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TMI Blog2024 (12) TMI 567X X X X Extracts X X X X X X X X Extracts X X X X ..... iness transaction. A loss in the derivative business would consequently be a business loss for the purposes of Section 72, and a set off of such business loss would have to be permitted against profits and gains of business as computed in terms of the I.T. Act. This was not a case where Section 73 was attracted at all since Section 73 deals specifically with losses in speculation business. As rightly found by the Tribunal in the instant case, since the transaction in derivatives was not a speculative transaction, the disallowance of the set off by the AO was clearly illegal. We find, therefore, that the impugned order of the Tribunal, inasmuch as it relates to the questions raised in the present appeal, does not require any interference. Qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... off and adding the amount of Rs.803.03 lakhs to the business income for the said year. 3. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the First Appellate Authority, where the assessee inter alia argued that only an amount of Rs.283 lakhs represented the carry forward loss from trading in shares whereas an amount of Rs. 591 lakhs represented the carry forward loss from dealing in derivatives. The First Appellate Authority, however, rejected the contention of the assessee in toto and affirmed the order of the Assessing Authority. 4. In the further appeal preferred by the assessee before the Appellate Tribunal, the Tribunal placed reliance on a judgment of the Calcutta High Court in M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the Assessing Officer was in terms of Rule 8D that was inserted into the Income Tax Rules [hereinafter referred to as the "I.T. Rules"] with effect from 24.03.2008, the Tribunal found that the provisions of Rule 8D could not be applied for the assessment year 2007-08 since there was no retrospective operation envisaged for the Rules. It was, therefore, and after recognising that there would be some expenditure incurred for the purposes of earning exempt income that it directed the Assessing Officer to disallow 2% of the exempt income towards expenditure incurred for the purposes of earning the exempt income. 5. The Revenue is before us through this I.T. Appeal raising the following substantial questions of law: 1. Whether, on the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. Per contra, we have been shown the judgment of the Calcutta High Court in M/s. Balji (supra) and a later judgment of the Supreme Court in Snowtex Investment Limited v. Principal Commissioner of Income-Tax - [(2019) 414 ITR 227 (SC)]. In Snowtex (supra), the issue that came up for consideration was whether, under the provisions of the I.T. Act, profit from trading in futures and options can be seen as speculation profit and set off against speculation loss originated from trading of shares of other companies ? The Calcutta High Court had decided that the loss which occurred to the assessee as a result of its activity of trading in shares [a loss arising from the business of speculation] was not capable of being set off against the profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the reason for the amendment, the Circular states: "3.10 Excluding 'trading in derivatives' on recognised stock exchanges from the ambit of 'speculative transactions' The existing provisions of clause (5) of section 43 define 'speculative transaction' to mean a transaction in which a contract for the purchase or sale of any commodity including stocks and shares is settled otherwise than by the actual delivery or transfer of the commodity or scrips. The proviso to section 43 (5) lists out certain transactions which are not deemed to be speculative transactions. Systemic and technological changes introduced by SEBI have resulted in sufficient transparency in the stock markets and have to a large extent curbed the scope for generating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall lie outside the fold of the deeming fiction. Prior to the amendment of the Explanation by the Finance (No.2) Act 2014 with effect from April 1, 2015, the business of trading in shares carried on by a company was not excluded from its purview. However, by the amendment which was brought into force from April 1, 2015, the Explanation to section 73 reads as follows: "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 trading in shares or banking or the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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