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TMI Blog2013 (7) TMI 334X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to the benefit of Section 73, in view of the Explanation to Section 73 of the Income Tax Act;" 2. The brief facts are that the assessee claimed loss of Rs.492.71 lakhs on account of purchase and sale of shares. The assessee argued that the loss in trading of derivatives was not a speculative loss in terms of Section 43(5) of the Income Tax Act and could not be disallowed as speculative loss under any provisions of the Income Tax Act. The Assessing Officer rejected that submission and held that Section 73 applied since it was independent of Section 43(5). Explanation to Section 73 can be applied even if there is delivery based sale purchase of shares and also in situations of trading of derivatives. It was held that the assessee was not engaged in any of the specifically excluded categories of business as to render Explanation to Section 73 inapplicable. The AO held that loss of Rs.492.71 lakhs had to be treated as speculative loss and could not be allowed to be adjusted against business income. The CIT (Appeals) rejected the assessee's contentions. Therefore, a further appeal was preferred to the ITAT, which accepted the contention that Explanation to Section 73 applied, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee in the present case were relatable to stocks and shares and what is more were the subject matter of transactions under the National Stock Exchange. In these circumstances, the Tribunal ought not to have permitted the assessee the benefit of Section 73. 4. Learned counsel for the Revenue submitted that there is no infirmity with the judgment and order of the Tribunal impugned in the present case. He highlighted the fact that the trade and transactions in derivatives as defined under Section 2 of the Securities Contract (Regulation) Act, 1956, were specifically excluded from the definition of speculative transactions. Even though that definition was in Section 43(5), yet neither the Tribunal nor the Court could ignore it since there was no other definition of derivatives in the Income Tax Act. Counsel sought to highlight that derivative need not be only in respect of stocks and shares but could also pertained to commodities. Such being the case, the Tribunal acted within its jurisdiction and correctly concluded that the assessee could enjoy the benefit of Section 73 and did not fall within the mischief of its explanation. 5. Counsel submitted that the decision of the Madras High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany [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.] Section 43, to the extent it is relevant, reads as follows: 43. In Sections 28 to 41 and in this section, unless the context otherwise requires- ********** ********* (5) "Speculative transaction‖ means a transaction in which a contract for the purchase of sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips: Provided that for the purposes of this clause - (a) A contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the mandate of Sections 28 to 41 of the Act. In terms of the Explanation to Section 73 (4) in the case of a company, business of purchase and sale of shares is deemed to be speculation business. However, certain companies are excluded from this Explanation which are: (i) 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'. (ii) a company, the principal business of which is the business of banking or the granting of loans and advances. 8. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntendment. This is because a definition enacted for only a restricted purpose or objective should not be applied to achieve other ends or purposes. Doing so would be contrary to the statute. Thus contextual application of a definition or term is stressed; wherever the context and setting of a provision indicates an intention that an expression defined in some other place in the enactment, cannot be applied, that intent prevails, regardless of whether standard exclusionary terms (such as "unless the context otherwise requires") are used. In The Vanguard Fire & General Insurance Co. Ltd., Madras v. M/S. Fraser And Ross & Anr AIR 1960 SC 971 it was held that: "It is well settled that all statutory definitions or abbreviations must be read subject to the qualification variously expressed in the definition clauses which created them and it may be that even where the definition is exhaustive inasmuch as the word defined is said to mean a certain thing, it is possible for the word to have a somewhat different meaning in different sections of the Act depending upon the subject or the context. That is why all definitions in statutes generally begin with the qualifying words similar to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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