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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 ..... erpretation of the fiscal statute should be literal and no liberal nor hypothetical interpretation is permissible - Decided against the assessee - ITA 256 OF 2002 - - - Dated:- 5-10-2010 - Kalyan Jyoti Sengupta and Kalidas Mukherjee JJ. K. J. Sengupta, J.:- 1. By an order dated 29th August 2003 above appeal was admitted for hearing following substantial questions: (i) Whether in interpreting scope and meaning of the Explanation to Section 73 of the Act the statutory fiction introduced for treating the loss arising from the business of purchasing and selling of shares as loss from speculation business is confined and restricted only for the purpose of Section 73 of the Act and whether the said fiction which is specifically created for the particular purpose can be extended or applied to other provisions of the Act when the Parliament itself in clear and unambiguous terms restricted the portion of the said Explanation to Section 73? (ii) Whether in a case as in the present one, the transaction arising from the business of purchasing and selling of shares does not come within the ambit and scope of Section 43(5) of the Act defining speculative transaction, the loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aches the learned Tribunal who has affirmed the said decision of two authorities with detailed reasons. 5. Dr. Pal, learned Senior Advocate appearing for the assessee while assailing the said judgment and order submits that all these authorities erred in disallowing set off applying the explanation of Section 73 of the Income Tax Act, 1961. On fact there is no finding nor any allegation that the purchase and sale of shares were not effected by physical and actual delivery of shares. Hence, it will not be treated as a speculative transaction within the meaning of Section 43(5) of the Act. It is nobodies case that purchase and sale of shares resulting in loss has been manipulated with the object and device of creating certain artificial losses in order to reduce profits of the business of the assessee. Hence the loss arising from the said business of the assessee is to be treated as its business loss and should be set off under Section 70 of the Act under the same head of income. If entire loss is not so set off under Section 70 it shall be set off against the other heads of income under Section 71 and if there is any balance of the loss which cannot be so set off under Sections 70 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n are treated as speculation business. 10. He further submits drawing supports from the following authorities : 55 ITR 741 (SC) at page 750, 155 ITR 711 (SC) at page 718, 53 ITR 250 (SC) at page 260, that the statutory fiction should be applied for the very purpose or object for which the fiction has been created and it cannot be extended for any other purpose. 11. The Court has to interpret the section in the light of the object. The literary textual interpretation may give rise to certain absurd and unintended results. Hence court has to interpret the explanation in the light of the object of the clause. The circular was introduced on 24th July 1976 and it was acontemporanea expositio. Therefore, the circular has to be adopted as guide to the interpretation of the explanation and this method is recognized by the following judicial pronouncement : 131 ITR 597 at page 603-604, 199 ITR 530(SC) at page 546. 12. Thus if strict and literal interpretation results in absurdity or unintended result then provision is to be interpreted in conformity with the object and purpose for which the said explanation has introduced. 13. He relies on Supreme Court decision on this legal concep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded the matter having regard to the facts and circumstances of the case. 18. Learned counsel for the Revenue submits that there are distinct and separate heads of income as it will appear from Section 14 of the said Act. 19. The provisions of set off of loss from one source of income from another is to be found under Sections 70, 71, 72, 73. 20. His contention is that Section 70(1) refers to set off of loss from one source against income from another source under the same head of income. The said sub-section (1) of Section 70 starts with the expression save as otherwise provided in this Act. Section 71(1) refers to set off of loss from one head against another. Section 72 provides for carry forward and set off of business losses. It expressly exclude loss sustained in speculation business and by virtue of subsection (1) of Section 73 setting off of loss in speculation business is permissible against gains of another speculation business only. The explanation 2 of Section 73 merely relates to a company assessee only. Certain companies are expressly excluded from the purview of the said explanation which creates a legal fiction. 21. He further contends that Section 43(5) read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment and decision of the learned Tribunal is well reasoned and interpretation arrived at is the only possible interpretation. Therefore, this Court cannot substitute its own interpretation in place of that of the learned Tribunal. 27. After hearing submissions of the learned Counsel and considering their arguments and going through the impugned judgment and order of the learned Tribunal it appears to us in order to give answer to the aforesaid questions this Court has to deal with the core issue having regard to the nature of the business carried on by the assessee whether provision of Section 73 with the explanation is applicable or not. It appears that all the revenue authorities below including the learned Tribunal held that loss in sale and purchase of the share suffered by the assessee shall not be set off against the income from business treating the same as a speculation loss within the meaning of Section 73 sub-section 1 of the Income Tax Act. Hence setting off was not allowed as against the other source of income nor it was allowed to be carried forward. Hence the learned Tribunal disallowed the loss from purchase and sale of shares and securities of Rs. 1,41,60,772 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome under any other head, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and- (i) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year; (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on:] Provided that where the whole or any part of such loss is sustained in any such business as is referred to in section 33B which is discontinued in the circumstances specified in that section, and, thereafter, at any time before the expiry of the period of three years referred to in that section, such business is reestablished, reconstructed or revived by the assessee, so much of the loss as is attributable to such business shall be carried forward to the assessment year relevant to the previous year in which the business is so re-established, reconstructed or revived, and- (a) it shall be set off against the profits and gains, if any, of that business or any other business carried on by him and assessable for that assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt years immediately succeeding the assessment year for which the loss was first computed. [ Explanation .- Where any part of the business of a company ([other than a company whose gross total income consists mainly of income which is chargeable under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources"], or a company the principal business of which is the business of banking or the granting of loans and advances) consists 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 sale of such shares.] " 36. Much argument has been advanced from both the sides relating to scope, purport and purview of Section 73 with the explanation. We have critically read the said Section with the explanation. While noting the argument of Dr. Pal we need to examine whether with explanation scope and purport of Section 73 got extended or not. It is well settled as rightly argued by Dr. Pal in a catena of Supreme Court decisions that explanation of any section cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case.. 40. In our opinion by the explanation all companies are not included within the word 'assessee' as mentioned in Section 73. The companies other than a company whose gross total income contains mainly of income which is chargeable under the heads interest, security, income from house property, capital gains and income from other sources or a company the principal business of which is the business of banking or granting of loan and advances consists in purchase and sale of shares of other companies, such company shall be for the purpose of this Section, be deemed to be carrying on speculation business to the extent to which the business consists of the purchase and sale of shares. Thus the explanation has really employed restricted meaning of the word 'assessee' as mentioned in Section 73. 41. It has only been explained about the nature of the company which shall be deemed to be carrying on speculation business. It is urged by Dr. Pal that the said explanation is inconsistent with the object of introduction. We are unable to accept this as the explanation itself has made it clear that those companies whose business consists of the purchase and sale of shares of other comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member, (d) an eligible transaction in respect of trading in derivatives referred to inclause [(ac)] of section 2 of the Securities Contracts (Regulation) Act,1956 (42 of 1956) carried out in a recognized stock exchange]; shall notbe deemed to be a speculative transaction. Subsequent transaction means a transaction in which a contract for the purchase or sale of any commodity in which a contact for purchase or sale of commodity including plots and shares is periodically or remotely settled otherwise than of actual delivery or transfer of the commodity or scrips" 44. By virtue of explanation 2 to Section 28 of the said Act business of speculative transaction must be distinct and separate from any other business. Thus any speculative transaction cannot be treated as speculative unless such a transaction takes place as a part of business activity of the assessed concerned. It is not necessary the assesses must carry on speculative business exclusively it can be one of the businesses but this must be distinct and separate from any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit of setting off or carry forward except as against the other speculation business. Admittedly the assessee company did not have any speculation business activity other than mentioned in the returns and accounts. 48. Dr. Pal urged that the definition of business of speculation read with the speculation transaction has to be applied here even though the appellant has physically delivered the share scrips. We are unable to accept this contention just because physical delivery of share scrips is effected for sale of the shares his client will get the benefit under Section 73 as by virtue of the said explanation containing deeming clause the said definition of speculation business includes not only settlement on papers but also actual delivery of the said scrips. This argument advanced by Dr. Pal on earlier occasion in the case of Commissioner of Income Tax v. Arvind Investments Ltd. reported in 192 ITR Cal. 365 while answering to a reference case the Division Bench of this Court on discussion and reading Section 73 with explanation has observed as follows:: Any purchase or sale of shares by certain companies is to be speculation transaction for the purpose of Section 73 onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduce income from other business activities. It has been contended that the Explanation should be understood in the light of the aforesaid circular. I am unable to uphold this contention for a number of reasons. The Explanation to section 73 applies to certain categories of companies. The opening words of the Explanation to section 73 "where any part of the business of a company" also do not create any difficulty. ' 53. The departmental Circular in our view cannot be always a guide for interpretation and it can be guide when there is an ambiguity and if the Court without any difficulty come to a conclusion that the provision of the Statute is workable and can be applied the Court need not look into any material. 54. Factually it may be true that the assessee company had no intention to manipulate the real assessable income nonetheless provision of fiscal statute has to be applied even if it result in adverse effect. 55. In view of the discussions as above we think that decisions relied on by Dr. Pal reported in 55 ITR 741, 155 ITR 711 and 53 ITR 250 has no help as while applying the said provision in the case of the assessee the object is not at all defeated. Similar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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