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TMI Blog2017 (8) TMI 1316X X X X Extracts X X X X X X X X Extracts X X X X ..... rein held t will not be out of place to mention here that those transactions which are shown as transaction under Section 50C (Explanation-2), even if taken into consideration, the transaction which take place as short term capital gain was in total consideration of the payment after sale and it cannot be assessed. - Decided in favour of the assessee and against the department - D.B. Income Tax Appeal No. 254 / 2009, D.B. Income Tax Appeal No. 623 / 2009 - - - Dated:- 8-8-2017 - HON'BLE MR. JUSTICE K.S. JHAVERI AND HON'BLE MR. JUSTICE INDERJEET SINGH For the Appellant : Mr. R.B. Mathur with Mr. K.D. Mathur Mr. Prateek Kedawat For the Respondent : Mr. Sanjay Jhanwar with Ms. Archana JUDGMENT 1. By way of these appeals, the appellant has challenged the judgment and order passed by the tribunal whereby the tribunal has allowed the appeal preferred by the assessee reversing the view taken by the Assessing Officer and CIT (A). 2. This court while admitting the appeal has framed following substantial questions of law which reads as under:- D.B. Income Tax Appeal No.254/2009 admitted on 11.05.2009 Whether the ITAT was justified in holding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56 (42 of 1956), carried out in a recognised stock exchange; shall not be deemed to be a speculative transaction ; Explanation.-For the purposes of this clause, the expressions- (i) eligible transaction means any transaction,- (A) carried out electronically on screen-basedsystems through a stock broker or sub-broker or such other intermediary registered under section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), or the Securities and Exchange Board of India Act, 1992, or the Depositories Act, 1996 (22 of 1996) and the rules, regulations or bye-laws made or directions issued under those Acts or by banks or mutual funds on a recognised stock exchange ; and (B) which is supported by a time stampedcontract note issued by such stock broker or sub-broker or such other intermediary to every client indicating in the contract note the unique client identity number allotted under any Act referred to in sub-clause (A) and permanent account number allotted under this Act ; (ii) recognised stock exchange means a recognised stock exchange as referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... place before the Central Government. (3) The Central Government may call for suchother information from the applicant as it deems necessary for taking a decision on the application. (4) The Central Government, after examiningthe information furnished by the stock exchange under sub-rule (2) or sub-rule (3), shall notify the stock exchange as a recognised stock exchange for the purposes of clause (d) of proviso to clause (5) of section 43 or issue an order rejecting the application before the expiry of four months from the end of the month in which the application is received. (5) The notification referred to in sub-rule (4) shall be effective until the approval granted by the Securities and Exchange Board of India is withdrawn or expired, or the notification is rescinded by the Central Government. 3. He has contended that the view taken by the tribunal in making the aforesaid provision retrospective is not correct and to support his case, he has relied on the decision of Bombay High Court in the case of Commissioner of Income Tax Vs. Shri Bharat R. Ruia (HUF) Phoenix Mills Premises2011)337ITR452(Bom) wherein it has been observed as under:- 23. Plain reading of Clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also without any merit, because, the very object of Section 43(5) is to treat transactions which are settled otherwise than by actual delivery as speculative transactions. As noted earlier, Section 43(5) refers to contracts for purchase / sale of any commodity and it is not restricted to contracts which are capable of performance by actual delivery. Therefore, the fact that the futures contracts are settled otherwise than actual delivery cannot be a ground to hold that the futures contracts are not speculative transactions under Section 43(5) of the Act. 36. The exceptions enumerated in the proviso toSection 43(5) clearly provide that where speculative transactions are carried out with a view to guard against loss in respect of contracts for actual delivery in cases referred to in Clause (a), (b) (c) of the proviso, then, such speculative transactions shall not be deemed to be speculative transactions. So far as the transactions covered under Clause (d) are concerned, they are deemed not to be speculative transactions only with effect from 1/4/2006. Therefore, the transactions covered under Clause (d) would not be treated as speculative transactions only with effect from 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same quantity deliverable at the same time either to the original vendor or to some one else, so as either to secure profit or to minimise loss, before the Vaida day; and similarly when he enters into a contract of sale, he simultaneously enters into one or more contracts to purchase the same quantity before the Vaida day. The result of such dealings, when the sale and purchase are to and from the same person, has the effect of cancelling the contracts leaving only differences to be paid (vide Tod v. Lakshmidas Purushottamdas (1892) ILR 16 Bom. 441; Perosha Coursetji Parakh v. Manekji Dossabhai Watcha (1898) ILR 22 Bom 899 and Sassoon v. Tokersey Jadhawjee MANU/MH/0039/1904MANU/MH/0039/190 4 : (1904) ILR 28 Bom 616). The principle enunciated in these cases is to the effect that there is a possibility of confounding speculative transactions with agreements by way of wager but the distinction between the two as to their legal results is vital. In speculative transactions a seller might never have intended to give delivery and the purchaser did not expect him to deliver, but that does not convert a contract otherwise innocent into a wager. Heading transactions are, however, to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e various transactions, speculative business, Explanation 2 states what would constitute a speculative business. Speculative business has to be treated and deemed to be separate from any other business. Speculative transactions carried on by the assessee should be of such a nature so as to constitute a business. The definition of business, therefore, becomes more relevant when it has to be seen as to whether the nature of the transaction carried on constitutes a business. In a case where a trader carries on a business part of which (even one transaction) is in the category of speculative transaction as defined under section 43(5) and part of which falls in the category of business, then the object of Explanation 2 is to treat them separately. A single transaction may constitute a speculative business so as to be treated differently from other business under section 28. Accordingly, that amount of ₹ 16,426/- was considered to be the loss in speculation. 4.1 Therefore, he has contended that the tribunal has seriously committed an error in allowing the appeal of the assessee and reversing the view taken by the Assessing Officer and CIT (A). 5. Mr. Sanjay Jhanwar, counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred by the taxpayer during the previous year irrespective of the date by which such sum is statutorily payable .... The departmental understanding also appears to be that Section 43B, the proviso and Explanation 2 have to be read together as expressing the true intention of Section 43B. Explanation 2 has been expressly made retrospective. The first proviso, however, cannot be isolated from Explanation 2 and the main body of Section 43B. Without the first proviso, Explanation 2 would not obviate the hardship or the unintended consequences of Section 43B. The proviso supplies an obvious omission. But for this proviso the ambit of Section 43B becomes unduly wide bringing within its scope those payments which were not intended to be prohibited from the category of permissible deductions. 9 In the case of Goodyear India Ltd. v. State of Haryana [1991] 188 ITR 402 (SC) this Court said that the rule of reasonable construction must be applied while construing a statute. Literal construction should be avoided if it defeats the manifest object and purpose of the Act. 10. Therefore, in the well known words of Judge Learned Hand, one cannot make a fortress out of the dictionary; a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fare funds. However, as stated above, the second proviso resulted in implementation problems, which have been mentioned hereinabove, and which resulted in the enactment of Finance Act, 2003, deleting the second proviso and bringing about uniformity in the first proviso by equating tax, duty, cess and fee with contributions to welfare funds. Once this uniformity is brought about in the first proviso, then, in our view, the Finance Act, 2003, which is made applicable by the Parliament only with effect from 1st April, 2004, would become curative in nature, hence, it would apply retrospectively with effect from 1st April, 1988. Secondly, it may be noted that, in the case of Allied Motors (P) Limited v. Commissioner of Income Tax reported in MANU/SC/0317/1997MANU/SC/0317/1997 : [1997] 224 I.T.R. 677, the Scheme of Section 43B of the Act came to be examined. In that case, the question which arose for determination was, whether sales tax collected by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant Sales Tax law should be disallowed under Section 43B of the Act while computing the business income of the previous year? That wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be accepted that Finance Act, 2003, to the above extent, operated prospectively. Take an example - in the present case, the respondents have deposited the contributions with the R.P.F.C. after 31st March [end of accounting year] but before filing of the Returns under the Income Tax Act and the date of payment falls after the due date under the Employees' Provident Fund Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under Section 43B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right upto 1st April, 2004, and who pays the contribution after 1st April, 2004, would get the benefit of deduction under Section 43B of the Act. In our view, therefore, Finance Act, 2003, to the extent indicated above, should be read as retrospective. It would, therefore', operate from 1st April, 1988, when the first proviso was introduced. It is true that the Parliament ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eyed separate meaning and paragraphs 23 to 25 reads as follows: 23. Furthermore, the expressions debentures and shares convey distinct and separate meaning although they belong to the same genesis. In All About Debentures by Mr T.M. Sen and Mr C. Chandrasekhar, the distinction between shares and debentures has been stated thus: Debentures distinguished from: (a) Shares. Although shares and debentures belong to the same genesis yet they have distinct and different characteristics. The Companies Act, 1956 deals with the issue of debentures in the same manner as it deals with the issue of shares, but the similarity ends with the mode and manner of issue, their allotment, their transferability and in the applicability of forfeiture provisions. The corpus of the two issues forms two different segments of capital shares representing the share capital and the debentures representing the loan capital. Shareholders are the owners of the company till the company is folded up fully while debentureholders are only creditors of the company sometimes secured and sometimes unsecured and that too for a defined period. The rights of the shareholders and debenture-holders are different as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly on allotment in this sense that the shares come into existence. Therefore, till the shares are actually issued, the question of the company having issued debentures as transferable property would not arise and thus there cannot be any doubt whatsoever that the shares before their allotment would not come into existence and they cannot be regarded as goods. Debentures would also not come within the purview of the definition of stock. From reading of the above, it is clear that the debentures cannot come within the expression of goods nor shares or stocks . The only distinction in the present case and the Supreme Court case is that the expression goods is the subject matter of the Supreme Court. But in the present case, the expression commodity is in dispute. The said distinction does not make any difference. So the principle enumerated in the above judgment is squarely applicable. Further, the debenture is an instrument of debt executed by the company acknowledging its receipt to repay the same at a specified rate along with interest. The learned counsel for the respondent-assessee contended that the word commodity cannot include debenture because debenture is an ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h terms as appear for the moment expedient. Next comes allotment. To take the words of Sterling, J., in Spitzel v. Chinese Corpn. he says: What is an allotment of shares? Broadly speaking, it is an appropriation by the directors or the managing body of the company of shares to a particular person. After examining the various decisions, Sarkar, J., observed: It is beyond doubt from the authorities to which we have earlier referred, and there are many more which could be cited to show the same position, 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 such allotment the shares do not exist as such. It is an allotment in this sense that the shares come into existence. ------- In the present case, the convertible secured debentures portion is given to the bank which is akin to giving up the right. Therefore, the above judgment also supports the case of the assessee. Following the principles enunciated in the judgment of Apex Court in R.D. Goyals (supra) case as well as the judgment of the Calcutta High Court in Nirmal Trading Co. (supra) cited supra, we are of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23-9-2005. However, the fact remains that the primary orders dated 14-7-2003 and 14-6-2004 have admittedly not been challenged by the revenue. These primary orders having been accepted by the revenue, we see no reason why subsequent orders merely following these primary orders should be challenged by the revenue by filing appeals in this Court. 7. Our attention has been drawn to CIT v. ARGSecurity Printers (2003) 183 CTR (Del) 323 : (200.3) 264 ITR 277 (Del_ where a similar issue had arisen. A Division Bench of this Court relying upon Radhasoami Satsang v. CIT (1991) 100 CTR (SC) 267 : (1992) 193 ITR 321 (SC) held that though the principle of res judicata or estoppel by record does not apply in Income Tax proceedings, yet for the sake of consistency and for the purpose of finality in all litigations, including litigation arising out of the fiscal statutes, earlier decisions on the same question should not be reopened unless some fresh facts are found in the subsequent year. It was observed that where a fundamental aspect permeating through different assessment years has been found as a fact, one way or the other, and the parties have allowed that position to be sustained by not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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