|CORAM:||Jason P. Boaz (AM), Sandeep Gosain (JM)|
|SECTION(S):||Explanation to s. 73|
|CATCH WORDS:||clarificatory amendment, Retrospective amendment|
|COUNSEL:||B. V. Jhaveri|
|DATE:||May 13, 2016 (Date of pronouncement)|
|DATE:||May 26, 2016 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|The amendment to Explanation to s. 73 by Finance (No. 2) Act, 2014 w.e.f. 01.04.2015 is clarificatory in nature and operates retrospectively from 01.04.1977, being the date the Explanation to s. 73 was placed on the statute. Therefore, the loss incurred in share trading business by companies whose principal business is trading in shares will not be treated as speculation loss but as normal business loss and the same can be adjusted against income from business or other sources|
(i) The intention of the Legislature, from a perusal of the Wanchoo Committee Report and CBDT Circular No. 204 dated 24.07.1976, was not to treat purchase and sale of shares by companies whose main business is trading in shares as speculative business and therefore the Explanation to section 73 of the Act should be read only to the extent of the purpose for which it was inserted. The subsequent amendment made by Finance (No.2) Act, 2014 in the Explanation to section 73 of the Act appears to be made in order to clarify the real intention behind the insertion thereof, by removing the obvious hardship caused to various assessees whose main business is trading in shares. The amendment has removed the anomaly and brought the ambit of the Explanation to section 73 of the Act in line with the intention of the Legislature by placing the companies whose principal business is trading in shares as part of the exception to Explanation to section 73 of the Act, because such companies were not the companies for whom the Explanation was inserted.
(ii) The insertion of the amendment in the Explanation to section 73 of the Act by the Finance (No. 2) Act, 2014, in our view, is curative and classificatory in nature. If the amendment is applied prospectively from A.Y. 2015-16, a piquant situation would arise that an assessee who has earned profit from purchase and sale of shares in A.Y. 2015-16 would be treated as normal business profit and not speculation business profit in view of the exception carried out by the amendment in Explanation to section 73 of the Act. In these circumstances, speculation business loss incurred by trading in shares in earlier years will not be allowed to be set off against such profit from purchase and sale of shares to such companies in A.Y. 2015-16. For this reason also, the amendment inserted to Explanation to section 73 of the Act by Finance (No. 2) Act, 2014 is to be applied retrospectively from the date of the insertion to Explanation to section 73 of the Act (CIT vs. Alom Extrusions Ltd. (319 ITR 306), Allied Motors Pvt. Ltd. vs. CIT (224 ITR 677), CIT vs. J.H. Gotla (156 ITR 323) CIT vs. J.H. Gotla (156 ITR 323) followed, Prasad Agents (P) Ltd. in 333 ITR 275 (Bom) distinguished)
From 1/4/2006 derivative gain/loss u/s 43(5)(d) was treated as normal trading loss.The question of set off of prior loss before 1/4/2006 was lucidly discussed in a MUMBAI ITAT ORDER.The vested right issue was discussed and set off allowed of prior losses.