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TMI Blog2003 (3) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... isclosed by the assessee for the purpose of sale of shares amounting to Rs. 87,000 being treated as speculation loss in view of the Explanation appended to section 73 of the I.T. Act. The Ld. CIT(A) was of the opinion that the Explanation to section 73 of the Act is attracted in the instant case and the loss was regarded as a speculation loss. 4. The Ld. distinguished counsel for the assessee stated that the CIT(A) relying on the Explanation to section 73 of the I.T. Act, 1961 held that the nature of the business activities attracts section 73 and the company is deemed to be carrying on a speculation business to the extent to which the business consists of purchase and sale of shares. The Ld. CIT(A), therefore, treated the said loss as a speculation business and did not allow the loss against the other heads of income i.e., dividend income and interest income. The Ld. counsel narrated that the assessee during the instant assessment year carried on the only business of purchase and sale of shares of other companies and it had suffered loss from the business of share dealing amounting to Rs. 1,44,198. The assessee had a positive income by way of interest to the extent of Rs. 40,829 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Assessing Officer should not invoke the provisions of speculative business under section 73 of the Act and the Explanation thereto without bringing any material on record. The Ld. counsel placed reliance in the decision of the co-ordinate Bench of the I.T.A.T. in the case of Rajan Enterprises (P.) Ltd. v. ITO [1992] 41 ITD 469 (Bom.) and argued that whenever it is warranted the Act has provided specific exclusion of the item from gross total income. In one of such cases it was found in section 32A(3) in connection with the deduction of investment allowance. 5. It was further contended that as there was no specific exclusion of loss incurred by an assessee on purchase and sale of share from the gross total income in sections 70, 71 and 72, the ld. distinguished counsel submitted that the nature of transaction of the sale and purchase in the case of the assessee is to be determined with respect to the gross total income of the assessee without applying the provisions to Explanation 73. The ld. D.R. supported the orders of the lower authorities and placed reliance in the decision of the jurisdictional High Court in the case of CIT v. Arvind Investment Ltd. [1991] 192 ITR 365 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of the Assessing Officer cannot find any support from the law. 7. Section 43(5) of the Act has clearly defined when a transaction is to be regarded as a speculative transaction. According to section 43(5), speculative transaction means a transaction in which a contract for the purchase or sale of the commodity including anti stocks and shares is periodical and ultimately settled otherwise than by the actual delivery of the transfer of the commodity or scrips. It is a fact that once the transaction is treated as speculative transaction, then section 73 will come into play meaning thereby that speculation loss shall be set off only against the income from speculative business. We have noticed that according to section 43(5), only in a particular circumstance share dealing transaction can be said to be a speculative transaction and the Assessing Officer has failed to establish in such circumstance as envisaged under section 43(5) of the Income-tax Act, 1961 for the purpose of treating the transaction as speculative transaction. On a careful consideration of the facts of the case and material on record, we accept the contention of the distinguished Senior counsel that the share tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 71 and 72, or for that purpose to any other section, of the Act. He submitted that it may be simply a drafting error that these words have inadvertenly crept in the statute but once these words exist on the statute, it is not o en to us to apply this Explanation beyond section 73, and thereby, supplant the law or to cure the deficiencies contained therein. He thus admitted to be capitalizing on, what he perceived as, a 'lacunae in drafting of Explanation to section 73'. It is then submitted that when the unabsorbed loss is carried forward under- section 72 of the Act, there is no question of disallowing the said unabsorbed loss under section 73 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 section 43(5), as read with section 28 (Explanation 2), of the Act. It has also been submitted that since it is not even the revenue's case that the contracts are settled otherwise than by physical delivery, section 43(5) does not come to the play in the instant case. Reliance was placed on the order of a co-ordinate bench in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e head. It is thus abundantly clear that the right to set off under 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 shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year; and (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. (3) In respect of allowance on account of depreciation or capital expenditure on scien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (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 re-established, 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 re-established, reconstructed or revived, and-- (a) it shall be set off against the profits and gains, if any, of that business or any other business carried on by him and assessable for that assessment year; and (b) if the loss cannot be wholly so set off, the amount of loss not so set off shall, in case the business so re-established, reconstructed or revived continues to be carried on by the assessee, be carried forward to the following assessment year and so on for seven assessment years immediatel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overrule or set aside the particular provision." 6. This principle has also been dealt with by Kolkata SMC bench, in the case of Asstt. CIT 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". I am in respectful agreement with the views expressed by the Hon'ble Vice-President Garg. Similar views, were also expressed in the case of ITO (TDS) v. Titagarh Steels Ltd. [2001] 79 ITD 532 (Kol.) wherein while articulating the views of Kolkata C bench, I had observed as follows: "It is fairly well settled in law that general provisions do not override specific provisions, as aptly described by the maxim 'generalia specialibus non derogant' A spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be worked out without which calculations for section 73 cannot be done. In my 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. I, therefore, see no support to assessee's case by Tribunal's decision in the case of Rajan Enterprises (P.) Ltd. 8. I 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. I 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 ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips". In substance, the proposition thus canvassed is that the expression 'speculation business', for purposes other than section 73 of the Act, is to be governed by the definition contained in section 43(5), as read with section 28 (Explanation 2), of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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, I reject the contention that, for the purpose of section 72 of the Act, the question as to what will constitute 'speculation loss' will be governed only by the provisions of section 43(5) of the Act. I also see no substance in learned counsel's reliance on the words 'for the purpose of this section' appearing in Explanation to section 73 because once specific provisions under section 73 are to be applied first, i.e. before the application of general provisions of section 72, only non speculation loss will be subject-matter of carry forward under section 72 and, therefore, definition of 'speculation loss' will indeed not be relevant for the purpose of section 72. In fact, entire arguments proceed on the foundation that application of section 72 will have precedence over application of section 73 and once that basic foundation is found to be unsustainable in law. I see no substance in ingenious, but fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee, on merits and for the detailed reasons set out above, this aspect of the matter is not really relevant. 11. It is in the backdrop of the above factors that I am of the considered view that the assessee's appeal is devoid of any merits and the CIT(A) was justified in confirming the action of the Assessing Officer in treating the loss of Rs. 87,000 was 'speculation loss' in view of Explanation to section 73 of the Act. I, therefore, humbly differ with the view expressed by learned Judicial Member and consider it appropriate to dismiss the appeal. 12. In the result, appeal is dismissed. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 As there is a difference of opinion between the Judicial Member and the Accountant Member, the matter is being referred to the Hon'ble President of ITAT with a request that the following question may be referred to a Third Member or pass such orders as the Hon'ble President may kindly decide: "Whether, on the facts and in the circumstances of the case, the Tribunal should have allowed carry forward of Rs. 87,000 as "business loss" under section 72 of the Income tax Act, 1961 or as "speculation loss" under section 73 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as the activity, of the assessee was mainly trading of shares was thus rejected. 4. The assessee appealed to the Tribunal. The appellant took a different plea before the Tribunal in regard to non-applicability of Fxplanation to section 73. Whereas the Ld. Judicial Member accepted the claim of the assessee that Explanation to section 73 was inapplicable in the case of the assessee, the Ld. Accountant Member has taken a contrary view. 5. Before me, the learned counsel for the assessee contended that section 73 of the Act provides that any loss computed in respect of speculation business carried on by the assessee shall not be set off except against the profits and gains, if any, of another speculation business and that the Explanation to section 73 provides that for the purposes of section 73 where any part of the business of a company 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 speculation business to the extent to which the business consists of the purchase and sale of shares. It was pointed out that the said Explanation does not apply to any company whose gross total income co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of sections 70 and 71, it was the positive income of Rs. 9,176 after set off of loss etc. and the Tribunal held that section 73 was inapplicable. The learned counsel further contended that the issue raised in this appeal was neither raised nor decided by the jurisdictional High Court in the case of Arvind Investments Ltd. nor in the case of Eastern Aviation Inds. Ltd. Therefore aforementioned decisions are not applicable in this case. 6. The learned counsel further contended that Explanation to section 73 creates a legal fiction and, therefore, such a fiction should be strictly construed. In this connection reliance has been placed on the decision of the Supreme Court in the case of CIT v. C.P. Sarathy Mudaliar [1972] 83 ITR 170 at page 173. The learned counsel further pointed out that Ld. Accountant Member has highlighted the words used in section 70, namely, 'Save as otherwise provided in the Act' and has proceeded to hold that provisions of section 73 are thus applicable. It was pointed out that since the Explanation to section 73 is specifically made for the purposes of section 73, the same cannot be treated as a saving clause to sections 70 71 and, therefore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and intention of the Statute must be collected from the plain and unambiguous expression used therein rather than from any notions which may be entertained by the Court as to what is just or expedient. 9. It was further contended by the learned counsel that in case there is any defect in the legislation, there is no scope for the Courts to remedy the same. In this connection reliance was placed on the decision of the Supreme Court in the case of Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345 at page 356, where Their Lordships have observed "Even if there be a casus omisus, the defect can be remedied only by legislation and not by judicial interpretation". Reliance was also placed on the decision of the Supreme Court in the case of CIT v. Shaan Finance (P.) Ltd. [1998] 231 ITR 308 at page 317 for the proposition that in interpreting a fiscal statute, the Court cannot proceed to make good deficiencies if there be any; the Court must interpret the statute as it stands and in case of doubt in a manner favourable to the taxpayer. Reference was also made to the decision of the Supreme Court in the case of CITV. N.C. Budharaja Co. [1993] 204 ITR 412 at page 426 for the proposition t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8, Explanation 2 which provides that the business in speculative transaction shall constitute a speculation business and a distinct and separate from any other business. It was further contended that section 73 of the Income-tax Act, 1961 corresponds to section 24(2) read with proviso under the 1922 Act. In order to curb the tendency of some tax payers to reduce the tax burden by manipulation, Explanation to section 73 was added by Taxation Laws (Amendment Act), 1975. Circular No. 204 dated 24-7-1976 explains the reasons for incorporating Explanatioi7 to section 73. It was contended that the jurisdictional High Court of Calcutta had the occasion to consider the applicability of the Explanation to section 73 in the following cases where it has been held that the Explanation was applicable in such cases of similar nature as that of the appellants:-- Arvind Investments Ltd.'s case, Eastern Aviation Inds. Ltd.s case, Arvasthan Corpn. Ltd. v. CIT [2002] 253 ITR 401 (Cal.). 11. The Ld. Departmental Representative further contended that it is well established principle of law that the Legislature cannot be presumed to have used any words or expressions unnecessarily. Relying upon th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls within the excluded category of companies under Explanation to section 73 of the Act. The appellant has suffered loss of Rs. 87,000 in the business of purchase and sale of shares. If the particular plea advanced in this case were not to be taken into account, the issue admittedly is covered by the decision of the jurisdictional high Court of Calcutta. In the case of Arvind Investment Ltd. Their Lordships of the Calcutta High Court held that Explanation to section 73 is attracted even when the entire business of the assessee-company was in share dealings and that the loss from such share dealings was to be regarded as speculation loss to be governed by provisions of section 73 for its setoff and/or for carryforward and set off. In that case it had been argued on behalf of the company that Explanation to section 73 applies to those companies whose part of the business is the purchase and sale of shares and that the said Explanation shall have no application to such companies whose entire business was in share dealings. In the case CIT v. Sumati Kumar Sunil Kumar [1992] 193 ITR 537 at page 542 (Cal.), Their Lordships of the Calcutta High Court held that in view of the special provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profession" is a loss to the assessee, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off or where he had 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," "73. (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 shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for the assessment year; and (ii) if the loss cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1975 which treats the business of purchase and sale of shares by companies (other than excluded companies) as speculation business. As a result of this Explanation, the losses from such dealings will be set off only against the gains from similar dealings in shares or other speculative activity. The sweep of speculation business is thus extended with effect from 1st April, 1977 applicable for and from assessment year 1977-78. The scope and effect of the newly inserted Explanation have been elaborated in para Nos. 19.1 to 19.3 of Circular No. 204, dated 24-7-1976 of the C.B.D.T. as under: "19.1 Treatment of losses in speculation business-section 73.--section 73 of the Income-tax Act provides that any loss computed in respect of speculation business carried on by an assessee will not be set off except against the profits and gains, if any, of another speculation business. Further, where any loss, computed in respect of a speculation business for an assessment year is not wholly set off in the above manner in the said year, the excess shall be allowed, to be carried forward to the following assessment year and set off against the speculation profits, if any, in that year, and so on. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r a future year or future years. Sub-section (1) of section 73 provides that 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 any speculation business. Explanation to section 73 provides that 'for the purposes of this section', a company whose business consists in the purchase and sale of shares of other companies shall be deemed to be carrying on a speculation business to the extent to which the business consists of purchase and sale of such shares. It is not disputed by the assessee that the appellant-company falls within the definition of the companies under Explanation to section 73. The contention advanced as already pointed out, is that the said Explanation has limited application to provisions of section 73 and its applicability does not extend to sections 70, 71 and 72. The learned counsel for the assessee has stressed upon the words "for the purposes of this section" used by the Legislature in the Explai7ation to section 73. Once it is not disputed that Explanation is applicable with reference to all the clauses of section 73, then one has to see the consequences. At the cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iar [1971] 82 ITR 599 at page 605 held that "Words in the section of a statute are not to be interpreted by having those words in one hand and the dictionary in the other. In spelling out the meaning of the words in a section, one must take into consideration the setting in which those terms are used and the purpose that they are intended to serve. It is also well established principle of law that a statutory provision is to be construed in such a manner so that absurdity or mischief is avoided. The interpretation advanced on behalf of the assessee if accepted will result in absurdity. The enactment of Explanation to section 73 would be rendered redundant. In the case of Grasim Industries Ltd. v. Collector of Customs [2002] 128 STC 349, Their Lordships of the Supreme Court held-"No word expression used in any Statute can be said to be redundant or superfluous. It was established rule of interpretation that the Court should not concentrate too much on the word and pay little attention to other words. No provision in the Statute and no word in any section can be construed in isolation. When the words of Statute are clear, there is no scope for the Court to take up itself the task of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y forward and set off of losses. No violence is required in the language of provisions of sections 70, 71, 72 and 73 in their interpretation as the plain reading of these provisions do not leave any doubt in my mind to understand the objects sought to be achieved on giving effect to the plain wording of the aforementioned provisions of the Act. 22. Next contention advanced on behalf of the assessee that there is a defect in legislation and the same cannot be cured by the Courts, in my view, is also without any substance. Section 73 has been carefully drafted by the Legislature to achieve the specific purpose of curbing the device sometimes resorted to by business houses to manipulate and reduce the taxable income of the companies under their control. I would like to explain as to why the Legislature has used the expression' for the purposes of this section' in the Explanation to section 73 of the Act. In my considered view, the expression has been deliberately used in order to achieve the object of the Legislation in so far as the intention of the Legislature has been to make the Explanation applicable only in such cases of companies claiming loss in the business of purchase and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other speculation business. If any company has earned profit in the share trading business the activity of the company of share trading in that case is not to be treated as speculative business. The loss suffered in speculative business as defined under section 43 will not be set off against the profits of share trading business or any other business. Section 73 prohibits the set off and carry forward of loss suffered in speculation business with any other source of income other than speculation business and for the purpose of the prohibition, the loss suffered by the assessee in the business of purchase and sale of shares as per Explanatioi7 to section 73 is applicable. Thus, it is seen that the Legislature has achieved the object by using the expression 'for the purposes of this section' in Explanation to section 73 and that there is neither any omission nor mistake, as perceived on behalf of the assessee. This contention also, accordingly, does not hold water. 26. I, therefore, concur with the view expressed by the Ld. Accountant Member that the loss suffered by the assessee in the purchase and sale of shares falls within the category of speculative business loss as per Explan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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