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TMI Blog2017 (11) TMI 1354X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Prateek Kedawat For the Respondent : Mr. Sanjay Jhanwar with Ms. Archana ORDER 1. By way of this appeal, the appellant has assailed the judgment and order of the Tribunal whereby Tribunal has dismissed the appeal of the department. 2. This court while admitting the appeal on 29.4.2013 framed the following substantial question of law:- Whether in the facts and circumstances of the case, the ITAT was justified in law in confirming the deletion of addition made on account of disallowance of speculative loss occurred on derivative transactions holding the same as business loss 3. The facts of the case are that the assessee company during the years was engaged in the business of borkerage for shares and securities. The AO noticed that in the Profit Loss account the assesee had claimed loss of jobbing to the tune of ₹ 1,38,64,306/-/. After having gone through the details filed by the assessee in this regard, the AO noted further that the assesee had suffered the said loss on account of F O transaction and held the transaction as speculative as per section 43(5) of the Act and denied the claimed loss as business loss the AO, however, from the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsequent years. These restrictions were essentially designed as an anti evasion measure to prevent claim of artificially generated losses in the absence of an appropriate institutional infrastructure. Recent systematic and technological changes introduced by stock markets have resulted in sufficient transparency to prevent generating fictitious losses through artificial transactions or shifting of incidence of loss from one person to another the screen based computerized trading provides for an excellent audit trail. Therefore, the present distinction between speculative and nonspeculative transactions, particularly relating to derivatives is no more required. The proposed amendment, therefore seeks to provide that an eligible transaction carried out in respect of trading in derivatives in a recognized stock exchange shall not be deemed to be a speculative transaction. From the above it is amply clear that prior to this amendment the transaction in derivatives was excluded from the purview of the said provision. But today technological changes have brought enough transparncy in such transaction therefore from 01/04/2006, these transactions are included in the proviso of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate authorities for the A.Y. 2004-05, it was claimed that the section is not applicable and it does not fall in the ambit of explanation to section 73. So, if any alternate view is taken by the appellate authority, benefit with respect to explanation to section 73 shall be withdrawn. Thus, in view of above discussions loss to the tune of ₹ 1,38,64,306/- is hereby disallowed, however, profit of ₹ 30,98,306/- is allowed to set off against it, being speculative in nature as discussed above. So, sum of ₹ 1,07,66,000/- is hereby disallowed being speculative loss. 4.2 Taking into consideration the above, he contended that the AO has rightly computed the income and disallowed ₹ 1,07,66,000/- therefore, he submitted that CIT(A) has committed serious in interpreting Section 43(5) which has been confirmed by the tribunal. 4.3 He has taken us to the order of CIT(A) which reads as under:- I have considered the facts of the case and arguments taken by Sh. Bafna quite carefully. It is a fact that the appellant company has a membership of National Stock Exchange for cash segment and for future and option segment. Its main activity is borking. As per Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. in Tax Case Appeal No. 203 of 2005 decided on 10.02.2012 has considered the decision of Bombay High Court in Commissioner of Income Tax Vs. Shri Bharat R. Ruia (HUF) Phoenix Mills Premises (supra) and has observed as under:- 6. In respect of the second condition as to whether the expression commodities shares and stocks include debentures; it was submitted that the debenture would not come within the purview of the expression commodities and further the expression debentures , shares and stocks convey distinct and separate meanings. Definition of Section 43(5) of the Act is inclusive one. It includes only shares and stocks. Debentures are not included. Therefore, the learned counsel appearing for the assessee submitted that the debentures, viz., in the present case, the transaction is relating to nonconvertible security debentures, which will not fall within the definition of commodity or stocks or shares . In support of his contention, he relied on the judgment of the Supreme Court cited supra in R.D. Goyal (supra) wherein it has been held that debentures cannot come within the definition of shares as well as the stock. The expression debentures and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acknowledging its receipt to repay the same at a specified rate and also carrying an interest. It is in sum and substance a certificate of loan or a bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company's capital structure yet it does not become a share capital. In any event, a debenture would not come within the purview of the definition of goods, inasmuch as, although the shares and stocks are included in the definition of goods but debentures are not. 25. We may also note that having regard to the provisions contained in Section 36-A of the MRTPAct, there cannot be any doubt whatsoever that an inquiry proceeding can be initiated when an element of unfair trade practice arises in the matter of promoting sale, or use of any goods. Shares before their allotment, in our opinion, are not goods. In Sri Gopal Jalan Co. v. Calcutta Stock Exchange Assn. Ltd. it has been held that in company law allotment means the appropriation out of the previously unappropriated capital of a company, of a certain number of shares to a person. Till allotment is made, shares do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in Sri Gopal Jalan and Co. v. Calcutta Stock Exchange Assn. Ltd.3 Therein, it referred to a large number of English decisions which have considered the meaning of that word. In that decision this Court referred to the observations of Chitty, J., in Florence Land and Public Works Co., In re: To my mind there is no magic whatever in the term allotment as used in these circumstances. It is said that the allotment is an appropriation of a specific number of shares. It is an appropriation, not of specific shares, but of a certain number of shares. In Sri Gopal Jalan case Sarkar, J. (as he then was), quoted with approval the following passage from Farwell, L.J., in Mosely v. Koffyfontein Mines Ltd.: As regards the construction of these particular articles, it is plain that the words creation, issue and allotment are used with the three different meanings familiar to business people as well as to lawyers. There are three steps with regard to new capital; first, it is created; till it is created the capital does not exist at all. When it is created it may remain unissued for years, as indeed it was here; the market did not allow of a favourable opportunity of placing it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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