the open court on 11.08.2016.
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