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TMI Blog2010 (10) TMI 222X X X X Extracts X X X X X X X X Extracts X X X X ..... t defining speculative transaction, the loss arising from the purchase and sale of shares can be treated as loss from speculation business applying Explanation to Section 73 of the Act and not sustain claim of for set off of such loss under Sections 70, 71 and 72 of the Act? (iii) Whether the loss arising from the decrease in value of shares which are held as stock in trade of the assessee can be treated as a loss of speculation business within the meaning of Explanation to Section 73 of the Act? 2. Being aggrieved by and dissatisfied with the order dated 16th July, 2002 passed by the Income Tax Appellate Tribunal "E Bench" Calcutta in appeal bearing No. ITR 313/Cal/98 relating to the assessment year 1994-95 the above appeal was preferred by the assessee. 3. Briefly stated facts are as follows:-The assessee is a public limited company within the meaning of the Companies Act 1956. During the assessment year 1994-95 the assessee company was engaged in manufacturing of Cooling Towers and in the business of selling and purchasing shares. The gross total income of the assessee company is chargeable under the heads 'Profit and Gains of Business of Profession', 'Capital Gains' and 'Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h cannot be so set off under Sections 70 and 71, it will be allowed to be set off and carried forward under Section 72 of the Act and in this way such carry forward is to be made on succeeding years. 6. According to him, expression 'speculative transaction' has been defined in Section 43(5) of the Act. Going by the language employed therein it will appear that it is an inclusive definition covering contract for the purchase or sale of any commodity, including stocks and shares which are periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. 7. Explanation 2 to Section 28 makes it clear that where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the same shall be deemed to be distinct and separate from any other business. 8. Section 73(1) provides that any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off against profits and gains, if any, of another speculation business. The whole scheme is that if the speculative transactions which constitute a business is to be treated as a speculation business, and losses arising ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt decision on this legal concept reported in AIR 1997 SC 1511. 14. That said circular of 1976 is to be treated not only as binding upon the authorities charged with the administration of Income Tax Act but should also be taken as furnishing legitimate aid in the construction of explanation to Section 73 and this is permissible, according to him, by virtue of the decision of the Supreme Court reported in 131 ITR 597. 15. He submits that explanation to Section 73 widens and enlarges of scope thereof which is not function of an explanation which merely explains and does not expand. He has drawn our attention in this context to the Supreme Court decision reported in AIR 1967 SC 389. He submits also with the support of the authority (AIR 1985 SC 582) that the explanation is inserted in the section of the statute book merely to explain or clarify certain ambiguities which may have crept in the statutory provision. He contends that it is well settled legal principle of interpretation of taxing statutes that reading of the section with explanation when two views would be emerging, the view which is favourable to the assessee must be accepted. This legal position is to be found amongst o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Section 43(5) read with explanation 2 of Section 28 defines " speculative transaction or business". It is general provision/definition whereas Section 73 is special or specific one limited to speculation losses. 22. He further submits that the phraseology employed in Section 73(1) and the explanation thereof are clear, unambiguous and admit of no dispute hence purposeful construction of the mischief rule as laid down in the judgments of the Apex Court shall not apply, particularly when the legislative intent can be gathered plainly from the words of the statutory provision. One should not resort to internal or external aid to measure the scope or effect or purport of explanation 2 Section 73. The said explanation is a proviso to general provision of Section 72 and should be treated as curving out and explanation to the said general provision. According to the learned counsel for the Revenue the CBDT circular No. 240 in view of the decision reported in 131 ITR 593 is absolutely inapplicable. The principle of construction of statute is authoritatively settled by the Supreme Court in 88 ITR 198 at page 195 and 108 ITR 439 at page 451. 23. He submits that the Division Bench of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 1,41,60,772/- as speculation loss as per explanation of Section 73 of the Act. Here admittedly the assessee company has not been carrying on business of share transaction exclusively and its business is a mixed one. 28. We think before dealing with contention and rival contention of the parties we are to examine in which case and under what circumstances setting off and carry forward is permissible. 29. In Chapter VI of the said Act sections 70 and 73 deal with setting off and carry forward. 30. Section 70 provides for setting off loss from one source of income to another source under the same head of income. This Section provides setting off of loss arising from source other than capital gains. 31. Sub-section (2) of Section 70 provides for setting off loss arising out of short term capital assets in connection with Sections 48 to 55 against any other capital asset. Sub-section 3 of Section 70 provides for setting off of loss against any other capital assets other than short term capital asset . 32. Section 71 provides for setting off of loss arising out of any head of income other than capital gains. The same shall be and if the assessee has no income under the head ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year; and (b) if the loss cannot be wholly so set off, the amount of loss not so set off shall, in case the business so re-established, reconstructed or revived continues to be carried on by the assessee, be carried forward to the following assessment year and so on for seven assessment years immediately succeeding.] (2) Where any allowance or part thereof is, under sub-section (2) of section 32 or sub-section (4) of section 35, to be carried forward, effect shall first be given to the provisions of this section. (3) No loss [(other than the loss referred to in the proviso to sub-section (1) of this section)] shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed." 35. From careful reading of Section 72 it appears to us that in order to get benefit of carry forward and setting off of business loss as mentioned therein the nature of the business must not be a speculative one. In our view Section 73 has been provided specifically for dealing with loss in speculative business. We therefore, set out the same in its entirety with explanation. "Section 73 (1) Any loss, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tretch the applicability of the said Section. The explanation creates fiction and it is well settled by the catena of judgments of the Hon'nle Supreme Court that fiction cannot be read nor explained for any purpose other than for which it is created. Some of the judgments as recorded below are cited before us and we accet the proposition laid down therein. : 55 ITR 741(SC) at page 750. 155 ITR (SC) at page 718 53 ITR (SC) 250 at page 260. 37. In the case of Commissioner of Income Tax v. Express Newspaper Ltd. reported ITR 150 SC 260) the Supreme Court stated that legal fiction is limited to the purpose for which it is created and should not be extended beyond its limited field. Keeping in view of the said proposition of the law we find on reasonable interpretation of Section 73 reading dominant part thereof and with the explanation it does not appear that fiction created in explanation either abridges or extend the purpose incorporated in Section 73. We thus express our inability to endorse the contention of Dr. Pal that the fiction created in the said explanation really takes away the real object and purport of Section 73. In this context Three-Judges-Bench of the Supreme Court w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery object of curbing manipulation resorted to by the business house controlling group of companies is sought to be served. We have no doubt in our mind this statutory fiction is extended to achieve very purpose and object for which it has been created. 42. Dr. Pal's next contention is that the Departmental Circular dated 24th July 1976 being a contemporaneous exposition should be taken as a guide to interpret the explanation. We think that the Departmental Circular cannot be treated as guide for interpretation of the Section when the same with explanation is very clear and free from any ambiguity. It has been held in the decision of the Division Bench of this Court reported in 192 ITR 365 at pages 369, 371, 372 and 375 as appropriately brought to our attention that the CBDT Circular is of no help when the Section is very clear. This decision has clearly dealt with the aspect that even when the entire business of the assessee is purchase and sale of shares the said explanation to Section 73 applies. In view of this decision of Division Bench of this Court we do not think that the Circular is to be looked into at all, naturally decisions cited by Dr. Pal reported in 131 ITR 597 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sses is carrying on business of sale and purchase of shares but also other business. 45. Accordingly in order to apply the Section 73 with explanation the business must be speculative business which in its turn must be a speculative transaction. All speculative business is speculative transaction but not the vice versa. The definition of speculative transaction as above demands that there must be actual delivery or transfer of commodity or scrips, this must be by way of paper transaction only then it can be said to be the speculative transaction. 46. On reading of Section 73 with the explanation it would appear that speculation business as defined earlier will not be applicable in this case for the reason explained hereinafter. Under the definition of the said speculative business includes the speculation transaction which must be in case of purchase and sale of shares the same must be effected with the physical delivery of the same. Explanation to Section 73 will be applicable in respect of the companies and companies alone and not any other assessee namely individuals or other assessees. However, part of the business of the company other than a few category of companies as ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carrying forward of loss the company selling of shares by certain companies are recorded by the statute as speculation business, even though the transaction of purchase and sale was followed by delivery of scrips and such cannot be treated as speculative transaction as defined in Section 43(5). The definition in Section 43(5) of speculation transaction read with the second explanation of Section 28 it would appear in some extent inconsistent with the speculation business mentioned in Section 73, as Section 43 sub-section 5, while defining speculation transaction exclude the actual delivery or transfer of commodity or scrips and several speculation transactions constitute speculation business. 49. We are of the view that this case on factual aspect as recorded by the learned Tribunal and other authorities admittedly the sale of shares has been effected by physical delivery of shares. Therefore, the assessee company cannot get the benefit of set off or carry forward of speculation loss as rightly held by all the authorities. 50. Dr. Pal's next contention is that since his client had and still has no intention to manipulate the business of income nor there is any device to manipulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 97 and 199 ITR 530 on the question of interpretation of the explanation taking the Circular as guide is also not applicable. 56. In our view the explanation added to Section 73 does not bring about any inconformity with the object and purpose of Section 73 which has been enacted for special purposes and for that Section only and the provision of this Section with explanation overrides the other provision. Thus the decision cited by Dr. Pal of the Supreme Court reported in AIR 1985 SC 582 does not apply as Section 73 read with the explanation do not bring about any ambiguity and it is very clear and admits of no uncertainty nor any absurdity. In view of this findings we think that decisions cited by Dr. Pal reported in 77 ITR 518 (SC), 239 ITR 775(SC) and 88 ITR 192 (SC) are not applicable for the reason that the said Section does not appear to be multiple views not even two. It is settled position of the law the interpretation of the fiscal statute should be literal and no liberal nor hypothetical interpretation is permissible. 57. Under those circumstances we think that learned Tribunal is justified in rejecting the contention of the assessee as we do not find any relevancy of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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