DIWALI CAPITAL & FINANCE PVT. LTD.,MUMBAI vs. DCIT -CC- 2(2), MUMBAI

Aayakr ApIlaIya AiQakrNa “SMC” nyaayapIz maMuba[- mao. IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI श्री महावीर स िंह, न्याययक दस्य के मक्ष । BEFORE SRI MAHAVIR SINGH, JUDICIAL MEMBER Aayakr ApIla saM./ ITA No. 3107/Mum/2018 (inaQa-arNa baYa- / Assessment Year 2013-14) Aayakr ApIla saM./ ITA No. 3108/Mum/2018 (inaQa-arNa baYa- / Assessment Year 2014-15)

Diwali Capital & Finance The Dy. Commissioner of Private Ltd. Income Tax, Central Circle 2(2), 8th Floor, Room No. 113, Commerce House, 140, Vs. N.M. Road, Fort, Mumbai-400 806, Old CGO Bldg, M.K. 023 Road, Mumbai-400 020 .. (p`%yaqaaI- / Respondent) (ApIlaaqaI- / Appellant) स्थायी लेखा िं./PAN No. AAACD3084A अपीलाथी की ओर े / Appellant by : Shri Vimal Punamiya, AR प्रत्यथी की ओर े / Respondent by : Shri Satishchandra Rajore, DR ुनवाई की तारीख / Date of hearing: 07.02.2019 घोषणा की तारीख / Date of pronouncement : 08.05.2019 AadoSa / O R D E R

महावीर स िंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:

These appeals by the assessee are arising out of the common order of Commissioner of Income Tax (Appeals)-48, Mumbai [in short CIT(A)], in appeal No. CIT(A)-48/I.T-222&223/DCCC-2(2)/2016-17 vide dated 26.03.2018. The Assessments were framed by the Dy.

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Commissioner of Income Tax, Central Circle 2(2) (in short ‘DCIT/ ITO/ AO’) for the A.Ys. 2013-14 & 2014-15 vide dated 22.12.2016 under section 143(3) read with section 153A of the Income Tax Act, 1961 (hereinafter ‘the Act’).

“1. On the facts and the circumstances of the case and in law, the learned CIT(A) has erred in confirming the action of the Ld. A.O in disallowing set off of the Loss from Derivative Transactions carried out on a recognized stock exchanges of Ks. 13,59,638/- by invoking the provision of Explanation to Section 73 of the I tax Act, completely disregarding the amendment to section 43(5) of I Tax Act by the Finance Act 2005 by way of inserting clause (d) providing that eligible transactions in respect of trading in securities derivatives carried out in a recognized stock exchange shall not be deemed to be speculative transaction. Further the learned CIT(A) has also disregarded the CBDT Notification No. 2/2006 dated 25.01.2006

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notifying, inter alia National Stock Exchange of India Ltd. (NSE) and the Stock Exchange of Bombay(I3SE) as the recognized stock exchanges for the purpose of clause (d) of proviso to section 43(5) of the Act.

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that during the year the assessee has incurred loans from derivative trading of ₹ 13,59,638/- and he was asked to explain and assessee submitted explanation that derivative loss from trading in recognized stock exchange shall not be treated as speculation loss as per notification dated 2/2016 dated 25.01.2006 issued by CBDT. The AO after going through the decision of Hon’ble Delhi High Court in the case of CIT vs. DLF Commercial Developers Ltd [2013] 218 Taxman 45 (Delhi), disallowed the loss claimed from derivative transactions. Aggrieved, assessee preferred the appeal before CIT(A).

“5.2 Very Elementary language of Explanation to section 73:-

The language used in Explanation to section 73 is extremely basic and elementary- It says

“Purchase and sale of shares of other companies" These are no qualifiers like from which exchange. whether F and 0 or whether delivery taken or not etc.

All qualifiers of section 43(5) are absence in Explanation 73. Ambit of Explanation 73 is much wider than section 43(5):- Whatever is speculative under section 43(5) would obviously remain

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speculative for section 73. But whatever is not speculative u/s.43(5) is also speculative uls.73. Therefore if transactions covered in section 43(5) is A, then transactions covered in Explanation to section 73 A+B.

All purchase and sale of shares of other companies are Deemed Speculation,

Exemptions to Certain Companies: - Since all types of purchase and sale of shares of other companies are deemed- considered speculative transactions for the purpose of setting of losses, only escape is to those companies which are covered in category of exempted companies. The exempted companies are as follows: - (To quote for Delhi High Court order in case of CIT Vs DLF Commercial Developers Limited)

- However, certain companies are excluded from this Explanation which are:

(I) A company whose gross total income consists mainly of income which is chargeable tinder the heads Interest on securities, ‘income from house property', Capital gains and income from other sources'.

(ii) A company, the principal business of which is the business of banking or the granting of loans and advances.

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Aggrieved, now assessee is in second appeal before Tribunal.

Particulars AY 2009-10 AY 2011-12 AY 2013-14 AY 2014-15 short term 31st March east march 31st March 31st March loans and 2009 2011 2013 2014 advances

shareholder’s 1 5,61,15,893 5,36,97,138 3,61,61,590 4,53,23,485 funds (a) Share A 3,75,000 93,75,000 98,25,000 98,25,000 Capital B (b) Reserve

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and Surplus 5,89,75,768 5,98,04,310 7,41,81,937 7,44,58,467 Total of a+b 2 6,83,50,768 6,91,79,310 8,40,06,937 8,242,83,467 ratio of loans and advances to capital employed ½ ratio of 82.10% 77.62% 43.05% 53.78% Investments to capital employed 20.92% 18.25% 16.57% 16.52% 6. I have gone through the above factual position, which is undisputed, and it can be seen that company’s principal business is granting of loan and advances by maintaining the ratio of 50% and it continue to be the main business of the company. Further, the long term investment made by the assessee company continues to be the same but ratio changed due to increase in capital employed by the assessee company. It is also noted that this being consistent around 20% of the capital employed. As relied on by the learned Counsel for the assessee, the explanatory memorandum in respect notification S.O. 89(3) dated 25th January, 2006 stating as under: -

"The said Notification notifies Bombay Stock Exchange Limited, Mumbai and National Stock Exchange of India Limited, Mumbai as recognized Stock Exchanges for the purposes of clause (d) of the proviso to section 43(5) of the Income-tax Act, 1962. An eligible transaction in respect of trading in derivatives carried out on these two Stock Exchanges with effect from 25th January, 2006 shall not be deemed to be speculative transaction. The expression 'eligible transaction' is defined in the Explanation

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appearing after the proviso to section 43(5) of the Income-tax Act, 1961."

"Definitions of certain terms relevant to income from profits and gains of business or profession.

(1) to (4) ------

(5) speculative transaction" means a transaction in which a contract 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 purposes of this clause—

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(a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merehanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; or (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 (e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognized association, which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013), shall not be deemed to be a 'speculative transaction.

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Explanation 1.—For the purposes of clause (d), the expressions-

(z) 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) in accordance 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 the rules, regulations or bye- laws made or directions issued under those Acts or by banks or mutual funds on a recognized' 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 note the 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 U) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and which fulfils such conditions as may be ITAs No.3107 & 3108/Mum/2018

prescribed and notified by the Central Government for this purpose

Explanation 2.—For the purposes of clause (e), the expressions-

(i) "commodity derivative" shall have the meaning as assigned to it in Chapter VII of the Finance Act, 2013;

(iii) 'recognized association" means a recognized association as referred to in clause (j) of section 2 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and which fulfils such conditions as may be prescribed and is notified by the Central Government for this purpose;”

“2.7. We have heard the rival submissions and perused the materials available on record. At the outset, we find that the activities carried on by the assessee could be summarized as under: -

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2.7.1. According to the ld.AR, the loss incurred by the assessee in purchase and sale of shares where actual delivery has taken place should be treated at par with profit / loss incurred in dealing of shares where no delivery has taken place as well as with brokerage and other income and profit / loss from all these activities should be adjusted with each other. We also find from the materials available on record that loss incurred in transaction where no delivery has taken place was treated as regular business loss in Asst Years 2007-08 and 2009-10 on the ground of jobbing and arbitrage and the same

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was accepted by the Learned AO in both the assessment years. This fact is also stated at page 14 of the Learned CITA order. The relevant operative portion of the assessment order u/s 143(3) of the Act dated 2.12.2011 for the Asst. Year 2009-10 is reproduced hereunder: -

3.9. From the P&L it is found that the assessee has incurred a loss of Rs. 69,71,852.82. The assessee was asked to explain why not the above be treated as speculation loss. In response the A/R of the assessee submitted that the amount of loss is basically the loss incurred for jobbing and arbitrage. In support of the same he has given a detailed submission with evidence, which are placed on record. In view of section 43(5)(c ) of the Income Tax Act, the jobbing and arbitrage is not a speculative transaction. Hence, the view of the assessee is considered.

2.7.2. Here we are aware that though the principle of res judicata does not apply to income tax proceedings, the principle of consistency cannot be given a complete go bye as has been held by the Hon’ble Supreme Court in the case of Radhasoami Satsang vs CIT reported in 193 ITR 321 (SC), wherein it was held that :

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“As we are aware of the fact that, strictly speaking res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and the parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.”

2.7.3. We find that the assessee had earned profit from derivatives trading (future & options) amounting to Rs. 36,86,29,893/- and the Learned AO had invoked Explanation to section 73 to part of the transactions only i.e only for delivery based transactions wherein share trading loss of Rs. 5,36,90,032/- was incurred and non delivery based transactions wherein share trading loss of Rs. 2,46,33,241/-, but whereas the transactions related to F&O are also of the same nature wherein profits were earned and there is only effective surplus out of the same if profit from F & O are considered and hence there is no loss available with the assessee. Hence we find that the alternate submissions of the Learned AR also holds good that the transactions in F & O have been entered into with a view to hedge against the ITAs No.3107 & 3108/Mum/2018

shares held by the assessee and the assessee has been benefited by such hedging by the fact that the loss suffered in share transactions have been hedged by way of profit in F&O.

2.7.4. We find that F&O transactions are based on “shares” on which point there is no dispute. Thus, there is no bar on the assessee to submit that such transactions were in the nature of hedging. The transactions in the derivatives have been carried on simultaneously with purchases. He submitted that hedging may be carried out in items different than the items purchased / sold.

2.7.5. We find that the assessee does not differentiate between its business of share trading of delivery based shares and non- delivery based shares, it arrived at the figure of net business income for the relevant assessment year after setting off the loss incurred in the business of purchase and sale of delivery based shares with income earned from derivative transactions by treating the entire activity of purchase and sale of shares which comprised of both delivery and non delivery based trading as one composite business before the application of deeming provision contained in Explanation to Section 73. 2.7.6. We find from the facts available on record, the assessee is operating in one

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segment i.e dealing in shares and securities and all the activities under this segment are interrelated. In this regard, we place reliance on the following decision of the coordinate bench of this tribunal in the case of ITO s Sand Dune Credit Pvt Ltd in ITA Nos. 2075 & 2076 /Kol / 2008 for the Asst Years 2004-05 & 2005-06 dated 24.4.2009, wherein the tribunal upheld the decision of the CITA with regard to deletion of the addition under Explanation to section 73 by making the following observations: -

Pages 12 & 13 of ld.CIT(A)’s order: “I have carefully considered the submission of the ld.A.R. The assessing Office has added Rs.10,06,974/- being loss suffered in trading in shares which was set off against brokerage income of shares of Rs.12,90,172/-. The appellant is a share broker, registered with SEBI and its entire activity in shares is to be treated as the activity of share business whether it was by way of trading of shares and/or by way of brokerage in shares. The activity which was conducted by the appellant on a/c of other parties in which brokerage income was earned and the activity of dealing in shares in their own a/c was treated as share trading business. The entire activity has to be treated as one and as such the explanation to section 73 is not applicable

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in the instant case. I hold that the statute has not made a distinction between purchase and sale of shares of Companies made on own behalf and/ or behalf of others, where entire business activity of the company consist of purchase and sale of shares of other companies in which some brokerage was earned and in some other loss or profit is earned. The entire business activity is inter linked and is to be treated as same activity. I am of the opinion that the case referred by the ld.A.R being CIT Vs. Nirmal Kumar & Co. 161 ITR 413 (Cal) is fully applicable in the present case. The addition of Rs.10,06,974/- under the head deemed speculation by applying the explanation to section 73 is, therefore deleted.”

“Similarly, in case of M/s. Somany Stock Broking Pvt. Ltd Vs. Assistant Commissioner of Income Tax, Kolkata, ITA No. 1914/Kol/2004, it was held that:- “The assessee company is engaged in a composite business of share broker, share trading etc during the year under consideration. The assessee has earned income from such composite business for taxation in Income Tax Return. There is a common management inter-liaison of ITAs No.3107 & 3108/Mum/2018

resources. There is a common work force as such bifurcation of such business is not possible. In this regard the reference can be made to the decision of the Supreme Court in the case of Prithvi Insurance Ltd reported in 53 ITR page 632 and 637 and in the case of Exchange Corporation Limited 77 ITR 739 (SC) in the case of Exchange Corporation Limited, it was held that the test is unit of control and not the nature of the two line of business. Hon’ble Supreme Court held that the tribunal was right in holding share business and other business carried by the appellant company constituting the same business within the meaning of Section 24(2). As thus before the amendment in 1955 while deciding the case the Hon’ble Supreme Court has applied the ratio of decision in the case of Prithi Insurance Ltd (supra). Thus this is now accepted as principle of law that once such activity are composite in nature, the income therefrom has to be assessed as a whole. Since the share broking activity, share dealing on own account all form an integrated business of the appellant company, the profit or loss from the same is required to be computed as a whole. In the instant case of the company, it is very difficult to segregate

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business activities and allocate respective amount of expenditure incurred for the purpose of earning the same. Since the activities are being carried out at common work place with a work force, the work staff, the expenses incurred are also common in nature. Hence, this expenses cannot be bifurcated to arrive at profit under separate heads. As such the Explanation appended to Section 73 will not be applicable in the present case.”

In case of ITO, C.W 2(2) Vs. GDB Share & Stock Broking Service Ltd ITA No.235(Cal) of 2001 it was held that “The assessee has shown brokerage income of Rs.49.17 lacs, interest income of Rs.1.66 lacs & dividend income of Rs. 0.74 lacs. On the other hand the assessee has suffered loss of share dealing amounting to Rs.3.97 lacs in respect of which assessing officer has attracted the explanation to Section 73. The brokerage income earned by the assessee is out of its business of purchase & sale of shares and not in respect of any other activity being carried on by the assessee company. As per our considered view while arriving at the total profit on account of the said share dealing business, one has to take into account not only the profit or loss on sale and purchase of shares but also the brokerage earned on the purchase & sale of shares. As the ITAs No.3107 & 3108/Mum/2018

brokerage income is inextricably related with the said share transaction business, the net profit of which work out to (Rs.49.40- Rs.3.97) Rs. 45.20 Lakhs. Thus, there is no merit in the action of the assessing officer in treating the loss of Rs. 3.97 lakhs in isolation by disregarding income earned by the assessee by way of brokerage in the said share trading business itself. In view of the above, we are of the considered view that the assessing officer was not justified in attracting the explanation to Section 73 and holding that loss of Rs.3.97 Lacs was deemed to be speculation loss.”

We also find that the decision of Kolkata Tribunal has been approved by the Hon’ble Calcutta High Court in the case of CIT vs M/s Sand Dune Trade Pvt Ltd in ITAT NO. 146 of 2010 , G.A.No. 1982 of 2010 and G.A.No. 1983 of 2010 dated 21.7.2010 , wherein it was ordered as below:-

“The Court: Being satisfied with the explanations as have been submitted we allow the prayer for condonation. The delay is condoned.

At this juncture the matter is taken up for admission hearing.

Since we have dismissed already an appeal being ITAT 147 of 2010 which has also been impugned here on the self-same facts· and circumstances and in this case also it appears

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that assessing officer deleted the claim of Rs.10,06,974/· on account of loss in share trading operation. The assessee preferred appeal before the Commissioner of Income Tax(Appeal). The Commissioner of Income Tax(Appeal) held that loss incurred in the business of transaction of share would not be speculation loss and has held that explanation to Section 73 would not be applicable to the case of the assessee company.

Therefore, the Commissioner of Income Tax (Appeal)) while relying on the judgment of this Court in case of [CIT vs. Nirmal Kumar & Co.] reported in 161ITR 413 has granted relief and held that addition of Rs.10,06,974/- under the head deemed speculation by applying the Explanation to Section 73 is deleted.

The Learned Tribunal while noting the aforesaid findings of the Commissioner of Income Tax (Appeal) recorded that during the course of hearing departmental representative has not disputed the fact stated by CIT(A) (Supra). The Learned Tribunal also observed that income of the assessee in the assessment order under consideration from brokerage income of share of Rs.12,90, 172/- is more than the loss of Rs.10,,06,974/- claimed by the assessee in respect of sale and purchase of the share by way of brokerage of share. It is recorded by the learned Tribunal further that there is no dispute

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to the fact that explanation to Section 73 does not apply to an investment company or a company whose principal business is banking or money lending. The learned Tribunal has, therefore, affirmed the order of the Commissioner of Income Tax (Appeal) in view of the judgment of this Court [CIT vs. Nirmal Kumar & Co.] (supra) reported in 161 ITR 413. In view of the aforesaid findings and application of law in this matter we do not think it is a fit case for admission. It is not submitted that the decision rendered in the case of [CIT vs.Nirmal Kumar & Co.] reported in 161 ITR 413 (Supra) is not applicable in the facts and circumstances of this case nor it is argued that the said decision of this Court has been overruled.

Accordingly, the appeal is not admitted and the same is dismissed. The application being 1982 of 2010 is disposed of.

Certified photostat copy of this order be made available to the parties, if applied for, on compliance of usual formalities.”

2.7.7. It is pertinent to get into the Explanation to Section 73 of the Act at this juncture :-

“Section 73 : Losses in speculation business: (1) *** *** *** *** *** *** *** (2)(i) & (ii)*** *** *** *** *** *** *** (3) & (4) *** *** *** *** *** *** *** Explanation- Where any part of the business of ITAs No.3107 & 3108/Mum/2018

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 banking or the granting of 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 consist of the purchase and sale of such shares.]

We find that it is clear that in the case of a company whose business consists mainly or partly of purchase and sale of shares of other companies, it will amount to speculation business unless such company’s gross total income consists mainly of income under the heads of “Interest on securities “ , “Income from house property”, “Capital Gains” and “Income from other sources”, or where the principal business of the company is the business of banking or of granting loans and advances. Hence from this, the following points emerge :-

It applies to companies whose business consists of purchase and sale of shares of other companies. • It applies to all purchase and sale of shares. • It does not differentiate between

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‘Delivery based transactions’ and ‘F&O’ operations.

It applies to the entire business of purchase and sale of shares, whether such trading is delivery based or non-delivery based and whether there is profit or loss from such business deemed as “speculation”.

We find that the assessee had treated the entire activity of purchase and sale of shares which comprised of both delivery based and non- delivery based trading as one composite business before the application of deeming provision contained in Explanation to Section 73 of the Act and accordingly, claimed set off of the loss incurred in delivery based trading with profit derived from derivative trading. 2.7.8. We hold that the transactions done by delivery as well as the transactions of derivatives are not hit by section 43(5) of the Act and hence the aggregation of the share trading loss and profit from derivative transactions should be done before application of the Explanation to section 73 of the Act. Reliance is placed on the following decisions:-

a) Kolkata Tribunal in the case of DCIT vs M/s Baljit Securities Private Limited in ITA No. 1183/Kol/2012 dated 21.10.2014 for the Asst Year 2009-10, wherein it was held as below:-

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It is concluded that both trading of shares and derivative transactions are not coming under the purview of section 43(5) of the Act which provides definition of ‘speculative transaction’ exclusively for purposes of section 28 to 41 of the Act. Again, the fact that both delivery based transaction in shares and derivative transactions are non-speculative as far as section 43(5) of the Act is concerned goes to confirm that both will have same treatment as regards application of the Explanation to section 73 is concerned, which creates a deeming fiction. Now, before application of the said Explanation, aggregation of the business profit / loss is to be worked out irrespective of the fact, whether is from share delivery transaction or derivative transaction. Now, this view has been confirmed by the Hon’ble Jurisdictional High Court in assessee’s own case in GA No. 3481 of 2013 and ITAT No. 215 of 2013 dated 12.3.2014, has held as under:-

“Clause (d) of Section 43(5) became effective with effect from 1st April, 2006. Therefore, prior to 1st April, 2006 any transaction in which a contract for the purchase or sale of any commodity including stocks and shares was periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrip was a speculative transaction. Sub-section 1 of Section 73

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provides as follows: ‘(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.’ The resultant effect was that any loss arising out of speculative transaction could only have been set off against profits arising out of speculative transaction. In the present case, the assessee, as already indicated, has been dealing in shares where delivery was in fact taken and also in shares where delivery was not ultimately taken. In other words, the assessee has been dealing in actual selling and buying of shares as also dealing in shares only for the purpose of settling the transaction otherwise than by actual delivery. The question arise whether the losses arising out of the dealings and transaction in which the assessee did not ultimately take delivery of the shares or give delivery of the shares could be set off against the income arising out of the dealings and transactions in actual buying and selling of shares. An answer to this question is to be found in the explanation appended to Section 73 which reads as follows:

anation appended to Section 73 which reads as follows: ‘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

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“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 banking or the granting of 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 consist of the purchase and sale of such shares” In order to resolve the issue before us, the section has to be read in the manner as follows:

“ Explanation : where any part of the business of a company…………………………………………… ………………… ………………………………………………) consist 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 consist of the purchase and sale of shares. “

It would, thus, appear that where an assessee, being the company, besides dealing in other things also deals in purchase and sale of shares of toher companies, the assessee shall be deemed to be carrying on a speculation business. The assessee, in the present case,

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principally is a share broker, as already indicated. The assessee is also in the business of buying and selling of shares where actual delivery was not intended to be taken or given. Therefore, the entire transaction carried out by the assessee, indicated above, was within the umbrella of speculative transaction. There was, as such, no bar in setting off the loss arising out of derivatives from the income arising out of buying and selling of shares. This is what the learned Tribunal has done.”

b) Mumbai Tribunal, Special Bench in CIT vs Concord Commercial Pvt Ltd in (2005) 95 ITD 117 (Mum) (SB) , wherein it was held that :

“Before considering whether the assessee’s case is hit by the deeming provision of Explanation to Section 73 of the Act, the aggregate of business profit / loss has to be worked out based on the nonspeculative profits, either it is from share delivery or from share derivative.”

c) Decision of Hon’ble Delhi High Court in the case of CIT vs DLF Commercial Developers Ltd in ITA No. 94/2013 dated 11.7.2013 wherein it was held that the Explanation to Section 73 does not differentiate between derivatives and delivery based shares.

“11. The stated objective of Section 73-apparent from the tenor of its language is to deny

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speculative business the benefit of carry forward of losses. Explanation to Section 73(4) has been enacted to clarify beyond any shadow of doubt that share business of certain types or classes of companies are deemed to be speculative. That in another part of the statue, which deals with computation of business income, derivatives are excluded from the definition of speculative transactions, only underlines that such exclusion is limited for the purpose of those provisions or sections. To borrow the Madras High Court’s expression, “derivatives are assets, whose values are derived from values of underlying shares, which fall squarely within the explanation to Section 73(4). Therefore, it is idle to contend that derivatives

do not fall within that provision, when the underlying asset itself does not qualify for the benefit, as they (derivatives-once removed from it and entirely dependent on stocks and shares, for determination of their value).

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2.7.9. From the provisions of section 43(5)(d) of the Act, it is clear that the definition of ‘speculative transaction’ as contained in section 43(5) of the Act is only for purpose of sections 28 to 41 of the Act. It does not apply to the other sections of the Act.

2.7.10 As per the definition of section 43(5) of the Act, trading of shares which is done by taking delivery does not come under the purview of the said section. Similarly, as per clause (d) of section 43(5), derivative transaction in shares is also not speculation transaction as defined in the said section. Therefore, both profit/loss from all share delivery transactions and derivative transactions have the same meaning as far as Section 43(5) of the Act is concerned. It thus follows that both will have the same treatment as far as application of the said section is concerned.

2.7.11. In view of the aforesaid facts and circumstances and judicial precedents relied upon hereinabove, we hold that the claim of the assessee for set off of loss from share dealing should be allowed from the profits from F & O in share transactions, the character of the income being the same and also hold that before application of the Explanation to section 73, aggregation of the business profit or loss is to be worked out irrespective of the fact whether it is from share delivery transaction or derivative

31 ITAs No.3107 & 3108/Mum/2018 transactions. Accordingly, the grounds raised by the assessee are allowed.” 9. In view of the above proposition and facts of the case, I am of the view that the loss is allowable. Accordingly, I allow the claim of the assessee. 10. Similar are the facts for the AY 2014-15, hence taking a consistent view in this year also, I allow the loss. 11. In the result, the appeals of assessee are partly allowed. Order pronounced in the open court on 08.05.2019. AadoSa kI GaaoYaNaa Kulao mao idnaMk 08.05.2019 kao kI ga[- . (महावीर स िंह /MAHAVIR SINGH) (न्याययक दस्य/ JUDICIAL MEMBER) मुिंबई, ददनािंक/ Mumbai, Dated: 08.05.2019 सुदीप सरकार, व.निजी सचिव / Sudip Sarkar, Sr.PS आदेश की प्रनिलिपप अग्रेपिि/Copy of the Order forwarded to : अपीलाथी / The Appellant 1. प्रत्यथी / The Respondent. 2. आयकर आयुक्त(अपील) / The CIT(A) 3. आयकर आयुक्त / CIT 4. ववभागीय प्रयतयनधि, आयकर अपीलीय अधिकरण, मुिंबई / DR, ITAT, 5. Mumbai गार्ड फाईल / Guard file. 6. आदेशािुसार/ BY ORDER, त्यावपत प्रयत //// उप/सहायक पंजीकार (Asstt.