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TMI Blog2002 (7) TMI 223X X X X Extracts X X X X X X X X Extracts X X X X ..... n admitted position that main source of income for the assessee was under the head 'income from business' and, accordingly, the assessee's case was not covered by exclusion clause in Explanation to section 73. On these admitted facts, Assessing Officer required the assessee to show cause as to why the loss incurred in share transactions should not be treated as a, speculation loss' and, on that basis, its set off against the 'income from business' be declined. The thrust of assessee's submission was that since there has been actual delivery of scrips, 'the impugned transaction falls beyond the ambit of speculative transaction as defined in section 43(5)', and in support of this proposition a reference was also made to the definition of 'speculative transactions' under section 43(5) of the Act. Referring to the wordings of Explanation to section 73, it was further submitted that speculative transaction carried on by the assessee should be such as to constitute a 'business'. The assessee then referred to the legislative intent behind introduction of Explanation to section 73 and, for that purposes, referred to CBDT Circular No. 204 dated 24-7-1976. It was argued that the intention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rried the matter in appeal before the CIT(A) but without any success. Still aggrieved, the assessee is in second appeal before us. 5. Dr. Debi Pal, learned counsel for the assessee, submitted that the Explanation to section 73 has no application in the matter. He laid great emphasis on the words 'for the purpose of this section' mentioned in the Explanation to section 73, and submitted that the Explanation to section 73 is relevant only for the purposes of section 73 itself and does not travel to sections 70, 71 and 72, or, for that purpose, to any other section of the Act. It is then submitted that when the unabsorbed business loss is carried forward under section 72 of the Act, there is no question of declining carry forward of the said unabsorbed business loss because of application of section 73 of the Act. It is further submitted that as to what will constitute speculation loss for the purpose of section 72 of the Act, will be governed by the provisions of section 43(5) of the Act. The proposition thus advanced by the learned counsel is that the expression 'speculation business', for purposes other than section 73 of the Act, is to be governed by the definition contained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee would indeed have had no case but then this Tribunal can only interpret the law as it actually existed and not as it should have existed. He thus admitted to be capitalizing on, what he perceived as, a 'lacunae in drafting of Explanation to section 73'. It was on the basis of these submissions that learned counsel urged us to reverse the orders of the authorities below, by issuing direction to the effect that loss of Rs. 1,41,60,772 is required to be treated as a 'business loss', as against 'speculation loss' held by the authorities below. Without prejudice to these arguments, it was further submitted that loss in share dealings was only on account of fall in value of shares held as closing stock and, therefore, the loss so suffered cannot be said to be loss on account of 'purchase and sale of shares' within meanings of section 73. Reliance was placed on the judgment of Hon'ble Supreme Court in the case of Chainrup Sampatram v. CIT [1953] 24 ITR 481 in support of the proposition that purpose of valuing closing stock is only to cancel out the related entries on the debit side of trading account and it was argued that loss sustained on valuation of closing stock cannot be said t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 70 which, as it stood at the material point of time, is reproduced below for ready reference: "Save as otherwise provided in this Act, where the net result for any assessment year in respect of any source falling under any head of income is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head." It is thus abundantly clear that the right to set off wider section 70 is subject to other provisions of the Act which includes section 73 as well. Section 73 of the Act provides as follows: " 73. Losses in speculation business. - (1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business. (2) Where for any assessment year any loss computed in respect of a speculation business has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and - (i) it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 71, so much of the loss as has not been so set off or, where he has no income 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 reestablished, reconstructed or revived, and - (a) it shall be set off against the profits and gains, if any, of busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e: Firstly, both the general enactment and the particular enactment must be simultaneously operative, the general enactment covering larger field and particular enactment covering a limited field out of a larger field covered by the general enactment and, secondly there must be nothing contained in the general provisions indicating the legislative intent to overrule or set aside the particular provision." 10. This principle has also been dealt with by Kolkata SMC bench, in the case of ACIT v. Executors of the Estate of Bhagwan Devi Sarogi [2001] (79 ITD 539), wherein Hon'ble Vice President Shri Garg has inter alia observed that "To solve such a conflict (of competing claims of sections), one has to resort to interpretation of law and the famous dictum is where there is a general provision which, if applied in its entirety, would neutralize a special provision dealing with the same subject-matter, the special provision must be read as a proviso to the general provision and the general provision, insofar as it is inconsistent with the special provisions, must be deemed not to apply". We are in respectful agreement with the views expressed by the Hon'ble Vice President Garg. Similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing assigned to various sections in the case of Rajan Enterprises (P.) Ltd., it is because unless intra head set off (section 70) is done, one cannot even work out the incomes under various head which will be the basic figures for inter head adjustment (section 71), and because unless interhead adjustment is done, gross total income cannot be worked out without which calculations for section 73 cannot be done. In our considered view, this order of precedence has nothing to do with, as suggested by the learned counsel, with the order in which the sections are placed in the statute. We, therefore, see no support to assessee's case by Tribunal's decision in the case of Rajan Enterprises (P.) Ltd. 12. We now come to assessee's plea that as to what will constitute speculation loss'for the purpose of section 72 of the Act, will be governed by the provisions of section 43(5) of the Act. We may mention that as per provisions of section 43(5) of the Act, "In sections 28 to 41 and in this section, unless the context otherwise requires 'speculative transaction' means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies which are not investment or banking companies or companies carrying on business of granting loans or advances will be treated on the same footing as a speculation business. Thus, in the case of aforesaid companies, the losses from share dealings will now be set off only against profits or gains of a speculation business. Where any such loss for an assessment year is not wholly set-off against profits from a speculation business, the excess will be carried forward to the following assessment year and set-off against profits, if any, from any speculation business." 13. In any event, as observed by a co-ordinate bench in the case of Executor of the Estate of Bhagwan Devi Sarogi a "special provision must be read as a proviso to the general provision and the general provision, insofar as it is inconsistent with the special provisions, must be deemed not to apply". Therefore, provisions of section 73 are required to be read as proviso to section 72 and, to the extent carry forward of speculation losses is concerned, section 72 will not have application in the matter. In this view of the matter, we reject the contention that, for the purpose of section 72 of the Act, the question a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rucial omission or clear direction makes that end unattainable." 15. In case we are to accept the contentions of the learned counsel, Explanation to section 73 has to be treated as otiose because, if this provision cannot be put into service for determining what is 'speculation loss' for the purpose of 'carry forward and set off' of losses, this provision cannot be put into service for any other purpose at all. This construction will, therefore, tantamount to obliterating the provision from the statute and will, accordingly, be clearly contrary to the principle of ut res magis valeat quam pereat approved by the Hon'ble Supreme Court in Teja Singh's case and by the Hon'ble jurisdictional High Court in Jayshree Charity Trust's case. It as, however, an altogether different matter that since we have rejected the interpretation, canvassed by the assessee, on merits and for the detailed reasons set out above, this aspect of the matter, strictly speaking, ends up being of somewhat academic interest. 16. We now move on to the assessee's alternate contention that the that loss in share dealings was only on account of fall in value of shares held as closing stock and, therefore, the los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d purchase of shares but, in our considered view, to the extent it is arising out of 'business of purchase and sale of shares', it will be hit by the provisions of Explanation to section 73. As held by Hon'ble Supreme Court in the case of Chainrup Sampatram's case loss on account of fall in value of stock is to be treated as loss of that business on the ground of prudence, fully sanctioned by the custom. Their Lordships of Hon'ble Supreme Court inter alia observed that, "...valuation of unsold stock at the end of an accounting period is a necessary part of the process of determining the trading results of that period, and can in no sense be regarded as source of such profits (or losses)". In this view of the matter, the loss on valuation of closing stock of shares, in the present case, cannot be treated any different than a normal trading loss; such a loss is, as is the settled legal position, an integral part of the loss on trading, i.e. purchase and sale, of shares. 18. Accordingly, in our considered view, the proposition advanced by the learned counsel is neither supported by admitted factual position or the settled legal principles. For these reasons, we reject the alternate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of Rs. 233.83 lakhs from business of trading in shares and though the provisions of Explanation to section 73 were clearly applicable in assessee's case, the Assessing Officer had treated allowed set off of loss incurred in such share trading against the normal business profits. It was in this background that Assessing Officer issued notice requiring the assessee to show cause as to why this mistake should not be rectified under section 154 of the Act. 37. In reply, the assessee invited Assessing Officer's attention to the provisions of section 43(5) which define the 'speculative transactions' and the fact that the present case is admittedly not covered by the provisions of section 43(5). However, as to the issue of applicability of provisions of Explanation to Section 73, it was submitted that in view of the observations in the CBDT circular No. 204 dated 24-7-1976 to the effect that 'the object of the provision is to curb the device sometimes resorted to by business houses controlling groups of companies to manipulate and reduce the taxable income of companies under their control', and in view of the fact that there is nothing on record to suggest that there was any effort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k judgment of Hon'ble Supreme Court in the case of TS. Balaram ITO v. Volkart Bros. [1971] 82 ITR 50. On the other hand; learned Departmental Representative placed his reliance on the authorities below. Rival contentions are conscientiously heard, orders of the authorities below carefully perused, and applicable legal position duly deliberated upon. 39. In view of the conclusions that we have arrived at, in ITA NO. 313/Cal./98, discussed in paragraphs 6 to 21 above, we hold that assessee's contentions are not sustainable in law, and, accordingly, we reject the same on merits. However, there cannot be any quarrel with the proposition laid down by Hon'ble Supreme Court, in Volkart Brothers' case that in order for a mistake to be covered by the scope of section 154, a mistake must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably by two opinions. In other words, in case it can be demonstrated that two views are possible on that aspect of the matter, the same shall be outside the scope of section 154. The question then arises whether it could be reasonably said that two views are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord .... If a mistake of fact apparent from record of the assessment can be rectified...... we see no reason why a mistake of law which is glaring and obvious cannot be rectified.' Similarly, Hon'ble AP High Court, in the case of CIT v. C Subramanyam [1989] 175 ITR 48, held that an omission to apply statutory provision under section 64(1)(i) was also held be a mistake apparent from record. We may, in this regard, also refer to the observations made by the Hon'ble Madras High Court in the case of TS. Rajam v. Controller of Estate Duty [1968] 69 ITR 342, that "On a fair conspectus of the ratio of various decisions of this Court and the Hon'ble Supreme Court, it is now clear that for rectification of an error which is said to be apparent from record, the mere complexity of the problem or that a genuine argument is necessary to discover the same may not by themselves be oust the jurisdiction..... to rectify the same.' In our considered view, therefore, no two opinions are possible about the applicability of Explanation to section 73 on the facts of the present case and merely because learned counsel has raised certain contentions in support of a different legal view, which have anyway ..... 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