Souvenir Developers (I) Pvt. Ltd.shop v. The Union Of Indiathrough Assistant Commissioner Of Income Tax, Circle-3(1), Dhule

IN THE HIGH COURT OF JUDICATURE AT BOMBAY BENCH AT AURANGABAD INCOME TAX APPEAL NO. 79 OF 2018 Souvenir Developers (I) Pvt. Ltd.Shop No. 1, Animesh Apartment,Plot No. 3, Janki Nagar,Wadibhokar Road, Deopur,Dhule-424 002. …. Appellant. Versus The Union of IndiaThrough Assistant Commissioner of Income Tax, Circle-3(1), Dhule. .… Respondent. Mr. S. P. Shah, Advocate for appellant. Dr. Kalpalata Bharaswadkar-Patil, Advocate for respondent. ... CORAM : R. D. DHANUKA & S. G. MEHARE, JJ. Date on which reserved for judgment : 20[th] April, 2022.Date on which judgment pronounced : 06[th] May, 2022. JUDGMENT : [PER R. D. DHANUKA, J.] :- 1.The appeal by the assessee under section 260-A of theIncome Tax Act, 1961 raises the following substantial questions oflaw :- (i)Whether on the facts and circumstances of the case and in law, the Tribunal was justified in confirming any addition on transaction in derivatives on recognized stock exchange as defined under Section 43 (5) (d) of the Income Tax Act, 1961 with reference to explanation given to Section 73 of the IncomeTax Act, 1961 which is applicable to speculative transactions. (ii)Whether loss suffered by the appellant on the transactions in respect of trading in derivatives referred to in clause (ac) of Section 2 of the Securities Contracts (Regulation) Act, 1956 carried out in a recognized stock exchange by the appellant could have been set off against the income of the appellant arisen out of infrastructure business carried on by the appellant under Section 70 of the Income Tax Act, 1961. 2.By consent of parties appeal is heard finally. Some of therelevant facts for the purpose of deciding this appeal are as under :- The relevant assessment year is 2009-10 and financial yearis 2008-09. The appellant is a domestic company and derives incomefrom business. The appellant is dealing in collection of Toll fees in thename and style “M/s. Souvenir Developer (India), Pvt. Ltd., Dhule”.The appellant is also carrying business of shares and derivatives. Thereturn of income declaring total income of Rs.85,43,220/- was submitted electronically by assessee on 30[th] September 2009. Thesame was processed on 28[th] March 2011 under section 143 (1) of theIncome Tax Act, 1961 by accepting the return of income. Subsequentlythe case of the appellant was picked up for scrutiny. The statutorynotice under section 143(2) of the Income Tax Act, 1961 was issuedon 28[th] September 2010. The appellant was granted an opportunity ofbeing heard by the assessing officer. The appellant produced theinformation called as per questionnaire before the assessing officer.The assessing officer passed order on 29[th] December 2011 assessingthe income of the appellant as Rs.90,79,092/-. 3.In the said assessment order, the assessing officer madeaddition of the income to the extent of Rs.5,35,872/- under threedifferent heads. The assessing officer refused to consider the losssuffered by the assessee on transaction in derivatives while computingnet taxable income. The application for rectification under section 154made by the appellant was rejected by order dated 14[th] May 2012. On4[th] June 2012 the appellant preferred an appeal before theCommissioner of Income Tax (Appeals) against the assessment order.The appellant did not challenge the additions made by the AssessingOfficer. 3.In the said assessment order, the assessing officer madeaddition of the income to the extent of Rs.5,35,872/- under threedifferent heads. The assessing officer refused to consider the losssuffered by the assessee on transaction in derivatives while computingnet taxable income. The application for rectification under section 154made by the appellant was rejected by order dated 14[th] May 2012. On4[th] June 2012 the appellant preferred an appeal before theCommissioner of Income Tax (Appeals) against the assessment order.The appellant did not challenge the additions made by the AssessingOfficer. 4.On 27[th] February 2014, the Commissioner of Income Tax(Appeals) passed order refusing to consider the loss suffered by theappellant on transaction in derivatives while computing the netincome of the appellant. The Commissioner of Income Tax (Appeal)was of the view that the appellant would not be entitled to set-off losssuffered from transactions in securities because of the provisions ofsection 73. The Commissioner held that as provided under section 73,the loss suffered by the assessee would be a loss from speculativebusiness and as such the appellant would not be entitled to claim set-off against the income from a non-speculative business. 5.Being aggrieved by the said order, the appellant preferredan appeal before the Income Tax Appellate Tribunal on 2[nd] July 2014.On 31[st] October 2017 the Income Tax Appellate Tribunal dismissed thesaid appeal. The Income Tax Appellate Tribunal was of the view thatthe appellant would not be entitled to claim set-off in view of theprovisions of Section 73. Being aggrieved by the said decision of the Income TaxAppellate Tribunal, the appellant has preferred this appeal undersection 260-A of the Income Tax Act, 1961. are extracted as under :- Definitions of certain terms relevant to income from profitsand gains of business or profession. 43. In Sections 28 to 41 and in this section, unless the context otherwise requires — (5) "speculative transaction" means a transaction in which acontract 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: Provided that for the purpose of this clause : (d) an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognized stock exchange; or Explanation 1.— For the purposes of clause (d), the expressions — (i) "eligible transaction" means any transaction, — (A) carried out electronically on screen-based systems through a stock broker or sub-broker or such other intermediary registered under section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) inaccordance with the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or the Securities and Exchange Board of India Act, 1992 (15 of 1992) or the Depositories Act, 1996 (22 of 1996) and therules,regulations or bye-laws made or directions issued under those Acts or by banks or mutual funds on a recognised stock exchange; and (B) which is supported by a time stamped contract note issued by such stock broker or sub-broker or such other intermediary to every client indicating in the contract notethe unique client identity number allotted under any Act referred to in sub-clause (A) and permanent account number allotted under this Act; (ii) "recognized stock exchange" means a recognized stock exchange as referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and which fulfils such conditions as may be prescribed and notified [79]by the Central Government for this purpose; Set off of loss from one source against income from anothersource under the same head of income. (B) which is supported by a time stamped contract note issued by such stock broker or sub-broker or such other intermediary to every client indicating in the contract notethe unique client identity number allotted under any Act referred to in sub-clause (A) and permanent account number allotted under this Act; (ii) "recognized stock exchange" means a recognized stock exchange as referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and which fulfils such conditions as may be prescribed and notified [79]by the Central Government for this purpose; Set off of loss from one source against income from anothersource under the same head of income. 70. (1) 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, other than "Capital gains", 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. (2) Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any short-term capital asset is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capitalasset. (3) Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any capital asset (other than a short-term capital asset) is a loss,the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset not being a short-term capital asset. Losses in speculation business. 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 offunder 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 scientific research, the provisions of sub-section (2) of section 72 shall apply in relation to speculation business as they apply in relation to any other business. (4) No loss shall be carried forward under this section for more than four assessment years immediately succeeding the assessment year for which the loss was first computed. Explanation.— Where any part of the business of a company (other than a company whose gross total income consists mainly of income which is chargeable under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources", or a company the principal business of which is the business of trading in shares or banking]or the grantingof loans and advances) 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 a speculation business to the extent to which the business consists of the purchase and sale of such shares. 7.Mr. Shah, learned counsel for the appellant submits that, Explanation.— Where any part of the business of a company (other than a company whose gross total income consists mainly of income which is chargeable under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources", or a company the principal business of which is the business of trading in shares or banking]or the grantingof loans and advances) 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 a speculation business to the extent to which the business consists of the purchase and sale of such shares. 7.Mr. Shah, learned counsel for the appellant submits that, during the financial year 2008-2009 the appellant had ventured intotransactions in securities in derivatives at recognized stock exchangeand through registered brokers. The appellant had suffered losses tothe tune of Rs.1,90,66,444/- in those transactions in securities in thederivatives. He submitted that, though the Commissioner of IncomeTax (Appeals) was pleased to accept that the appellant had sufferedloss in the transactions in securities in derivatives, he refused toconsider the said loss while computing the net income of the appellanton the ground that under Section 73, the loss suffered by the assesseewould be a loss from speculative business and as such, the appellantwould not be entitled to claim set-off against the income from a non-speculative business. 8.It is submitted by the learned counsel that, in view ofSection 28 Explanation-2 r/w Section 43(5) proviso (d) suchtransactions are kept out of the definition of speculative transactions. 9 9.The learned counsel for the appellant placed reliance onSection 73 of the Income Tax Act, 1961 and would submit that, theappellant was entitled to set-off the loss suffered by the appellant inthe transactions in securities in the derivatives against the incomederived by the appellant from the business of collection of toll andbusiness of infrastructure. He submits that, the Commissioner ofIncome Tax (Appeals) did not deal with Section 43(5)(d) of theIncome Tax Act, 1961 at all in the impugned order and erroneouslyheld that, the entire transaction carried out by the appellant wasspeculative and thus loss suffered on such speculative transactioncould not be claimed as set off against other heads of income. Thelearned counsel fairly states that, there is no dispute that, losseshaving arisen to the appellant on the trading in shares beingspeculative cannot be set-off against the other heads of income. 10.Learned counsel for the appellant placed reliance on thejudgment delivered by a Division Bench of this court in case of TheCommissioner of Income Tax, Central-IV Vs. Shri. Bharat R. Ruia(HUF) reported in (2011) 337 ITR 452 in particular paragraph nos.6,7, 17, 18, 21, 23, 29, 30, 33, 35 and 37 in support of the submissionthat, the loss suffered by the appellant in the transactions arising outof securities in derivatives were not speculative transaction under 11.Learned counsel for the appellant submits that, Proviso (d)to Section 43(5) of the Income Tax Act was inserted by Finance Act,2005 with effect from 01.04.2006. He submits that, the said provisoto Section 43(5) carved out an exception to the definition of‘speculative transaction’. He submits that, the loss suffered in thetransactions in derivatives before insertion of the proviso to Section43(5) were considered as speculative and were not entitled to be set-off against the profit under any other heads of income except profitfrom speculative business. However, in view of the said proviso toSection 43(5) inserted by the Finance Act, 2005 with effect from01.04.2006, the transactions in derivatives were not considered asspeculative business. 11.Learned counsel for the appellant submits that, Proviso (d)to Section 43(5) of the Income Tax Act was inserted by Finance Act,2005 with effect from 01.04.2006. He submits that, the said provisoto Section 43(5) carved out an exception to the definition of‘speculative transaction’. He submits that, the loss suffered in thetransactions in derivatives before insertion of the proviso to Section43(5) were considered as speculative and were not entitled to be set-off against the profit under any other heads of income except profitfrom speculative business. However, in view of the said proviso toSection 43(5) inserted by the Finance Act, 2005 with effect from01.04.2006, the transactions in derivatives were not considered asspeculative business. 12.The learned counsel for the appellant placed reliance onthe judgment of the Hon’ble Supreme court in case of SnowtexInvestment Limited Vs. Principal Commissioner of Income Tax,Central-2, Kolkata reported in 2019 SCC OnLine SC 749 and inparticular paragraph nos.3 to 5, 14, 18, 25, 26, 33 and 34 in supportof the submission that, the losses having arisen from trading in futuresand options were not profits from a speculative business. 13.The learned counsel for the appellant distinguished thejudgment of the Hon’ble Supreme Court in case of Commissioner ofIncome Tax Vs. Lokmat Newspapers P. Ltd. reported in (2010) 322 ITR43 and would submit that, in the said judgment there were noderivative transactions involved. The transactions considered by thisCourt in the said judgment were arising out of trading in shares. Thesaid judgment is thus clearly distinguishable on facts. 14.Smt. Bharaswadkar-Patil, learned counsel for the revenueon the other hand invited our attention to the grounds of Appealbefore the Income Tax Appellate Tribunal and would submit that, itwas clearly admitted by the appellant that no set-off of loss suffered inspeculative transaction was permissible. The appellant had notclaimed any set-off before the Assessing Officer. The Income TaxAppellate Tribunal, however, allowed the Rectification Applicationfiled by the appellant. Smt. Bharaswadkar-Patil, learned counsel for the revenue 15.The learned counsel for the revenue invited our attentionto Section 43(5) (d), Section 73 and would submit that, in view of thedefinition of speculative transaction and in view of Section 73 of theIncome Tax Act, 1961, losses in speculation business would not begoverned by Section 43(5) read with proviso thereto. She submits that, deeming fiction is created under Section 73 of the Income TaxAct, 1961. The learned counsel for the revenue placed reliance on thejudgment of the Delhi High Court in case of The Commissioner ofIncome Tax Vs. DLF Commercial Developers Limited reported in(2013) 218 Taxman 45 and in particular paragraph nos.5, 6, 9 and 10.She submits that, in the said judgment it is clearly held that, objectiveof Section 73 apparent from the tenor of its language is to denyspeculative businesses the benefit of carry forward of losses. 16.The learned counsel for the revenue made an attempt todistinguish the judgment of the Hon’ble Supreme Court in case ofSnowtex Investment Limited (supra) on the ground that, the Hon’bleSupreme Court in the said judgment had considered the principalbusiness of assessee. The issue before the Hon’ble Supreme Court wasdifferent. The learned counsel for the revenue strongly placed relianceon the judgment of this court in case of Commissioner of Income TaxVs. Lokmat Newspapers P. Ltd. (supra) and would submit that, theauthorities below have rightly considered the said judgment, thoughthe same was not directly on the issue. In support of this submissionsshe placed reliance on paragraph no.6 of the said judgment. 16.The learned counsel for the revenue made an attempt todistinguish the judgment of the Hon’ble Supreme Court in case ofSnowtex Investment Limited (supra) on the ground that, the Hon’bleSupreme Court in the said judgment had considered the principalbusiness of assessee. The issue before the Hon’ble Supreme Court wasdifferent. The learned counsel for the revenue strongly placed relianceon the judgment of this court in case of Commissioner of Income TaxVs. Lokmat Newspapers P. Ltd. (supra) and would submit that, theauthorities below have rightly considered the said judgment, thoughthe same was not directly on the issue. In support of this submissionsshe placed reliance on paragraph no.6 of the said judgment. distinguish this judgment in case of The Commissioner of Income Tax,Central-IV Vs. Shri. Bharat R. Ruia (HUF) (supra). She submits that,question felt for consideration by this Court in this judgment waswhether proviso inserted to Section 43(5) was clarificatory or not andthe ratio in the said judgment would not apply to the facts of this case.The learned counsel for the revenue tenders the explanatory notes onthe provisions of the Finance Act, 2005 dated 27[th] February, 2006 forshowing the purpose and object of insertion of proviso to Section43(5) of the Income Tax Act, 1961. 18.Mr. Shah, learned counsel for the appellant in his rejoinderargument would submit that, Section 43 of the Income Tax Act, 1961falls under the Part (iv) of the Income Tax Act whereas, Section 43 ofthe said Act falls under Part (vi). It is submitted that, the appellant inthis case had three sources of income i.e. (i) income arisen out ofinfrastructure business, (ii) losses incurred in the transaction inderivatives and (iii) losses suffered in transaction in equity shares.The appellant had claimed set-off in respect of the loss derived in thederivative transaction against the profits having arisen from theinfrastructure business. He invited our attention to Section 73 of theIncome Tax Act, 1961 and would submit that, the business of theinfrastructure carried out by the appellant is not a speculative business. It is not the case of the revenue that, loss in trasactions insecurities carried out by the appellant in derivatives is a speculativebusiness. He submits that, since business in derivative is not includedin the definition of speculative business, the loss suffered by theappellant is permitted to be set-off against income having arisen to theappellant out of infrastructure business. 19.The learned counsel for the appellant strongly placedreliance on Section 70 of the Income Tax Act and would submit that,loss suffered by the appellant in the transactions in securities inderivatives being one of the distinct business falling under head of theincome from business, the appellant is entitled to set-off the loss underthe said source against the income having arisen from theinfrastructure business which is also a distinct business falling underSection 28 of the Income Tax Act, 1961. He submits that, loss sufferedby the assessee under distinct business under the said head can be alsoadjusted against the income of another business under the head ofincome under Section 28. Section 73 deals with the set-off ofspeculative business and thus reliance placed by the learned counselfor the revenue on the proviso thereto is totally misplaced. Learnedcounsel for the appellant invited our attention to the paragraph no.14, 17, 25 and 36 of the judgment of the Hon’ble Supreme court in case ofSnowtex Investment Limited (supra) and would submit that, theHon’ble Supreme Court has considered the Memorandum issued bythe Government explaining the amendment to Section 43(5) of theIncome Tax Act, 1961. REASONS AND CONCLUSIONS 17, 25 and 36 of the judgment of the Hon’ble Supreme court in case ofSnowtex Investment Limited (supra) and would submit that, theHon’ble Supreme Court has considered the Memorandum issued bythe Government explaining the amendment to Section 43(5) of theIncome Tax Act, 1961. REASONS AND CONCLUSIONS 20.The Assessing Officer did not consider the effect ofinsertion of proviso to Section 43(5) of the Income Tax Act in theimpugned order at all. The Commissioner of Income Tax (Appeals)allowed the Rectification Application filed by the appellant underSection 143(3) read with Section 143 (1). The said order passed bythe Commissioner of Income Tax (Appeals) allowing the RectificationApplication filed by the appellant was not challenged by therespondent-revenue at any stage. 21.The Commissioner of Income Tax (Appeals) observed that,the Assessing Officer had not impugned anything in regard to theshare trading loss in the assessment order under Section 143(3) andhad rejected the Rectification Application stating that as per the returnof income there was an income of Rs.85,43,220/- and hence there wasno mistake apparent from record which required rectification. In paragraph no.9 of the said order passed by the Commissioner ofIncome Tax (Appeals) it was observed that, on verification of the caserecord, it was noticed that the appellant company had carried outactivity of share trading in derivatives and had incurred lossamounting to Rs.1,90,66,444/-. 22.The Commissioner of Income Tax (Appeals), however,considered the explanation to Section 73 of the Act and erroneouslyobserved that, income from share trading is to be regarded asspeculative income. The Commissioner of Income Tax (Appeals),adverted to the judgment of the Delhi High court in The Commissionerof Income Tax Vs. DLF Commercial Developers Limited (supra) andheld that, the loss claimed by the appellant company in respect of theshare trading in derivative at Rs.1,90,66,444/- is to be assessed asspeculative loss. However, the set-off being speculative loss could notbe set-off against the regular business income assessed by theAssessing Officer at Rs.90,79,092/- as claimed by the appellant. TheCommissioner of Income Tax (Appeals) did not consider or dealt withthe contention of the appellant that, in view of amended provisions ofSection 43(5)(d), the trading of shares in derivatives was to beassessed as the regular business and not speculative business and thus loss if any in transaction in derivative was required to be set-offagainst the other heads of income. 23.In the impugned order, the Income Tax Appellate Tribunalhas dealt with the grounds raised by the appellant that the learnedCIT(A) erred in law and on facts in confirming an addition ontransactions in derivatives on recognized stock exchange as defined inSection 43(5)(d) of the Income Tax Act, 1961 with reference toexplanation given to Section 73 of the Income Tax Act, 1961 which isapplicable to speculative transactions. The Income Tax AppellateTribunal, however, considered the judgment of this Court in case ofCommissioner of Income Tax Vs. Lokmat Newspapers P. Ltd. (supra)and more particularly paragraph nos. 6 to 10 and erroneously heldthat, in view of the admitted facts of the case, the ground no.3 raisedin Appeal filed by the appellant-assessee is dismissed. The Income TaxAppellate Tribunal did not consider the effect of insertion of theproviso in Section 43(5) of the Income Tax Act, 1961 by the FinanceAct, 2005 with effect from 01.04.2006 at all. 24.Chapter IV of the Income Tax Act, 1961 provides forcomputation of total income under five heads. Section 28 to 44DBdeals with profits and gains of any business or profession and about 24.Chapter IV of the Income Tax Act, 1961 provides forcomputation of total income under five heads. Section 28 to 44DBdeals with profits and gains of any business or profession and about various permissible deductions out of such income. Section 43provides for definitions of certain terms relevant to income fromprofits and gains of business or profession and more particularly underSection 28 to 41 of the Income Tax Act, 1961. Section 43(5) of theIncome Tax Act defines that ‘speculative transaction’ means atransaction in which a contract for the purchase or sale of anycommodity, including stocks and shares, is periodically or ultimatelysettled otherwise than by the actual delivery or transfer of thecommodity or scrips. 25.In this case, the appellant has not claimed any set-off ofthe loss suffered by the appellant in the transactions in shares wheredelivery was actually effected. The appellant has admittedly claimedset-off of the loss suffered in respect of transactions in derivatives inview of the Finance Act, 2005 with effect from 01.04.2006. It is thusclear beyond reasonable doubt that the transaction in derivative wascarved out as an exception in the definition of speculative transaction.None of the Authorities below, however, considered and dealt with theeffect of said proviso (d) to Section 43(5) of the Income Tax Act, 1961inserted by the Finance Act, 2005 with effect from 01.04.2006 in theimpugned orders. 19 26.The explanatory notes on the provisions of the FinanceAct, 2005 clearly indicates that the existing provision before suchamendment of Clause (5) to Section 43 defines "speculativetransaction" means a transaction in which a contract for the purchaseor sale of any commodity, including stocks and shares, is periodicallyor ultimately settled otherwise than by the actual delivery or transferof the commodity or scrips. Proviso to Section 43(5) list out certaintransaction which are not deemed to be speculative transaction. 27.By the said explanatory note it was made clear that, theFinance Act, 2005 has amended Section 43(5) to provide that aneligible transaction in respect of trading in derivatives of securitiescarried out on a recognized stock exchange shall not be deemed asspeculative transaction. The notification prescribing the transactionwhich are not deemed to be speculative transaction. It was made clearthat the Finance Act, 2005 has, accordingly, amended Section 43 (5) toprovide that an eligible transaction in respect of trading in derivativesof securities carried out on a recognized stock exchange shall not bedeemed as speculative transaction. The notification prescribed therules and the conditions to be fulfilled by a stock exchange to berecognized by the Central Government for the purposes of Section43(5) [i.e., Rules 6DDA and 6DDB of the Income Tax Rules, 1962] published in the Official Gazette on 1[st] July, 2005 vide S.O. No.932(E). 28.The Hon’ble Supreme Court in case of Snowtex InvestmentLimited (supra) had considered an appeal arising out of the judgmentof the High Court holding that the profits which had arisen fromtrading in futures and options were not profits from a speculativebusiness and hence loss arising out of trading in shares could not beset off against the profits arising from the business of futures andoptions. In paragraph No. 15 of the said judgment, the Hon’bleSupreme Court held that the impact of the amendment to Section 43(5) of the Income Tax Act by Finance Act, 2005 was that an eligibletransaction on a recognized stock exchange in respect of trading inderivatives was deemed not to be a speculative transaction. published in the Official Gazette on 1[st] July, 2005 vide S.O. No.932(E). 28.The Hon’ble Supreme Court in case of Snowtex InvestmentLimited (supra) had considered an appeal arising out of the judgmentof the High Court holding that the profits which had arisen fromtrading in futures and options were not profits from a speculativebusiness and hence loss arising out of trading in shares could not beset off against the profits arising from the business of futures andoptions. In paragraph No. 15 of the said judgment, the Hon’bleSupreme Court held that the impact of the amendment to Section 43(5) of the Income Tax Act by Finance Act, 2005 was that an eligibletransaction on a recognized stock exchange in respect of trading inderivatives was deemed not to be a speculative transaction. 29.With effect from 01.04.2006, trading in derivatives was bya deeming fiction not regarded as a speculative transaction when itwas carried out on a given stock exchange. Prior to the amendment,Section 43 (5) defined a “speculative transaction” to mean atransaction in which a contract for the purchase or the sale of anycommodity including stocks and shares which settled otherwise otherthan by the actual delivery or transfer of the commodity or scrips. TheHon’ble Supreme Court also considered the circular issued by the Central Board Direct Taxes dated 27.02.2006 and observed that theamendment by the Finance Act, 2005 was occasioned by the changeswhich were introduced by SEBI both at the legal and technologicallevel for bringing in greater transparency in the market for derivatives.30.The Hon’ble Supreme Court also considered thememorandum explaining the amendment introduced in the provisionsof sub-section 43 (5) by the Finance Act, 2005 with effect from01.04.2006. It is held that while amending the provisions of Section43 (5), the Parliament indeed was cognizant of the provisions whichwere contained in Section 73 (4) of the Income Tax Act, 1961. It isheld that it was only with effect from 01.04.2015 that an amendmentwas brought about to exclude trading in shares from the deemingprovision contained in the Explanation to Section 73. 31.The Hon’ble Supreme Court held that it would be difficultto hold that the provisions which were contained in the Finance Act(No. 2) of 2014 in so far as they amended the Explanation to Section73 were clarificatory or that notwithstanding the provision by whichthe amendment was brought into force with effect from 01.04.2015,that it should be given retrospective effect. The Hon’ble SupremeCourt held that the amendment which was brought by Parliament to the Explanation to Section 73 by the Finance (No. 2) Act, 2014 waswith effect from 01.04.2015. In its legislative wisdom, the Parliamentamended Section 43 (5) with effect from 01.04.2006 in relation to thebusiness of trading in derivatives, the Parliament brought about aspecific amendment in the Explanation to Section 73, in so far astrading in shares is concerned, with effect from 01.04.2015. The latteramendment was intended to take effect from the date stipulated byParliament. 32.The Hon’ble Supreme Court accordingly showed no reasonto hold either that it was clarificatory or that the intent of Parliamentwas to give it retrospective effect. The Hon’ble Supreme Courtaccordingly held that in the assessment year 2008-2009, the losswhich occurred to the assessee as a result of its activity of trading inshares (a loss arisen from the business of speculation) was not capableof being set off against the profits which it had earned against thebusiness of futures and options since the latter did not constituteprofits and gains of a speculative business. The Hon’ble SupremeCourt accordingly did not interfere with the view taken by the HighCourt. The principles of law laid down by the Hon’ble Supreme Courtin the said judgment in case of Snowtex Investment Limited (supra)apply to the facts of this case. 33.Section 73 (1) of the Income Tax Act provides that anyloss, computed in respect of a speculation business carried on by theassessee, shall not be set off except against profits and gains, if any, ofanother speculation business by Taxation Laws (Amendment) Act,1975 with effect from 01.04.1977. The Explanation was insertedbelow Section 73 (4) of the Income Tax Act. 34.A perusal of the Explanation indicates that where any partof the business of a company other than the exceptions carved outtherein consist in the purchase and sale of shares of other companies,such companies shall, for the purpose of section 73, be deemed to becarrying on a speculation business to the extent to which the businessconsist of the purchase and sale of shares. Proviso (d) to Section 43(5) which defined “speculation transaction” was admittedly insertedby Finance Act, 2005 with effect from 01.04.2006. The said provisionhas been interpreted by the Hon’ble Supreme Court in case of SnowtexInvestment Limited (supra). 35.It is thus clear that, the transactions in respect of tradingin derivatives referred to in Clause (ac) of Section 2 of SecuritiesContracts (Regulation) Act, 1956 carried in a recognized stockexchange are excluded from the definition of “speculation transaction” described under Section 43 (5) of the Income Tax Act, 1961. In ourview, the respondents thus, cannot be allowed to contend that theappellant had claimed any set off of the losses suffered by theappellant in respect of the speculation business carried on by theassessee against the profits and gains, if any, of another speculationbusiness. 36.In our view, Section 73 (1) as well as the explanationinserted by Taxation Laws (Amendment) Act, 1975 with effect from01.04.1977 thus would not apply to the loss having arisen in thetrading in derivatives being not speculative transaction which isexcluded from the definition of “speculation transaction” describedunder Section 43 (5) of the Income Tax Act. In the facts of this case,the appellant has claimed set off in respect of the loss suffered by theappellant in the transaction in derivatives against the income arising ofinfrastructure business under the head of income from business orprofession under Section 28 of the Income Tax Act, 1961. 37.The Division Bench of this Court in case of Commissionerof Income Tax Vs. Shri Bharat R. Ruia (HUF) has considered thesubstantial question of law i.e. “whether the transactions in exchangetraded financial derivatives are speculative transactions” as defined in Section 43 (5) of the Income Tax Act, 1961. In the facts of that case,proceedings arising out of the assessment year 2003-2004 were inquestion. In paragraph No. 23 of the said judgment, this Court heldthat plain reading of clause (d) of Section 43 (5) makes it clear thatwith effect from 01.04.2006 only those eligible transaction inderivatives referred to under Section 2 (ac) of 1956 Act which werecarried out in a recognized stock exchange shall not be deemed to be aspeculative transaction. It is only because, the transactions inderivatives referred to under Section 2 (ac) of the Act carried out in arecognized stock exchange were covered under Section 43 (5) of theAct, the legislature could exclude those transactions from the purviewof Section 43 (5) with effect from 01.04.2006. 38.This Court in the said judgment also considered the“Handbook on Derivatives Trading” published by the National StockExchange of India. This Court clearly held that the legislature byFinance Act, 1995 has specifically provided that clause (d) to theproviso to Section 43 (5) shall come into operation prospectively witheffect from 01.04.2006. After insertion of clause (d), all transactions inderivatives are not taken outside the purview of Section 43 (5). It isonly those derivative transactions which are covered under clause (d)are taken outside the purview of Section 43 (5) and the rest of the 38.This Court in the said judgment also considered the“Handbook on Derivatives Trading” published by the National StockExchange of India. This Court clearly held that the legislature byFinance Act, 1995 has specifically provided that clause (d) to theproviso to Section 43 (5) shall come into operation prospectively witheffect from 01.04.2006. After insertion of clause (d), all transactions inderivatives are not taken outside the purview of Section 43 (5). It isonly those derivative transactions which are covered under clause (d)are taken outside the purview of Section 43 (5) and the rest of the transactions in derivatives would continue to be covered under Section43 (5) of the Income Tax Act. This Court rejected the submissionmade by the revenue that clause (d) was inserted to proviso to Section43 (5) had retrospective effect. This Court accordingly held that theexchange traded derivative transaction carried on by the assesseeduring the assessment year 2003-2004 (i.e. prior to insertion of Clause(d) to the proviso to Section 43 (5) of the Finance Act, 2005) werespeculative transactions covered under Section 43 (5) of the Act andthe loss incurred in those transactions were liable to be treated asspeculative loss and not business loss. 39.In the facts of this case, admittedly the assessment year inquestion is 2009-2010 and financial year is 2008-2009 i.e. afterinsertion of the said Clause (d) to the proviso to Section 43 (5) of theIncome Tax Act, 1961. The principles laid down by this Court in thesaid judgment in case of Commissioner of Income Tax Vs. Shri BharatR. Ruia (HUF) interpreting clause (d) inserted in the proviso to Section43 (5) by Finance Act, 2005 with effect from 01.04.2006 apply to thefacts of this case. Transactions in derivatives carried out by theassessee after 01.04.2006 thus would not be speculative transactions. In so far as the judgment of this Court in case of Commissioner of Income Tax Vs. Lokmat Newspapers Pvt. Ltd. (supra)relied upon by the learned counsel for revenue is concerned, thesubstantial question of law fell for consideration of this Court in thesaid judgment was “whether, on the facts and in the circumstances ofthe case and in law, the Tribunal was justified in allowing broughtforward speculation loss to be set off against delivery based profitsearned by the assessee-company from sale and purchase of shares”. 41.The assessee in that matter had offered the profit as aprofit of speculation business and had claimed set off against aspeculation loss brought forward from the assessment years 1996-1997 to 1998-1999. This court in the said judgment had notconsidered the clause (d) inserted to proviso to Section 43 (5) of theIncome Tax Act and had considered unamended Section 43 (5) andSection 73. The said judgment in our view is clearly distinguishableon the facts and thus would not advance the case of the revenue. Thereliance placed by the Income Tax Appellate Tribunal on the saidjudgment in case of Commissioner of Income Tax Vs. LokmatNewspapers Pvt. Ltd. (supra) is totally misplaced. 42.In so far as judgment of Delhi High Court in case of theCommissioner of Income Tax Vs. DLF Commercial Developers Limited (supra) relied upon by the learned counsel for revenue is concerned,the Delhi High Court has taken a view contrary to the view taken bythis Court in case of Commissioner of Income Tax Vs. Shri Bharat R.Ruia (HUF) (supra). The Judgment of the Hon’ble Supreme Court incase of Snowtex Investment Limited (supra) was not brought to thenotice of Delhi High Court while dealing with the case ofCommissioner of Income Tax Vs. DLF Commercial Developers Limited.The said judgment of Delhi High Court would not advance the case ofthe revenue. 42.In so far as judgment of Delhi High Court in case of theCommissioner of Income Tax Vs. DLF Commercial Developers Limited (supra) relied upon by the learned counsel for revenue is concerned,the Delhi High Court has taken a view contrary to the view taken bythis Court in case of Commissioner of Income Tax Vs. Shri Bharat R.Ruia (HUF) (supra). The Judgment of the Hon’ble Supreme Court incase of Snowtex Investment Limited (supra) was not brought to thenotice of Delhi High Court while dealing with the case ofCommissioner of Income Tax Vs. DLF Commercial Developers Limited.The said judgment of Delhi High Court would not advance the case ofthe revenue. 43.In our view, the Income Tax Appellate Tribunal could nothave confirmed any addition on transaction in derivatives onrecognised stock exchange as defined in Section 43 (5) (d) of theIncome Tax Act, 1961 with reference to explanation given to Section73 of the Income Tax Act, 1961 which is applicable to speculativetransaction. By virtue of insertion of clause (d) to the proviso toSection 43 (5) of the Income Tax Act, 1961, the transactions in respectof the trading in derivatives as prescribed in clause (d) inserted inproviso to Section 43(5) would not be a speculative transaction. 44.The appellant was thus entitled to claim set off of the losssuffered by the appellant in the said transactions in derivatives against the business income of the appellant from infrastructure businessunder Section 70 of the Income Tax Act 1961. 45.We accordingly pass the following order :- (i)Substantial question of law No. 1 fell for consideration is answered in negative and in favour of the assessee.of the assessee. (ii)Substantial question No. 2 is answered in affirmativeand in favour of the assessee. and in favour of the assessee. 46.Income Tax Appeal No. 79 of 2018 is allowed in aforesaidterms. No order as to costs. ( S. G. MEHARE, J. ) ( R. D. DHANUKA, J. )