PR COMMISSIONER OF I T-1 JAIPUR vs. M/S ESTERN JEWELS PVT LTD

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 130 / 2016 Principal Commissioner of Income Tax-I, New Central Revenue Building, Statute Circle, Jaipur (Raj.) ----Appellant Versus M/S Eastern Jewels Pvt Ltd., 507, Mahar Bhavan, Thakur Pachwar Ka Rasta, Ramganj Bazaar, Jaipur. ----Respondent/Assessee _____________________________________________________ For Appellant(s) : Mr. Anuroop Singhi For Respondent(s) : Mr. Sandeep Taneja _____________________________________________________ HON'BLE MR. JUSTICE K. S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS judgment 23/10/2017 1. By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal of the department. 2. This court while admitting the appeal on 20.09.2016 framed the following question of law:- “ 1. Whether in the facts and circumstances of the case the Tribunal was justified in holding the income of Rs. 1,76,00,708/-, which was earned out of delivery based share transactions, as speculative income and allowing the set off of speculative loss of Rs. 1,38,60,740/- against the income derived from delivery based share transactions? 3. Counsel for the respondent has contended that the issue is now covered by the decision of Bombay High Court in Commissioner of Income-Tax V/s Lokmat Newspapers P. LTD

(2 of 3) [ITA-130/2016] [2010] 322 ITR 43 (Bom) wherein it has been held as under:- “The submission which has been urged on behalf of the Revenue, cannot be accepted, having regard to the plain meaning of the explanation to Section 73. The submission of the Revenue is that a loss which arises on account of a transaction of the sale and purchase of shares would constitute a loss from a speculation business for the purposes of the explanation. But, that the profit which arises from a transaction involving the actual delivery of shares would not constitute a profit for the purposes of sub-sections (1) and (2) of Section 73 in respect of which a set off can be granted. To accept the submission of the Revenue would be to introduce a restriction into the scope and ambit of the deeming fiction which is created by the explanation to Section 73, which is not contemplated by Parliament. Once a deeming fiction is created by law, it must be given full and free effect, of course, in relation to the ambit within which it is intended to operate. The deeming fiction created by the explanation to Section 73 defines when an assessee is to be deemed to be carrying on a speculation business for the purposes of the Section. The deeming fiction is, therefore, one which arises specifically in the context of the provisions of Section 73 and is confined to that purpose alone. The explanation stipulates that where an assessee is a company whose business consists in any part of the purchase and sale of shares of other Companies, it shall be deemed to be carrying on a speculation business to the extent to which the business consists of purchase and sale of such shares. Whether or not it is a profit or loss that has resulted from carrying on such business, is a consideration which is alien to the meaning of what constitutes a speculation business by the explanation to Section 73. Once an assessee is deemed to be carrying on a speculation business for the purpose of Section 73, any loss computed in respect of that speculation business, can be set off only against the profits and gains of an other speculation business. Similarly, for the purposes of sub-section (2), the loss in respect of a speculation business which has not been set off either in whole or in part, can be carried forward and can be set off against profits and gains "of any speculation business". The expression "any speculation business" means a speculation business of the assessee in respect of which profits and gains for the Assessment Year in question have arisen and there is no justification to restrict the content of that speculation business where profits have arisen by excluding a business involving actual delivery of shares. No such restriction is found in the explanation.

(3 of 3) [ITA-130/2016] To impose one is a legislative function. In other words, once the assessee is carrying on a speculation business and the profits and gains have arisen from that business during the course of the Assessment Year, the assessee is entitled to set off the losses carried forward from a speculation business arising out of a previous Assessment Year” 4. In view of the above, the issue is answered in favour of the assessee against the department. 5. The appeal stands dismissed. (VIJAY KUMAR VYAS),J. (K.S.JHAVERI),J. B.M.G/Gourav/27