Case Law Details
CASE LAWS DETAILS
DECIDED BY: HIGH COURT OF BOMBAY,
IN THE CASE OF: CIT Vs Lokmat Newspapers Pvt. Ltd., APPEAL NO: ITA (L) No. 3005 of 2009, DECIDED ON: ITA (L) No. 3005 of 2009
RELEVANT PARAGRAPH
6. Sub section (1) of Section 73 provides that the loss in respect of a speculation business can be set off only against the profits and gains of another speculation business. Sub section (2) of Section 73 enables an assessee to carry forward the loss arising out of a speculation business which has not been set off e their wholly or partly under the provisions of sub section (1).A loss from a speculation business which has not been set off e their entirely or n part, can be carried ed forward to the following Assessment Year and can be set off against the profits and gains, if any, of a speculation business carried on by the assessee and assessable for that Assessment Year. If the loss cannot be wholly set off, the amount of loss which is not so set off, can be carried forward to the following Assessment Year. However, a loss cannot be carried forward for more than four Assessment Years immediately succeeding the Assessment Year in which the loss was first computed.
7. The explanation to Section 73 creates a deeming fiction. The explanation postulates a situation where the assessee is a Company and where any part of the business of the Company consists of the purchase and sale of shares of other Companies. In such a case, the assessee is for the purposes of Section 73 deemed to be carrying on a speculation business, to the extent to which the business consists of the purchase and sale of shares. The explanation carves out an exception in the case of a Company whose gross total income consists mainly of income under the heads of 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 banking or the granting of loans and advances. The exception carved out by the explanation, however, is not attracted to the facts of this case and its interpretation, therefore, does not call for consideration here. What is material for the purposes of this case is, that the explanation postulates a situation where any part of the business of a Company consists of the purchase and sale of shares of other Companies. Therefore, the explanation is attracted in a situation where something more than an isolated transaction involving sale and purchase of shares is involved. A business postulates a systematic course of activity or dealing. Unless the business of a Company consists of the sale and purchase of shares, the deeming fiction would not apply. However, once the requirements of the explanation are satisfied , namely, on where: ()The assessee is a Company;()Any part of the bus ness of the Company consists in the purchase and sale of shares of other Companies, the consequence which is envisaged n the explanation, as a fiction of law, is brought into existence. The legal fiction is that the assessee is deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares.
8. Section 28 of the Act deals with the profits and gains of a business or profession. Explanation (2) to Section 28 provides that where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business (which is to be referred to as a “speculation business “) shall be deemed to be istinct and separate from any other business. Section 43 provides definitions of certain terms relevant to the head of income from profits and gains of business or profession. Sub section (5) of Section 43 defines the expression “speculative transaction ” to mean 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 scripts. The proviso to sub section (5) then describes certain categories of transactions which shall not be deemed to be speculative transactions. The proviso will not have a bearing on these proceedings.
9. The contention of the Revenue in the present case, in essence is that the definition of the expression “speculative transaction ” in Section 43(5) must be read into the provisions of Section 73, because a business cannot be a speculation business unless there is a speculative transaction and a speculative transaction is defined by the former as one, not involving an actual delivery of shares. Hence, it was submitted that a transaction which involves an actual delivery of shares would not constitute a speculative transaction and the assessee who is engaged in a business involving the actual delivery of shares, cannot be regarded as being engaged in speculation business.
10. The submission which has been urged on behalf of the Revenue, cannot be accepted, having regard to the plain meaning of the explanation to Section 73. The submission of the Revenue is that a loss which arises on account of a transaction of the sale and purchase of shares would constitute a loss from a speculation business for the purposes of the explanation. But, that the profit which arises from a transaction involving the actual delivery of shares would not constitute a profit for the purposes of sub sections (1) and (2) of Section 73 in respect of which a set off can be granted. To accept the submission of the Revenue would be to introduce a restriction into the scope and ambit of the deeming fiction which is created by the explanation to Section 73, which is not contemplated by Parliament. Once a deeming fiction is created by law, it must be given full and free effect, of course, in relation to the ambit within which t s intended to operate. The deeming fiction created by the explanation to Section 73 defines when an assessee s to be deemed to be carrying on a speculation business for the purposes of the Section. The deeming fiction is, therefore, one which arises specifically in the context of the provisions of Section 73 and is confined to that purpose alone. The explanation stipulates that where an assessee is a company whose business consists in any part of the purchase and sale of shares of other Companies, it 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. Whether or not it is a profit or loss that has resulted from carrying on such business, is a consideration which is alie to the meaning of what constitutes a speculation business by the explanation to Section 73. Once an assessee is deemed to be carrying on a speculation business for the purpose of Section 73, any loss computed in respect of that speculation business, can be set off only against the profits and gains of an other speculation business. Similarly, for the purposes of sub section (2), the loss in respect of a speculation business which has not been set off either in whole or in part, can be carried forward and can be set off against profits and gains “of any speculation business “. The expression “any speculation business ” means a speculation business of the assessee in respect of which profits and gains for the Assessment Year in question have arisen and there is no justification to restrict the content of that speculation business where profits have arisen by excluding a business involving actual delivery of shares. No such restriction is found in the explanation. To impose one is a legislative function. In other words, once the assessee is carrying on a speculation business and the profits and gains have arisen from that business during the course of the Assessment Year, the assessee is entitled to set off the losses carried forward from a speculation business arising out of a previous Assessment Year.
