Commissioner Of Income Tax, Jaipur-Ii, Jaipur v. Brig. Sh. P S Kapoor, B-30B, Govind Nagar, Adarsh Nagar, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 254 / 2009 Commissioner of Income Tax, Jaipur-II, Jaipur ----Appellant Versus Brig. Sh. P S Kapoor, B-30B, Govind Nagar, Adarsh Nagar, Jaipur ----Respondent Connected With D.B. Income Tax Appeal No. 623 / 2009 Commissioner of Income Tax, Jaipur-II, Jaipur ----Appellant Versus Brig. Sh. P S Kapoor, B-30B, Govind Nagar, Adarsh Nagar, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. R.B. Mathur with Mr. K.D. Mathur Mr. Prateek Kedawat For Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Judgment 08/08/2017 1.By way of these appeals, the appellant has challenged thejudgment and order passed by the tribunal whereby the tribunalhas allowed the appeal preferred by the assessee reversing theview taken by the Assessing Officer and CIT (A). 2.This court while admitting the appeal has framed followingsubstantial questions of law which reads as under:- D.B. Income Tax Appeal No.254/2009admitted on 11.05.2009 "Whether the ITAT was justified in holding thatthe provisions of section 43(5) (d) are applicableretrospectively inspite of the fact that as per theIncome Tax Act the same were made applicablewith effect from 01.04.2006." D.B. Income Tax Appeal No.623/2009admitted on 04.11.2009 “(i) Whether in the facts and circumstances ofthe case the ITAT was justified in law in holdingthat amendment of clause (d) of proviso toSection 43(5) is retrospective which excludesderivative transactions from the definition ofspeculation transaction despite the fact that theamendment made by the finance Act 06 clearlysays that it would be applicable for AssessmentYear 06-07 and onwards? (ii) Whether in the facts and circumstances of thecase the ITAT was justified in law in holding thatsection 50C cannot be made applicable onagreement to sale giving liberty to assessee toundervalues the property and evade the tax aswell as evade stamp duty?” 3.Mr. R.B. Mathur, counsel for the appellant has taken us to the definition of Section 43 (5) and more particularly to Clause (d)which came into force w.e.f. 01.04.2006 where notification was published on 25.01.2006 read with Rule 6DDA and 6DDB which reads as under:- 43 (5) "speculative transaction" means atransaction in which a contract for the purchaseor sale of any commodity, including stocks andshares, is periodically or ultimately settledotherwise than by the actual delivery or transferof the commodity or scrips: Provided that for the purposes of this clause-- (a) a contract in respect of raw materials ormerchandise entered into by a person in thecourse of his manufacturing or merchantingbusiness to guard against loss through future price fluctuations in respect of his contracts foractual delivery of goods manufactured by him ormerchandise sold by him ; or (b) a contract in respect of stocks and sharesentered into by a dealer or investor therein toguard against loss in his holdings of stocks andshares through price fluctuations ; or (c) a contract entered into by a member of aforward market or a stock exchange in thecourse of any transaction in the nature ofjobbing or arbitrage to guard against loss whichmay arise in the ordinary course of his businessas such member ; or (d) an eligible transaction in respect of trading inderivatives referred to in clause (aa) of section 2of the Securities Contracts (Regulation) Act,1956 (42 of 1956), carried out in a recognisedstock exchange; shall not be deemed to be aspeculative transaction ; Explanation.—For the purposes of this clause,the expressions— (i) “eligible transaction” means any transaction,— (c) a contract entered into by a member of aforward market or a stock exchange in thecourse of any transaction in the nature ofjobbing or arbitrage to guard against loss whichmay arise in the ordinary course of his businessas such member ; or (d) an eligible transaction in respect of trading inderivatives referred to in clause (aa) of section 2of the Securities Contracts (Regulation) Act,1956 (42 of 1956), carried out in a recognisedstock exchange; shall not be deemed to be aspeculative 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 orsuch other intermediary registered under section12 of the Securities and Exchange Board of IndiaAct, 1992 (15 of 1992), in accordance with theprovisions of the Securities Contracts(Regulation) Act, 1956 (42 of 1956), or theSecurities and Exchange Board of India Act,1992, or the Depositories Act, 1996 (22 of 1996)and the rules, regulations or bye-laws made ordirections issued under those Acts or by banksor mutual funds on a recognised stock exchange; and (B) which is supported by a time stampedcontract note issued by such stock broker orsub-broker or such other intermediary to everyclient indicating in the contract note the uniqueclient identity number allotted under any Actreferred to in sub-clause (A) and permanentaccount number allotted under this Act ; (ii) “recognised stock exchange” means arecognised stock exchange as referred to inclause (f) of section 2 of the Securities Contracts(Regulation) Act, 1956 (42 of 1956), and whichfulfils such conditions as may be prescribed andnotified by the Central Government for thispurpose. “ 6DDA. Conditions that a stock exchange isrequired to fulfil to be notified as a recognised stock exchange for the purposes of clause (d) ofproviso to clause (5) of section 43.—For thepurposes of clause (d) of proviso to clause (5) ofsection 43, a stock exchange shall fulfil thefollowing conditions in respect of trading inderivatives, namely :— (i) the stock exchange shall have the approval ofthe Securities and Exchange Board of Indiaestablished under the Securities and ExchangeBoard of India Act, 1992 (15 of 1992) in respectof trading in derivatives and shall function inaccordance with the guidelines or conditions laiddown by the Securities and Exchange Board ofIndia ; (ii) the stock exchange shall ensure that theparticulars of the client (including unique clientidentity number and PAN) are duly recorded andstored in its databases ; (iii) the stock exchange shall maintain acomplete audit trial of all transactions (inrespect of cash and derivative market) for aperiod of seven years on its system ; (iv) the stock exchange shall ensure thattransactions once registered in the systemcannot be erased or modified. *I.T. (20thAmend.) Rules, 2005, wef. 1-7-2005. Rule 6DDBprovides the procedure for notification asrequired under explanation (ii) to section 43(5).This procedure is laid down as under :- *6DDB. Notification of a recognised stockexchange for the purposes of clause (d) ofproviso to clause (5) of section 43.— (1) An application for notification of a stockexchange as a recognised stock exchange forthe purposes of clause (d) of proviso to clause(5) of section 43 may be made to the Member(L), Central Board of Direct Taxes, North Block,New Delhi-110 001. (2) The application referred to in sub-rule (1)shall be accompanied with the followingdocuments, namely :— (i) approval granted by Securities and ExchangeBoard of India for trading in derivatives ; (ii) up-to-date rules, bye-laws and tradingregulations of the stock exchange ; (iii) confirmation regarding fulfilling theconditions referred to in clause (ii) to clause (iv)of rule 6DDA ; *6DDB. Notification of a recognised stockexchange for the purposes of clause (d) ofproviso to clause (5) of section 43.— (1) An application for notification of a stockexchange as a recognised stock exchange forthe purposes of clause (d) of proviso to clause(5) of section 43 may be made to the Member(L), Central Board of Direct Taxes, North Block,New Delhi-110 001. (2) The application referred to in sub-rule (1)shall be accompanied with the followingdocuments, namely :— (i) approval granted by Securities and ExchangeBoard of India for trading in derivatives ; (ii) up-to-date rules, bye-laws and tradingregulations of the stock exchange ; (iii) confirmation regarding fulfilling theconditions referred to in clause (ii) to clause (iv)of rule 6DDA ; (iv) such other information as the stockexchange may like to place before the CentralGovernment. (3) The Central Government may call for suchother information from the applicant as it deemsnecessary for taking a decision on theapplication. (4) The Central Government, after examiningthe information furnished by the stock exchangeunder sub-rule (2) or sub-rule (3), shall notifythe stock exchange as a recognised stockexchange for the purposes of clause (d) ofproviso to clause (5) of section 43 or issue anorder rejecting the application before the expiryof four months from the end of the month inwhich the application is received. (5) The notification referred to in sub-rule (4)shall be effective until the approval granted bythe Securities and Exchange Board of India iswithdrawn or expired, or the notification isrescinded by the Central Government.” 3.He has contended that the view taken by the tribunal inmaking the aforesaid provision retrospective is not correct and tosupport his case, he has relied on the decision of Bombay HighCourt in the case of Commissioner of Income Tax Vs. Shri BharatR. Ruia (HUF) Phoenix Mills Premises2011)337ITR452(Bom)wherein it has been observed as under:- “23. Plain reading of Clause (d) to Section 43(5)makes it clear that with effect from 1/4/2006,only those eligible transaction in derivativesreferred to under Section 2(ac) of 1956 Actwhich are carried out in a recognized stockexchange shall not be deemed to be aspeculative transaction. It is only because, thetransactions in derivatives referred to underSection 2(ac) of the Act carried out in arecognized stock exchange were covered underSection 43(5) of the Act, the legislature couldexclude those transactions from the purview ofSection 43(5) with effect from 1/4/2006. Inother words, unless the transactions referred inClause (d) were covered under Section 43(5),makes it clear that with effect from 1/4/2006,only those eligible transaction in derivativesreferred to under Section 2(ac) of 1956 Actwhich are carried out in a recognized stockexchange shall not be deemed to be aspeculative transaction. It is only because, thetransactions in derivatives referred to underSection 2(ac) of the Act carried out in arecognized stock exchange were covered underSection 43(5) of the Act, the legislature couldexclude those transactions from the purview ofSection 43(5) with effect from 1/4/2006. Inother words, unless the transactions referred inClause (d) were covered under Section 43(5), there would be no question of excluding thosetransactions from the purview of Section 43(5). there would be no question of excluding thosetransactions from the purview of Section 43(5). 25. Chapter IV of the Act contains provisionsrelating to the computation of profits and gainsof business or profession. Section 28 in ChapterIV of the Act inter alia provides that the profitsand gains of any business or profession whichare carried on by the Assessee at any timeduring the previous year shall be chargeable toincome tax under the head 'profits & gains ofbusiness or profession'. Explanation 2 to Section28 provides that where speculative transactionscarried on by an Assessee are of such a natureas to constitute a business, then suchspeculation business shall be deemed to bedistinct and separate from any other business.Section 72 of the Act provides for set off of thecarried forward business losses not being a losssustained in a speculation business. Section 73provides that the carried forward losses inspeculation business shall not be set off exceptagainst profits and gains, in any otherspeculation business. The Assessee claims thatthe losses incurred in derivative transactions arebusiness losses which could be set off againstprofits and gains of any other business / anyother heads of income, whereas the revenuecontends that the losses incurred by theAssessee in derivative transactions arespeculative transactions covered under Section43(5) of the Act which could be set off onlyagainst profits of speculation business. 35. The argument that Section 43(5) refers tocontracts which are capable of settlement byactual delivery whereas the transactions infutures are incapable of settlement andtherefore, transactions in futures would falloutside the scope of Section 43(5) is alsowithout any merit, because, the very object ofSection 43(5) is to treat transactions which aresettled otherwise than by actual delivery asspeculative transactions. As noted earlier,Section 43(5) refers to contracts for purchase /sale of any commodity and it is not restricted tocontracts which are capable of performance byactual delivery. Therefore, the fact that thefutures contracts are settled otherwise thanactual delivery cannot be a ground to hold thatthe futures contracts are not speculativetransactions under Section 43(5) of the Act. 36. The exceptions enumerated in the proviso toSection 43(5) clearly provide that wherespeculative transactions are carried out with aview to guard against loss in respect of contractsfor actual delivery in cases referred to in Clause(a), (b) & (c) of the proviso, then, suchspeculative transactions shall not be deemed tobe speculative transactions. So far as thetransactions covered under Clause (d) areconcerned, they are deemed not to bespeculative transactions only with effect from1/4/2006. Therefore, the transactions coveredunder Clause (d) would not be treated asspeculative transactions only with effect from1/4/2006. 36. The exceptions enumerated in the proviso toSection 43(5) clearly provide that wherespeculative transactions are carried out with aview to guard against loss in respect of contractsfor actual delivery in cases referred to in Clause(a), (b) & (c) of the proviso, then, suchspeculative transactions shall not be deemed tobe speculative transactions. So far as thetransactions covered under Clause (d) areconcerned, they are deemed not to bespeculative transactions only with effect from1/4/2006. Therefore, the transactions coveredunder Clause (d) would not be treated asspeculative transactions only with effect from1/4/2006. 37. The argument advanced on behalf of theAssessee that Clause (d) inserted to the provisoto Section 43(5) by Finance Act, 1995 witheffect from 1/4/2006 is clarificatory and henceretrospective in nature, cannot be accepted,because, firstly, the legislature by Finance Act,1995 has specifically provided that Clause (d) tothe proviso to Section 43(5) shall come intooperation prospectively with effect from1/4/2006. Secondly, insertion of Clause (d) wasnot necessitated on account of the fact that theprovisions of Section 43(5) were unworkable orinterpretation of Section 43(5) resulted inunintended consequences. Thirdly, even afterinsertion of Clause (d), all transactions inderivatives are not taken outside the purview ofSection 43(5). It is only those derivativetransactions which are covered under Clause (d)are taken outside the purview of Section 43(5)and the rest of the transactions in derivativeswould continue to be covered under Section43(5) of the IT Act. In these circumstances, theargument that Clause (d) inserted to the provisoto Section 43(5) has retrospective effect cannotbe accepted.” 4.He has relied on the decision of Gujarat High Court in thecase of Kanubhai A-Patel Vs. Assistant Commissioner of Income Tax in Tax Appeal Nos.540, 541 and 542 of 2003 decided on 16.12.2014 wherein it has been held as under:- 13. "The Full Bench of the Hon'ble Gujarat HighCourt in the case of Pankaj Oil Mills v. CITMANU/GJ/0032/1976MANU/GJ/0032/1976: (1978) 115-ITR-824 (Guj.) has explained thesubtle and significant distinction betweenspeculative transaction and hedging transaction.It will be imperative to reproduce the relevantextracts from the said judgment in order toproperly understand the true meaning and scopeof these expression: 4.He has relied on the decision of Gujarat High Court in thecase of Kanubhai A-Patel Vs. Assistant Commissioner of Income Tax in Tax Appeal Nos.540, 541 and 542 of 2003 decided on 16.12.2014 wherein it has been held as under:- 13. "The Full Bench of the Hon'ble Gujarat HighCourt in the case of Pankaj Oil Mills v. CITMANU/GJ/0032/1976MANU/GJ/0032/1976: (1978) 115-ITR-824 (Guj.) has explained thesubtle and significant distinction betweenspeculative transaction and hedging transaction.It will be imperative to reproduce the relevantextracts from the said judgment in order toproperly understand the true meaning and scopeof these expression: "It would be profitable to appreciate inproperperspectivehowhedgetransactions are commercially understoodbefore we determine about the true scopeand width of prov. (a) to section 43(5). Asthe very name suggests, hedge contractsare those contracts which hedge againstprejudicial price fluctuations. Speculativetransactions are not the same asagreements by way of wager. Inspeculative transactions the modusoperandi of persons indulging in them isthat when one enters into a contract ofpurchase, he also simultaneously entersinto one or more contracts of sale againstthe same quantity deliverable at the sametime either to the original vendor or tosome one else, so as either to secureprofit or to minimise loss, before the Vaidaday; and similarly when he enters into acontract of sale, he simultaneously entersinto one or more contracts to purchase thesame quantity before the Vaida day. Theresult of such dealings, when the sale andpurchase are to and from the sameperson, has the effect of cancelling thecontracts leaving only differences to bepaid(videTodv.LakshmidasPurushottamdas (1892) ILR 16 Bom. 441;Perosha Coursetji Parakh v. ManekjiDossabhai Watcha (1898) ILR 22 Bom 899and Sassoon v. Tokersey JadhawjeeMANU/MH/0039/1904MANU/MH/0039/1904 : (1904) ILR 28 Bom 616). The principleenunciated in these cases is to the effectthat there is a possibility of confoundingspeculative transactions with agreementsby way of wager but the distinctionbetween the two as to their legal results isvital. In speculative transactions a sellermight never have intended to give deliveryand the purchaser did not expect him todeliver, but that does not convert acontract otherwise innocent into a wager. Heading transactions are, however, to bedistinguished from the speculativetransactions, inasmuch as they aregenuine transactions entered into forpurposes of insuring against adverse pricefluctuations. In hedging transactionsneither delivery nor transfer iscontemplated and yet they cannot betreated as speculative transactions in thecommercial parlance. The technique ofhedge trading is very pithily explained bya well known Economist, W R Natu, in hisbook Regulation of Forward Markets, atpage 9, as under: The hedge contract is so calledbecause it enables the personsdealing with the actual commodity tohedge themselves, i.e. to insurethemselves against adverse pricefluctuations. A dealer or a merchantenters into a hedge contract when thesells or purchases a commodity in theforward market for delivery at afuture date. His transaction in theforward market may correspond to aprevious purchase or sale in theready market or he may propose tocover it later by a correspondingtransaction in the ready market, orhe may offset it by a reversetransaction on the forward marketitself." The hedge contract is so calledbecause it enables the personsdealing with the actual commodity tohedge themselves, i.e. to insurethemselves against adverse pricefluctuations. A dealer or a merchantenters into a hedge contract when thesells or purchases a commodity in theforward market for delivery at afuture date. His transaction in theforward market may correspond to aprevious purchase or sale in theready market or he may propose tocover it later by a correspondingtransaction in the ready market, orhe may offset it by a reversetransaction on the forward marketitself." 14. Considering the facts of the case, we are ofthe view that the Assessing Officer was justifiedin treating the loss suffered by the assessee asbusiness loss since it was a loss sustained inspeculation business. In similar case, theRajasthan High Court in the case ofCommissioner of Income Tax v. Shree Textiles,MANU/RH/0105/1993MANU/RH/0105/1993:(1994) 206 ITR 345 had taken the view wherethe assessee had shown a loss of Rs. 16,426 inthe cotton account and the entry was passedthrough the "Nakal Bahi' on the last date of theaccounting year. This difference was paid onaccount of purchase and sale of 100 cotton baleswhich were through B. The Income-tax Officerheld that it was a speculation transaction and assuch could not be adjusted against the businessincome. The Tribunal, however, held that it wasbusiness loss. 15. On the aforesaid aspects, it was held thatfrom the definition of "speculative transaction" asgiven in section 43(5) of the Income Tax Act,1961, only the three exceptions given in clauses(a), (b) and (c) are deemed not to be speculativetransactions and if a transaction falls within themain clause, it cannot be excluded from thecategory of "speculative transaction". The objectof Explanation 2 to section 28 is to demarcateand classify separately out of the varioustransactions, speculative business, Explanation 2states what would constitute a speculativebusiness. Speculative business has to be treatedand deemed to be separate from any otherbusiness. Speculative transactions carried on bythe assessee should be of such a nature so as toconstitute a business. The definition of business,therefore, becomes more relevant when it has tobe seen as to whether the nature of thetransaction carried on constitutes a business. Ina case where a trader carries on a business partof which (even one transaction) is in the categoryof "speculative transaction" as defined undersection 43(5) and part of which falls in thecategory of business, then the object ofExplanation 2 is to treat them separately. Asingle transaction may constitute a speculativebusiness so as to be treated differently fromother business under section 28. Accordingly,that amount of Rs. 16,426/- was considered tobe the loss in speculation.” 4.1Therefore, he has contended that the tribunal has seriouslycommitted an error in allowing the appeal of the assessee andreversing the view taken by the Assessing Officer and CIT (A). 5.Mr. Sanjay Jhanwar, counsel for the respondent has reliedupon the Supreme Court Judgment referred by the tribunal in thecase of Allied Motors Pvt. Ltd. Vs. Commissioner of Income Tax-CIT 224 ITR 677 (SC) wherein while considering the cae underSection 43B has held as under:- “8. This position is reinforced by a departmentalCircular No. 550 : dated 1st of January 1990, )SeeTaxmann’s Direct Taxes Circulars, Vol.4, 1995 edn., pp. 2. 1741, 2.1750): “AMENDMENT OF PROVISIONS RELATING TOCERTAIN DEDUCTIONS TO BE ALLOWED ONLYON ACTUAL PAYMENT: 4.1Therefore, he has contended that the tribunal has seriouslycommitted an error in allowing the appeal of the assessee andreversing the view taken by the Assessing Officer and CIT (A). 5.Mr. Sanjay Jhanwar, counsel for the respondent has reliedupon the Supreme Court Judgment referred by the tribunal in thecase of Allied Motors Pvt. Ltd. Vs. Commissioner of Income Tax-CIT 224 ITR 677 (SC) wherein while considering the cae underSection 43B has held as under:- “8. This position is reinforced by a departmentalCircular No. 550 : dated 1st of January 1990, )SeeTaxmann’s Direct Taxes Circulars, Vol.4, 1995 edn., pp. 2. 1741, 2.1750): “AMENDMENT OF PROVISIONS RELATING TOCERTAIN DEDUCTIONS TO BE ALLOWED ONLYON ACTUAL PAYMENT: 15.1. Under the existing provisions of Section43B of the Income-tax Act 1961, a deduction forany sum payable by way of tax, duty, cess or fee,etc., is allowed on actual payment basis only. Theobjective behind these provisions is to provide fora tax disincentive by denying deduction inrespect of a 'statutory liability' which is not paidin time. The Finance Act, 1987, inserted aproviso to Section 43B to provide that any sumpayable by way of tax or duty, etc., liability forwhich was incurred in the previous year will beallowed as a deduction, if it is actually paid bythe due date of furnishing the return UnderSection 139(1) of the Income-tax Act in respectof the assessment year to which the aforesaidprevious year relates. This proviso wasintroduced to remove the hardship caused tocertain taxpayers who had represented that sincethe sales tax for the last quarter cannot be paidwithin the previous year, the original provisionsof Section 43B will unnecessarily involvedisallowance of the payment for the last quarter. Certain courts have interpreted the provisions ofSection 43B in a manner which may negate thevery operation of this section. The interpretationgiven by these courts revolves around the use ofthe words 'any sum payable'. The interpretationgiven to these words is that the amount payablein a particular year should also be statutorilypayable under the relevant statute in the sameyear. Thus, the sales tax in respect of sales madein the last quarter was held to be totally outsidethe purview of Section 43B since the same\is notstatutorily payable in the financial year to whichit relates. This is against the legislative intentand, therefore, by way of inserting anExplanation, it has been clarified that the words'any sum payable' shall mean any sum, liabilityfor which has been incurred by the taxpayerduring the previous year irrespective of the dateby which such sum is statutorily payable .... The departmental understanding also appears tobe that Section 43B, the proviso and Explanation2 have to be read together as expressing thetrue intention of Section 43B. Explanation 2 has been expressly made retrospective. The firstproviso, however, cannot be isolated fromExplanation 2 and the main body of Section 43B.Without the first proviso, Explanation 2 would notobviate the hardship or the unintendedconsequences of Section 43B. The provisosupplies an obvious omission. But for this provisothe ambit of Section 43B becomes unduly widebringing within its scope those payments whichwere not intended to be prohibited from thecategory of permissible deductions. 9 In the case of Goodyear India Ltd. v. State ofHaryana [1991] 188 ITR 402 (SC) this Court saidthat the rule of reasonable construction must beapplied while construing a statute. Literalconstruction should be avoided if it defeats themanifest object and purpose of the Act. been expressly made retrospective. The firstproviso, however, cannot be isolated fromExplanation 2 and the main body of Section 43B.Without the first proviso, Explanation 2 would notobviate the hardship or the unintendedconsequences of Section 43B. The provisosupplies an obvious omission. But for this provisothe ambit of Section 43B becomes unduly widebringing within its scope those payments whichwere not intended to be prohibited from thecategory of permissible deductions. 9 In the case of Goodyear India Ltd. v. State ofHaryana [1991] 188 ITR 402 (SC) this Court saidthat the rule of reasonable construction must beapplied while construing a statute. Literalconstruction should be avoided if it defeats themanifest object and purpose of the Act. 10. Therefore, in the well known words of JudgeLearned Hand, one cannot make a fortress out ofthe dictionary; and should remember thatstatutes have some purpose and object toaccomplish whose sympathetic and imaginativediscovery is the surest guide to their meaning. Inthe case of R.B Jodha Mai Kuthiala v.Commissioner of Income-Tax, [1971] 82 ITR 570,this Court said that one should apply the rule ofreasonable interpretation. A proviso which isinserted to remedy unintended consequences andto make the provision workable, a proviso whichsupplies an obvious omission in the section and isrequired to be read into the section to give thesection a reasonable interpretation, requires tobe treated as retrospective in operation so that areasonable interpretation can be given to thesection as a whole.” 6.He has also referred to another decision in the case ofCommissioner of Income Tax Kolkata-III Vs. Alom ExtrusionsLimited-(2009)319ITR306(SC) wherein the Supreme Court hasheld as under:- 6.He has also referred to another decision in the case ofCommissioner of Income Tax Kolkata-III Vs. Alom ExtrusionsLimited-(2009)319ITR306(SC) wherein the Supreme Court hasheld as under:- by the Department for the following reasons:firstly, as stated above, Section 43B [mainsection], which stood inserted by Finance Act,1983, with effect from 1st April, 1984, expresslycommences with a non-obstante clause, theunderlying object being to disallow deductionsclaimed merely by making a Book entry based onMerchantile System of Accounting. At the sametime, Section 43B [main section] made itmandatory for the Department to grantdeduction in computing the income under Section28 in the year in which tax, duty, cess, etc., isactually paid. However, Parliament tookcognizance of the fact that accounting year of acompany did not always tally with the due datesunder the Provident Fund Act, MunicipalCorporation Act [octroi] and other Tax laws.Therefore, by way of first proviso, anincentive/relaxation was sought to be given inrespect of tax, duty, cess or fee by explicitlystating that if such tax, duty, cess or fee is paidbefore the date of filing of the Return under theIncome Tax Act [due date], the assessee(s) thenwould be entitled to deduction. However, thisrelaxation/incentive was restricted only to tax,duty, cess and fee. It did not apply tocontributions to labour welfare funds. The reasonappears to be that the employer(s) should not siton the collected contributions and deprive theworkmen of the rightful benefits under SocialWelfare legislations by delaying payment ofcontributions to the welfare funds. However, asstated above, the second proviso resulted inimplementation problems, which have beenmentioned hereinabove, and which resulted inthe enactment of Finance Act, 2003, deleting thesecond proviso and bringing about uniformity inthe first proviso by equating tax, duty, cess andfee with contributions to welfare funds. Once thisuniformity is brought about in the first proviso,then, in our view, the Finance Act, 2003, which ismade applicable by the Parliament only witheffect from 1st April, 2004, would becomecurative in nature, hence, it would applyretrospectively with effect from 1st April, 1988.Secondly, it may be noted that, in the case ofAllied Motors (P) Limited v. Commissioner ofIncomeTaxreportedinMANU/SC/0317/1997MANU/SC/0317/1997:[1997] 224 I.T.R. 677, the Scheme of Section43B of the Act came to be examined. In thatcase, the question which arose for determinationwas, whether sales tax collected by the assesseeand paid after the end of the relevant previous year but within the time allowed under therelevant Sales Tax law should be disallowedunder Section 43B of the Act while computing thebusiness income of the previous year? That was acase which related to Assessment Year 1984-1985. The relevant accounting period ended onJune 30, 1983. The Income Tax Officer disallowedthe deduction claimed by the assessee which wason account of sales tax collected by the assesseefor the last quarter of the relevant accountingyear. The deduction was disallowed under Section43B which, as stated above, was inserted witheffect from 1st April, 1984. It is also relevant tonote that the first proviso which came into forcewith effect from 1st April, 1988 was not on thestatute book when the assessments were madein the case of Allied Motors (P) Limited (supra).However, the assessee contended that eventhough the first proviso came to be inserted witheffect from 1st April, 1988, it was entitled to thebenefit of that proviso because it operatedretrospectively from 1st April, 1984, whenSection 43B stood inserted. This is how thequestion of retrospectivity arose in Allied Motors(P) Limited (supra). This Court, in Allied Motors(P) Limited (supra) held that when a proviso isinserted to remedy unintended consequences andto make the section workable, a proviso whichsupplies an obvious omission in the section andwhich proviso is required to be read into thesection to give the section a reasonableinterpretation, it could be read retrospective inoperation, particularly to give effect to thesection as a whole. Accordingly, this Court, inAllied Motors (P) Limited (supra), held that thefirst proviso was curative in nature, hence,retrospective in operation with effect from 1stApril, 1988. It is important to note once againthat, by Finance Act, 2003, not only the secondproviso is deleted but even the first proviso issought to be amended by bringing about anuniformity in tax, duty, cess and fee on the onehand vis-a-vis contributions to welfare funds ofemployee (s) on the other. This is one morereason why we hold that the Finance Act, 2003,is retrospective in operation. Moreover, thejudgment in Allied Motors (P) Limited (supra) isdelivered by a Bench of three learned Judges,which is binding on us. Accordingly, we hold thatFinance Act, 2003, will operate retrospectivelywith effect from 1st April, 1988 [when the firstproviso stood inserted] Lastly, we may point outthe hardship and the invidious discriminationwhich would be caused to the assessee(s) if the contention of the Department is to be acceptedthat Finance Act, 2003, to the above extent,operated prospectively. Take an example - in thepresent case, the respondents have depositedthe contributions with the R.P.F.C. after 31stMarch [end of accounting year] but before filingof the Returns under the Income Tax Act and thedate of payment falls after the due date underthe Employees' Provident Fund Act, they will bedenied deduction for all times. In view of thesecond proviso, which stood on the statute bookat the relevant time, each of such assessee(s)would not be entitled to deduction under Section43B of the Act for all times. They would lose thebenefit of deduction even in the year of accountin which they pay the contributions to the welfarefunds, whereas a defaulter, who fails to pay thecontribution to the welfare fund right upto 1stApril, 2004, and who pays the contribution after1st April, 2004, would get the benefit ofdeduction under Section 43B of the Act. In ourview, therefore, Finance Act, 2003, to the extentindicated above, should be read as retrospective.It would, therefore', operate from 1st April,1988, when the first proviso was introduced. It istrue that the Parliament has explicitly stated thatFinance Act, 2003, will operate with effect from1st April, 2004. However, the matter before usinvolves the principle of construction to be placedon the provisions of Finance Act, 2003. 16. Before concluding, we extract hereinbelowthe relevant observations of this Court in thecase of Commissioner of Income Tax. Bangalorev. J.H. Gotla reported in MANU/SC/0126/1985:[1985] 156 I.T.R. 323, which reads as under: We should find out the intention from thelanguage used by the Legislature and if strictliteral construction leads to an absurd result, i.e.,a result not intended to be subserved by theobject of the legislation found in the mannerindicated before, then if another construction ispossible apart from strict literal construction,then that construction should be preferred to thestrict literal construction. Though equity andtaxation are often strangers, attempts should bemade that these do not remain always so and if aconstruction results in equity rather than ininjustice, then such construction should bepreferred to the literal construction.” 7.The Madras High Court decision in the case of CIT Vs. NewAmbadi Estates (P.) Ltd. in Tax Case Appeal No. 203 of 2005decided on 10.02.2012 has considered the decision of BombayHigh Court in Commissioner of Income Tax Vs. Shri Bharat R.Ruia (HUF) Phoenix Mills Premises (supra) and has observed as under:- “6. In respect of the second condition as towhether the expression "commodities" "shares"and "stocks include debentures; it was submittedthat the debenture would not come within thepurview of the expression "commodities" andfurther the expression "debentures", "shares"and "stocks" convey distinct and separatemeanings. Definition of Section 43(5) of the Actis inclusive one. It includes only shares andstocks. Debentures are not included. Therefore,the learned counsel appearing for the assesseesubmitted that the debentures, viz., in thepresent case, the transaction is relating to non-convertible security debentures, which will notfall within the definition of "commodity" or"stocks" or "shares". In support of his contention,he relied on the judgment of the Supreme Courtcited supra in R.D. Goyal (supra) wherein it hasbeen held that debentures cannot come withinthe definition of shares as well as the stock. Theexpression debentures and shares conveyedseparate meaning and paragraphs 23 to 25 readsas follows: 23. Furthermore, the expressions debentures andshares convey distinct and separate meaningalthough they belong to the same genesis. In AllAbout Debentures by Mr T.M. Sen and Mr C.Chandrasekhar, the distinction between sharesand debentures has been stated thus: Debentures distinguished from: (a) Shares. Although shares and debenturesbelong to the same genesis yet they have distinctand different characteristics. The Companies Act,1956 deals with the issue of debentures in thesame manner as it deals with the issue of shares,but the similarity ends with the mode andmanner of issue, their allotment, their 23. Furthermore, the expressions debentures andshares convey distinct and separate meaningalthough they belong to the same genesis. In AllAbout Debentures by Mr T.M. Sen and Mr C.Chandrasekhar, the distinction between sharesand debentures has been stated thus: Debentures distinguished from: (a) Shares. Although shares and debenturesbelong to the same genesis yet they have distinctand different characteristics. The Companies Act,1956 deals with the issue of debentures in thesame manner as it deals with the issue of shares,but the similarity ends with the mode andmanner of issue, their allotment, their transferability and in the applicability of forfeitureprovisions. The corpus of the two issues formstwo different segments of capital sharesrepresenting the share capital and thedebentures representing the loan capital.Shareholders are the owners of the company tillthe company is folded up fully while debenture-holders are only creditors of the companysometimes secured and sometimes unsecuredand that too for a defined period. The rights ofthe shareholders and debenture-holders aredifferent as also their remedies. To the extent thecomparison could bear between the two, theprocedures are by and large the same for both inthe matter of issue, allotment, transfers andforfeiture. Shares, therefore, are distinct fromdebentures, although in the usual parlance theyboth are grouped together in many legislationsand referred to sometimes by the generic term ofscrip. It is on account of their free transferabilityand marketability, they are referred together. Thestamp duty on the share certificates anddebenture certificates and on their transfers istotally different and bears no comparison. Theincidents of debenture certificates as seen fromour discussion above are different from theincidents of share certificates and hence bear nocomparison. Therefore, there is no equationbetween shares and debentures except asreferred to above. 24. Share has been defined in Section 2(46) ofthe Companies Act to mean a share in the sharecapital of a company which in turn would meanthat it would represent contribution of theshareholder towards the share capital of thecompany. On the other hand, a debenture is aninstrument of debt executed by the companyacknowledging its receipt to repay the same at aspecified rate and also carrying an interest. It isin sum and substance a certificate of loan or abond evidencing the fact that the company isliable to pay a specified amount with interest andalthough the money raised by the debenturesbecomes a part of the company's capitalstructure yet it does not become a share capital.In any event, a debenture would not come withinthe purview of the definition of goods, inasmuchas, although the shares and stocks are includedin the definition of goods but debentures are not. 25. We may also note that having regard to theprovisions contained in Section 36-A of the MRTP Act, there cannot be any doubt whatsoever thatan inquiry proceeding can be initiated when anelement of unfair trade practice arises in thematter of promoting sale, or use of any goods.Shares before their allotment, in our opinion, arenot goods. In Sri Gopal Jalan & Co. v. CalcuttaStock Exchange Assn. Ltd. it has been held thatin company law allotment means theappropriationoutofthepreviouslyunappropriated capital of a company, of a certainnumber of shares to a person. Till allotment ismade, shares do not exist as such. It is only onallotment in this sense that the shares come intoexistence. Therefore, till the shares are actuallyissued, the question of the company havingissued debentures as transferable property wouldnot arise and thus there cannot be any doubtwhatsoever that the shares before their allotmentwould not come into existence and they cannotbe regarded as goods. Debentures would also notcome within the purview of the definition ofstock. From reading of the above, it is clear that thedebentures cannot come within the expression of"goods" nor "shares" or "stocks". The onlydistinction in the present case and the SupremeCourt case is that the expression "goods" is thesubject matter of the Supreme Court. But in thepresent case, the expression "commodity" is indispute. The said distinction does not make anydifference. So the principle enumerated in theabove judgment is squarely applicable. Further,the debenture is an instrument of debt executedby the company acknowledging its receipt to repaythe same at a specified rate along with interest.The learned counsel for the respondent-assesseecontended that the word commodity cannotinclude debenture because debenture is aninstrument. Therefore, in view of the first part ofthe transaction, that purchase or sale of anycommodity including stock and shares will notinclude debentures. Further, the learned counselalso relied on the same judgment for theproposition that no question of buying and sellingof commodities arises when there is no allotment.In the present case, no allotment has been madeand there is no dispute regarding the same. Thelearned counsel also relied the R.D. Goyals casecited supra, wherein the Apex Court hasconsidered the scope of words "creation", issue"and "allotment" and paragraphs 38 and 39 readsas follows: 38. It was noticed: (SCC pp. 86-87, para 10) The words allot and distribute found in clause (b)of the resolution do not carry the matter further.Their meaning should be gathered from thecontext in which they were used. Clauses (b) and(c) of the resolution must be read harmoniouslywith clause (a). The word allotment has not beendefined in the Companies Act. The meaning ofthe word allot or allotment will have to begathered from the context in which those wordsare used. This Court considered the meaning ofthe word allotment in Sri Gopal Jalan and Co. v.Calcutta Stock Exchange Assn. Ltd.3 Therein,