Income Tax Act, 1961 – Sec.43(5) r/w sec.73 – Derivative transactions – Speculative Income/ Loss – Sec.70 – Set off of business losses – The assessee is in business of collection of toll fees and also carrying on business of shares and derivatives – The case of assessee taken up for scrutiny – The lower authorities held that the loss suffered by the appellant in derivates cannot be considered for setting off as the same is loss from speculative business – Tribunal also upheld the view – High Court – Finance Act, 2005 has amended Section 43(5) to provide that an eligible transaction in respect of trading in derivatives of securities carried out on a recognized stock exchange shall not be deemed as speculative transaction – In Snowtex Investment Limited Vs. Principal Commissioner of Income Tax, Central-2, Kolkata reported in 2019 SCC OnLine SC 749 it is considered that the losses having arisen from trading in futures and options were not profits from a speculative business – the Income Tax Appellate Tribunal could not have confirmed any addition on transaction in derivatives on recognised stock exchange as defined in Section 43 (5) (d) of the Income Tax Act, 1961 with reference to explanation given to Section 73 of the Income Tax Act, 1961 which is applicable to speculative Transaction – The appellant was thus entitled to claim set off of the loss suffered by the appellant in the transactions in derivatives against the business income of the appellant from infrastructure business under Section 70 of the Income Tax Act 1961 – Appeal allowed
► Cases referred : In Snowtex Investment Limited Vs. Principal Commissioner of Income Tax, Central-2, Kolkata 2019 SCC OnLine SC 749; The Commissioner of Income Tax, Central-IV Vs. Shri. Bharat R. Ruia (HUF) (2011) 337 ITR 452; Commissioner of Income Tax Vs. Lokmat Newspapers P. Ltd. (2010) 322 ITR 43; The Commissioner of Income Tax Vs. DLF Commercial Developers Limited (2013) 218 Taxman 45
► Name of Judge : R. D. Dhanuka
► Order:
The appeal by the assessee under section 260-A of the Income Tax Act, 1961 raises the following substantial questions of law :-
(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 Income Tax 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 the relevant facts for the purpose of deciding this appeal are as under :-
The relevant assessment year is 2009-10 and financial year is 2008-09. The appellant is a domestic company and derives income from business.
The appellant is dealing in collection of Toll fees in the name and style “M/s. Souvenir Developer (India), Pvt. Ltd., Dhule”. The appellant is also carrying business of shares and derivatives. The return of income declaring total income of Rs.85,43,220/- was submitted electronically by assessee on 30th September 2009. The same was processed on 28th March 2011 under section 143 (1) of the Income Tax Act, 1961 by accepting the return of income. Subsequently the case of the appellant was picked up for scrutiny. The statutory notice under section 143(2) of the Income Tax Act, 1961 was issued on 28th September 2010. The appellant was granted an opportunity of being heard by the assessing officer. The appellant produced the information called as per questionnaire before the assessing officer. The assessing officer passed order on 29th December 2011 assessing the income of the appellant as Rs.90,79,092/-.
3. In the said assessment order, the assessing officer made addition of the income to the extent of Rs.5,35,872/- under three different heads. The assessing officer refused to consider the loss suffered by the assessee on transaction in derivatives while computing net taxable income. The application for rectification under section 154 made by the appellant was rejected by order dated 14 th May 2012. On 4th June 2012 the appellant preferred an appeal before the Commissioner of Income Tax (Appeals) against the assessment order. The appellant did not challenge the additions made by the Assessing Officer.
4. On 27th February 2014, the Commissioner of Income Tax (Appeals) passed order refusing to consider the loss suffered by the appellant on transaction in derivatives while computing the net income of the appellant. The Commissioner of Income Tax (Appeal) was of the view that the appellant would not be entitled to set-off loss suffered from transactions in securities because of the provisions of section 73. The Commissioner held that as provided under section 73, the loss suffered by the assessee would be a loss from speculative business and as such the appellant would not be entitled to claim set- off against the income from a non-speculative business.
