ORDER
B.K. Mitra, J.M.
The appeal filed by the assessee is directed against the order dated 24-11-1995 passed by the Commissioner (Appeals) for the assessment year 1991-92.
2. The grounds raised by the assessee are as follows :
“1. The Commissioner (Appeals) erred in confirming the action of the assessing officer in treating the business loss claimed as speculation loss on the facts and in the circumstances of the case.
2. For that the Commissioner (Appeals) should have seen that the appellant had only one business of dealing in shares.
3. For these and other grounds that may be urged at the time of hearing your petitioners pray that relief may be granted accordingly.”
3. The facts of the case, in brief, are that the assessee filed return on 30-12-1991 disclosing a loss of Rs. 1,31,043 and it was selected for scrutiny and notice under sections 143(2) and 142(1) were issued and served on the assessee. The controversy arises in the case regarding the loss disclosed by the assessee for the purpose of sale of shares amounting to Rs. 87,000 being treated as speculation loss in view of the Explanation appended to section 73 of the Income Tax Act. The learned Commissioner (Appeals) was of the opinion that the Explanation to section 73 of the Act is attracted in the instant case and the loss was regarded as a speculation loss.
4. The learned distinguished counsel for the assessee stated that the Commissioner (Appeals) relying on the Explanation to section 73 of the Income Tax Act, 1961 held that the nature of the business activities attracts section 73 and the company is deemed to be carrying on a speculation business to the extent to which the business consists of purchase and sale of shares. The learned Commissioner (Appeals), therefore, treated the said loss as a speculation business and did not allow the loss against the other heads of income, i.e., dividend income and interest income. The learned counsel narrated that the assessee during the instant assessment year carried on the only business of purchase and sale of shares of other companies and it had suffered loss from the business of share dealing amounting to Rs. 1,44,198. The assessee had a positive income by way of interest to the extent of Rs. 40,829 and its dividend income thereof was Rs. 300. If the said income is set off against the loss arising from the share dealing business, the net amount of loss is to be Rs. 1,03,069 and the said amount is to be carried forward as a business loss under section 72 of the Act. The learned counsel said that section 73 stipulates that any loss computed in respect of a speculation business carried on by the assessee shall not be set off except against the profit and gains, if any, of another speculation business. The Explanation to section 73 provides that for the purpose of the section, where any part of a 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 banking or granting of loans and advance) consists in the purchase and sale of shares of other company, such company shall for the purpose of section be deemed to be carrying on speculation business to the extent to which the business consists of the purchase and sale of such shares. It was highlighted by the learned counsel that it is for the purpose of section 73 of the Act that the business consisting of share dealing shall be deemed to be a speculation business unless the business comes within the different enumerated categories referred to in the Explanation. The learned senior counsel stated that the business loss is to be allowed under section 72 of the Act which is a general provision and section 73 of the Act provides for treatment of losses in a speculation business. The speculation transaction under section 43(5) stipulates that it must be transaction in which a contract for 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. The distinguished counsel mentioned that the above criteria is fulfilled, then only the transaction should be termed as speculation transaction and the provisions of section 73 can be attracted by which such loss can be set off only against speculation income. It was further brought to our notice that without following the general provisions of set off or carry-forward of business loss as envisaged in sections 70 to 72 of the Act the assessing officer should not invoke the provisions of speculative business under section 73 of the Act and the Explanation thereto without bringing any material on record. The learned counsel placed reliance in the decision of the co-ordinate Bench of the Tribunal in the case of Rajan Enterprises (P) Ltd. v. ITO (1992) 41 ITD 469 (Bom) and argued that whenever it is warranted the Act has provided specific exclusion of the item from gross total income. In one of such cases it was found in section 32A(3) in connection with the deduction of investment allowance.
5. It was further contended that as there was no specific exclusion of loss incurred by an assessee on purchase and sale of share from the gross total income in sections 70,71 and 72, the learned distinguished counsel submitted that the nature of transaction of the sale and purchase in the case of the assessee is to be determined with respect to the gross total income of the assessee without applying the provisions to Explanation 73. The learned Departmental Representative supported the orders of the lower authorities and placed reliance in the decision of the jurisdictional High Court in the case of CIT v. Arvind Investment Ltd. (1991) 192 ITR 365 (Cal) and the decision of the Calcutta High Court in the case of Eastern Aviation & Industries Ltd. v. CIT (1994) 208 ITR 1023 (Cal) and reiterated that the assessing officer is quite justified in considering the loss in share business as speculation loss. The distinguished counsel for the assessee objected to that and argued that the cases which have been relied upon by the learned Departmental Representative are distinguishable on the facts of the case and the decision of the Calcutta High Court in Arvind Investment Ltd.s case (supra) does not deal with the above submission at all because the said point was neither raised nor decided by the High Court. In that case, the High Court held that even if the assessee carries on the only business of share dealing Explanation to section 73 will apply. It was further contended by the distinguished counsel that the High Court had no occasion to consider the present submission that after applying sections 70, 71 and 72 there is no scope for application of section 73 because the unabsorbed loss had already been carried forward for set-off in the succeeding year. The learned counsel categorically mentioned that in other decision in Eastern Aviation & Industries Ltd.s case (supra) the question was whether loss should be treated as negative income for the purpose of ascertaining the scope of Explanation 73 of the Act and asserted that none of the said two decisions have any application to the point raised in the present appeal.
6. We have heard the rival submissions and gone through the records. We have noticed that the assessing officer has mentioned in the assessment order that the main business activity of the assessee is trading in shares and the assessee has also income from interest and dividend. We have observed that the assessing officer never disputed the fact that the assessee was trading in shares and as such, income was treated as business income. It was further observed by us from the order of the assessing officer that if the main activity of the assessee consists of trading in shares, the transaction is to be considered as a speculation transaction. It is not out of place to mention that consequently to the above fact, loss in such transaction is to be treated as speculation loss and the provision of section 73 should be attracted. On a careful consideration of the facts of the case and the material on record, we are of the opinion that the aforesaid view of the assessing officer cannot find any support from the law.
7. Section 43(5) of the Act has clearly defined when a transaction is to be regarded as a speculative transaction. According to section 43(5), speculative transaction means a transaction in which a contract for the purchase or sale of the commodity including anti stocks and shares is periodical and ultimately settled otherwise than by the actual delivery of the transfer of the commodity or scrips. It is a fact that once the transaction is treated as speculative transaction, then section 73 will come into play meaning thereby that speculation loss shall be set off only against the income from speculative business. We have noticed that according to section 43(5), only in a particular circumstance share dealing transaction can be said to be a speculative transaction and the assessing officer has failed to establish in such circumstance as envisaged under section 43(5) of the Income Tax Act, 1961 for the purpose of treating the transaction as speculative transaction. On a careful consideration of the facts of the case and material on record, we accept the contention of the distinguished. Senior counsel that the share trading loss should be treated as business loss and the lower authorities were not justified in treating the loss as speculation loss.
8. In the result, the assessees appeal is allowed.
Pramod Kumar, A.M.
I have carefully gone through the draft order authored by my learned brother, and I find myself in respectful disagreement with the view taken by my learned brother. I, therefore, proceed to write this separate and dissenting order.
2. Let me first briefly set out the facts. The assessee-company is mainly engaged in the business of trading in shares, which, in the relevant previous year, resulted in a loss of Rs. 87,000. This loss was treated as a speculation loss, within meanings of Explanation to section 73 of the Income Tax Act, 1961 (hereinafter referred to as the Act), by the assessing officer, and, accordingly, it was excluded from the business loss carried forward. Aggrieved by this action of the assessing officer, assessee carried the matter in appeal before the Commissioner (Appeals) on the ground that the assessing officer erred in considering the loss in share business as ,speculation loss, on the facts and in the circumstances of the case. This appeal was declined by the Commissioner (Appeals) by observing as follows :
“The case of the appellant is found to be squarely covered by the decision of the Honble Calcutta High Court in the case of Eastern Aviation & Industries Limited v. CIT 208 ITR 1023 (Cal). In that case also, the assessee sustained the loss in share dealing, besides speculation loss, which was more than income by way of dividend and the Honble High Court held that the loss so sustained was speculation loss within the meaning of the Explanation to section 73 of the Act. In the present case, loss from share trading is Rs. 87,000 while the income from interest and dividend combined is Rs. 41,129 only which is far below the loss sustained. Therefore, the Explanation to section 73 is clearly attracted in this case, so as to render the loss of Rs. 87,000 as speculation loss.”
Aggrieved by the order of the Commissioner (Appeals), revenue is in appeal before this Tribunal.
3. The thrust of learned counsels submissions, giving a lot of emphasis on the words for the purpose of this section mentioned in the Explanation to section 73, is that the aforesaid explanation is relevant only for the purposes of section 73 itself and does not travel to sections 70, 71 and 72, or for that purpose to any other section, of the Act. He submitted that it may be simply a drafting error that these words have inadvertently crept in the statute but once these words exist on the statute, it is not open to us to apply this Explanation beyond section 73, and thereby supplant the law or to cure the deficiencies contained therein. He thus admitted to be capitalizing on, what he perceived as, a lacunae in drafting of Explanation to section 73. It is then submitted that when the unabsorbed loss is carried forward under section 72 of the Act, there is no question of disallowing the said unabsorbed loss under section 73 of the Act. The proposition thus advanced by the learned counsel is that the expression speculation business, for purposes other than section 73 of the Act, is to be governed by the definition contained in section 43(5), as read with section 28 (Explanation 2), of the Act. It has also been submitted that since it is not even the revenues case that the contracts are settled otherwise than by physical delivery, section 43(5) does not come to the play in the instant case. Reliance was placed on the order of a co-ordinate bench in the case of Rajan Enterprises (P) Ltd. (supra). As for the revenues reliance on the judgment of Honble jurisdictional High Court in the case of Eastern Aviation & Industries Ltd. (supra), while learned counsel was fair enough to admit that, in that judgment, Honble High Court had held that even if the assessee carries on the only business of share dealing, Explanation to section 73 will apply, learned counsel has also submitted that the above submissions of the assessee were neither raised before the High Court nor, accordingly, decided by the High Court. It was also pleaded that the High Court had no occasion to consider the present submission that after applying sections 70, 71 and 72, there is no occasion for application to section 73 because the unabsorbed loss has already been carried forward and set off in the succeeding year. Relying upon Honble Supreme Courts (sic) judgment in Seth Banarsi Das Gupta v. CIT (1971) 81 ITR 170 (All) relevant portion at 173, learned counsel submitted that the Explanation to section 73 is a legal fiction and the same is, therefore, required to be strictly construed. It was on the basis of these submissions that learned counsel urged us to modify the orders of the authorities below, by issuing direction to the effect that loss of Rs. 87,000 is required to be treated as a business loss as against speculation loss held by the authorities below. On the other hand, learned Departmental Representative relied upon the authorities below, advanced arguments in defence thereof and further submitted that the matter being squarely covered against the assessee by the judgment of Honble Calcutta High Court and plain and unambiguous words in the statute, the Tribunal should decline to interfere in the matter. Rival contentions are conscientiously heard, orders of the authorities below carefully perused, and applicable legal position duly deliberated upon.
4. I find that sub chapter set off, or carry forward and set off in chapter VI of the Income Tax Act begins with section 70 which, as it stood at the material point of time, is reproduced below for ready reference :
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 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.
It is thus abundantly clear that the right to set off under section 70 is subject to other provisions of the Act which includes section 73 as well. Section 73 of the Act provides as follows :
73. Losses in speculation business.(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 off under 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 eight 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 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 consists of the purchase and sale of such shares.
Once it is not in dispute that the provisions of section 70 are subject to the provisions of inter alia section 73 and that under the provisions of section 73(1) losses in speculation business, within meanings of Explanation to section 73, can only be set off against another speculation business, it admits no controversy that in case a loss is in the nature of speculation loss, within meanings of Explanation to section 73, it cannot be set off against any other nature of income under any other head.
5. I further find that section 72 of the Act, which deals with carry forward and set off of business losses provides as follows :
72. Carry forward and set off of business losses(1) Where for any assessment year, the net result of the computation under the head “Profits and gains of business or profession” is a loss to the assessee, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off or, where he has no income under any other head, the whole loss 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 business or profession carried on by him and assessable for that assessment year;
(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 :
Provided that where the whole or any part of such loss is sustained in any such business as is referred to in section 33B which is discontinued in the circumstances specified in that section, and, thereafter, at any time before the expiry of the period of three years referred to in that section, such business is re-established, reconstructed or revived by the assessee, so much of the loss as is attributable to such business shall be carried forward to the assessment year relevant to the previous year in which the business is so re-established, reconstructed or revived, and
(a) it shall be set off against the profits and gains, if any, of that business or any other business carried on by him and assessable for that assessment year; and
(b) if the loss cannot be wholly so set off, the amount of loss not so set off shall, in case the business so re-established, reconstructed or revived continues to be carried on by the assessee, be carried forward to the following assessment year and so on for seven assessment years immediately succeeding.
(2) Where any allowance or part thereof is, under sub-section (2) of section 32 or sub-section (4) of section 35, to be carried forward, effect shall first be given to the provisions of this section.
(3) No loss (other than the loss referred to in the proviso to sub-section (1) of this section) shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed.
I find that the above provisions are for carry forward and set off of business losses in general, whereas section 73, reproduced earlier in this order, deals specifically with losses in speculation business. As to the question that which of these legal provisions will govern the principles regarding carry forward and set off of speculation losses, I find guidance from the principle generalia specialibus non derogant which lays down that the general provisions will not over-ride the specific provisions. In other words, provisions of section 73, which specifically deal with speculation business, cannot be derogated by the provisions of section 72 of the Act which deals with business losses in general. As observed by Honble Supreme Court in the case of Union of India v. India Fisheries (P) Ltd. (1965) 57 ITR 331 (SC). “If there is an apparent conflict between two independent provisions of law, the special provision must prevail”. This principle is described in Sampat Iyengars commentary on Law of Income Tax (9th Edition, Vol 1 page 48) as follows :
“The general maxim is generalia specialibus non derogant, that is, general things will not derogate from special things. The maxim is also otherwise expressed as generalia specialibus derogant. A special provision normally excludes the operation of a general provision It can be resorted to for deciding the competing claims of two provisions in the same enactment, one specific and other general with some overlapping between the two. The requisite conditions to attract this principle are : Firstly, both the general enactment and the particular enactment must be simultaneously operative, the general enactment covering larger field and particular enactment covering a limited field out of a larger field covered by the general enactment and, secondly, there must be nothing contained in the general provisions indicating the legislative intent to overrule or set aside the particular provision.”
6. This principle has also been dealt with by Kolkata SMC bench, in the case of Asstt. CIT v. Executors of the Estate of Bhagwan Devi Sarogi (2001) 79 ITD 539 (Kol), wherein Honble Vice-President Shri Garg has inter alia observed that “To solve such a conflict (of competing claims of sections), one has to resort to interpretation of law and the famous dictum is where there is a general provision which, if applied in its entirety, would neutralize a special provision dealing with the same subject-matter, the special provision must be read as a proviso to the general provision and the general provision, insofar as it is inconsistent with the special provisions, must be deemed not to apply”. I am in respectful agreement with the views expressed by the Honble Vice-President Garg. Similar views, were also expressed in the case of ITO (TDS) v. Titagarh Steels Ltd. (2001) 79 ITD 532 (Kol) wherein while articulating the views of Kolkata C bench, I had observed as follows :
“It is fairly well settled in law that general provisions do not override specific provisions, as aptly described by the maxim generalia specialibus non derogant. A special provision normally excludes the operation of a general provision and we are of the view that such a principle governs the instant case also. In the case of South India Corpn. (P) Ltd. v. Secretary, Board of revenue (AIR 1964 SC 207, at page 215), Honble Supreme Court had an occasion to consider whether article 277 or article 372 of the Constitution of India should govern the particular situation involved therein. Their Lordships then pointed out that “a special provision should be given effect to the extent of its scope, leaving the general provision to control cases where specific provisions do not apply”.
7. Learned counsel has laid great emphasis on the decision of a coordinate bench, in the case of Rajan Enterprises (P) Ltd. (supra), particularly on the observations in paragraph 9 to the effect that “one has to set off the loss against the profit of the other sources under the same head under section 70 and thereafter against the income from other heads, under section 71. It is only then, one has to see whether the proviso to section 73 was applicable or not as the provisions come into play when the gross total income is computed first”. It is thus contended that the application of sections is to be taken in the order in which they are placed in the Act and, therefore, section 72 will take precedence over the application of section 73. Learned counsels proposition is that since business loss is already carried forward under section 72 of the Act, by the time it comes to application of section 73, there is nothing left to which this section can be applied. However, the very basis of this proposition is fallacious because, as I have observed earlier in this order, in view of the principle of generalia specialibus non derogant, section 73 being a specific provision has to take precedence over the general provisions of section 72. In any event, the precedence being assigned to provisions of law based on the order in which they are placed in an enactment is alien to the principles of interpretation. As for the precedence being assigned to various sections in the case of Rajan Enterprises (P) Ltd. (supra), it is because unless intra head set off (section 70) is done, one cannot even work out the incomes under various head which will be the basic figures for inter head adjustment (section 71), and because unless inter head adjustment is done, gross total income cannot be worked out without which calculations for section 73 cannot be done. In my considered view, this order of precedence has nothing to do with, as suggested by the learned counsel, with the order in which the sections are placed in the statute. I, therefore, see no support to assessees case by Tribunals decision in the case of Rajan Enterprises (P) Ltd. (supra).
8. I now come to assessees plea that as to what will constitute speculation loss for the purpose of section 72 of the Act, will be governed by the provisions of section 43(5) of the Act. I may mention that as per provisions of section 43(5) of the Act. In sections 28 to 41 and in this section, unless the context otherwise requires 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”. In substance, the proposition thus canvassed is that the expression speculation business, for purposes other than section 73 of the Act, is to be governed by the definition contained in section 43(5), as read with section 28 (Explanation 2), of the Act. However, this proposition proceeds on the fallacy that the definition under section 43(5) and definition under Explanation to section 73 are competing and mutually exclusive. In my considered view, however, definition of speculation loss, as given under Explanation to section 73, is supplementing and has application only in the cases of certain companies but such a definition is not to the exclusion of definition assigned under section 43(5). Even when provisions of Explanation 73 apply in a case, such a situation will not imply that the provisions of section 43(5) will not apply in that case. In our considered view, therefore, there is no conflict in these two provisions, namely provisions of section 43(5) and of Explanation to section 73. As far as scope of Explanation to section 73 is concerned, it may be relevant to quote from the Central Board of Direct Taxes Circular No. 204, dated 24-7-1976 which inter alia states as follows :
“Section 73 provides that any loss computed in respect of speculation business carried on by an assessee will not be set-off except against the profits & gains, if any, or another speculation business. Further, where any loss, computed in respect of a speculation business for an assessment year is not wholly set-off in the above manner in the said year, the excess shall be allowed to be carried forward to the following assessment year and set-off against the speculation profits, if any, in that year and so on. The Amending Act has added an Explanation to section 73 to provide that the business of purchase and sale of shares by companies which are not investment or banking companies or companies carrying on business of granting loans or advances will be treated on the same footing as a speculation business. Thus, in the case of aforesaid companies, the losses from share dealings will now be setoff only against profits or gains of a speculation business. Where any such loss for an assessment year is not wholly set off against profits from a speculation business, the excess will be carried forward to the following assessment year and set-off against profits, if any, form any speculation business.”
9. In any event, as observed by the Tribunal in the case of Executor of the Estate of Bhagwan Devi Sarogi (supra), a “special provision must be read as a proviso to the general provision and the general provision, insofar as it is inconsistent with the special provisions, must be deemed not to apply”. Therefore, provisions of section 73 are required to be read as proviso to section 72 and, to the extent carry forward of speculation losses is concerned, section 72 will not have application in the matter. In this view of the matter, I reject the contention that, for the purpose of section 72 of the Act, the question as to what will constitute speculation loss will be governed only by the provisions of section 43(5) of the Act. I also see no substance in learned counsels reliance on the words for the purpose of this section appearing in Explanation to section 73 because once specific provisions under section 73 are to be applied first, i.e., before the application of general provisions of section 72, only non speculation loss will be subject-matter of carry forward under section 72 and, therefore, definition of speculation loss will indeed not be relevant for the purpose of section 72. In fact, entire arguments proceed on the foundation that application of section 72 will have precedence over application of section 73 and once that basic foundation is found to be unsustainable in law, I see no substance in ingenious, but fallacious, arguments of the assessee.
10. I may also mention that Honble jurisdictional High Court, in the case of CIT v. Jayashree Charity Trust (1986) 159 ITR 280 (Cal), has inter alia observed that “to resolve this controversy, regard must be had to the language that has been employed and also to the object of the statute. It is well settled that, if possible, the words of a statute must be construed so as to give a sensible meaning to them. The words ought to be construed ut res magis valeat quam pereat ” Similarly, Honble Supreme Court, in the case of CIT v. S. Teja Singh (1959) 35 ITR 408 (SC) has also observed as follows :
“A construction which leads to such a result must, if that is possible, be avoided, on the principle expressed in the maxim, “ut res magis valeat quam pereat” Vide Court is v. Stovin and in particular, the following observations of Fry, LJ at page 519 :
“The only alternative construction offered to us would lead to this result, that the plain intention of the legislature had entirely failed by reason of a slight inexactitude in the language of the section. If we were to adopt this construction, we should be constructing the Act in order to defeat its object rather than with a view to carry its object into effect.”
Vide also Craies on Statute Law, page 90 and Maxwell on the Interpretation of Statutes, Tenth Edition, pages 236-237. “A statute is designed”, observed Lord Dunedin in Whitney v. CITs of Inland revenue, “to be workable, the interpretation thereof by a court should be to secure that object, unless crucial omission or clear direction makes that end unattainable.”
In case we are to accept the contentions of the learned counsel, Explanation to section 73 has to be treated as otiose because, if this provision cannot be put into service for determining what is speculation loss for the purpose of carry forward and set off of losses, this provision cannot be put into service for any other purpose at all. This construction will tantamount to obliterating the provision from the statute and, therefore, be clearly contrary to the principle of ut res magis valeat quam pereat approved by the Honble Supreme Court in S. Teja Singhs case (supra) and by the Honble jurisdictional High Court in Jayshree Charity Trusts case (supra). It as, however, an altogether a different matter that since I have rejected the interpretation, canvassed by the assessee, on merits and for the detailed reasons set out above, this aspect of the matter is not really relevant.
11. It is in the backdrop of the above factors that I am of the considered view that the assessees appeal is devoid of any merits and the Commissioner (Appeals) was justified in confirming the action of the assessing officer in treating the loss of Rs. 87,000 was speculation loss in view of Explanation to section 73 of the Act. I, therefore, humbly differ with the view expressed by learned Judicial Member and consider it appropriate to dismiss the appeal.
12. In the result, appeal is dismissed.
Order under section 255(4) of the Income Tax Act, 1961
As there is a difference of opinion between the Judicial Member and the Accountant Member, the matter is being referred to the Honble President of ITAT with a request that the following question may be referred to a Third Member or pass such orders as the Honble President may kindly decide :
“Whether, on the facts and in the circumstances of the case, the Tribunal should have allowed carry forward of Rs. 87,000 as “business loss” under section 72 of the Income tax Act, 1961 or as “speculation loss” under section 73 of the Income Tax Act, 196l.”
Third Member Order
M.A. Bakhshi, V.P.
The appeal of the assessee for the assessment year 1991-92 was heard by A Bench of the Tribunal. In view of dissenting orders passed by the two Members constituting the Bench, the Honble President of the Tribunal has referred the following point of difference to me as 3rd Member under section 255(4) of the Income Tax Act, 1961 :
“Whether, on the facts and in the circumstances of the case, the Tribunal should have allowed carry? forward of Rs. 87,000 as “business loss” under section 72 of the Income Tax Act, 1961 or as “speculation loss” under section 73 of the Income Tax Act, 1961.”
2. Parties have been heard and records perused. Though the facts have been described by the learned Members of the Bench in their separate orders, I consider it useful to give brief description of the same in my own words for the sake of coherence and convenience.
3. The main business of the company is purchase and sale of shares. The return of income declaring loss of Rs. 1,31,043 was filed. On scrutiny it was found that the assessee had disclosed the loss of Rs. 87,000 in respect of purchase and sale of shares. The assessee had also disclosed interest income of Rs. 40,829 dividend income of Rs. 300 and since deduction on account of expenses was also claimed, the returned figure of Rs. 1,31,0453 loss had been arrived at. The assessing officer considered the loss of Rs. 87,000 on account of purchase and sale of shares as a speculation loss within the meaning of section 73 read with Explanation and the loss other than speculation loss was assessed at Rs. 13,570. Carried forward of losses was allowed under the separate heads as aforesaid. The claim of the assessee before the revenue was that the aforesaid loss in respect of purchase and sale of shares of Rs. 87,000 does not fall within the ambit of section 73 read with Explanation as the Explanation does not apply to such cases whose main or whole business is that of purchase and sale of shares as the language used in section 73 read with Explanation is part of business. The Commissioner (Appeals) decided the issue against the assessee relying upon the decision of the jurisdictional High Court of Calcutta in the case of Eastern Aviation Inds. Ltd. (supra). The contention on behalf of the assessee that the Explanation to section 73 was not applicable in this case as the activity of the assessee was mainly trading of shares was thus rejected.
4. The assessee appealed to the Tribunal. The appellant took a different plea before the Tribunal in regard to non-applicability of Explanation to section 73. Whereas the learned Judicial Member accepted the claim of the assessee that Explanation to section 73 was inapplicable in the case of the assessee, the learned Accountant Member has taken a contrary view.
5. Before me, the learned counsel for the assessee contended that section 73 of the Act provides that any loss computed in respect of speculation business carried on by the assessee shall not be set off except against the profits and gains, if any, of another speculation business and that the Explanation to section 73 provides that for the purposes of section 73 where any part of the business of a company 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 speculation business to the extent to which the business consists of the purchase and sale of shares. It was pointed out that the said Explanation does not apply to any 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 principle business of which is the business of banking or granting of loans and advances. The loss admittedly has arisen as a result of purchase and sale of shares. According to the learned counsel, the assessee admittedly is carrying on the business of dealing in shares, i.e., purchase and sale of shares. But in computing the income the provisions of sections 70, 71 and 72 will apply first for determining the gross total income. Elaborating the arguments further it was contended that in the application of sections 70, 71 and 72, the definition of speculation business appearing in the Explanation will not apply as the said Explanation is applicable only for the limited purpose of section 73 of the Act. In this connection it was pointed out that Explanation to section 73 uses the expression for the purposes of this section. It was contended that expression speculation business under sections 70, 71 and 72 without application of the Explanation to section 73 governs the speculative transaction appearing in section 43(5) read with Explanation to section 28(2). It was, accordingly, pleaded that for the purposes of set off of loss under sections 70, 71 and 72, the Explanation to section 73 of the Act is inapplicable. Once the Explanation to section 73 is not applied; the speculative transaction shall have to be given the meaning as appearing in section 43(5) which provides that when a contract is settled otherwise than by actual delivery of goods, such a transaction will amount to speculative transaction. According to the learned counsel, in the present case it is not disputed that the shares were purchased and sold actually by physical delivery, both at the time of purchase and at the time of sale. Therefore, the definition of speculative transaction appearing in section 43(5) is inapplicable in the present case. The learned counsel seeks support from the decision of the Tribunal in the case of Rajan Enterprises (P) Ltd. (supra). It was contended that in that case the Bombay Bench of the Tribunal held that the first step before applying provisions of section 73 is to compute the gross total income of the assessee. According to the learned counsel, in that case after applying the provisions of sections 70 and 71, it was the positive income of Rs. 9,176 after set off of loss etc. and the Tribunal held that section 73 was inapplicable. The learned counsel further contended that the issue raised in this appeal was neither raised nor decided by the jurisdictional High Court in the case of Arvind Investments Ltd. (supra) nor in the case of Eastern Aviation & Inds. Ltd. (supra). Therefore aforementioned decisions are not applicable in this case.
6. The learned counsel further contended that Explanation to section 73 creates a legal fiction and, therefore, such a fiction should be strictly construed. In this connection reliance has been placed on the decision of the Supreme Court in the case of CIT v. C.P. Sarathy Mudaliar (1972) 83 ITR 170 (SC) at page 173. The learned counsel further pointed out that learned Accountant Member has higlighted the words used in section 70, namely, “Save as otherwise provided in the Act” and has proceeded to hold that provisions of section 73 are thus applicable. It was pointed out that since the Explanation to section 73 is specifically made for the purposes of section 73, the same cannot be treated as a saving clause to sections 70 & 71 and, therefore, the meaning of speculation business appearing in the Explanation to section 73 cannot be brought in aid for the purpose of saving the operation of sections 70 and 71 of the Act.
7. Referring to the finding of the learned Accountant Member with reference to the decision of the Supreme Court in the case of CIT v. Shahzada Nand & Sons (1966) 60 ITR 392 (SC) at page 400 to the effect that when there is a specific enactment and a general enactment in the same statute the latter taken in its most comprehensive sense, would overrule the former. It was pointed out that the Supreme Court itself has cautioned that this rule of construction is not of universal application and that the said rule is subject to the condition that there is nothing in the general provision, express or implied, indicating an intention to the contrary. Relying upon the same judgment of the Supreme Court the learned counsel contended that in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about the tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can look fairly at the language used. In the light of the aforementioned decision of the Supreme Court, the learned counsel contended that one has to see how far the principle of “generalia specialibus non derogant” will at all apply to the persent case. According to the learned counsel, Explanation to section 73 has clearly used the words “for the purpose of this section”, i.e., section 73 and as such the clear intention of the legislature is to treat certain transactions as speculation business for the limited purpose of section 73. Therefore, it cannot be said that the Explanation is applicable to the other provisions of the Act. It was further contended that Explanation to section 73 does not occupy the same field as occupied by sections 70, 71 and 72 of the Act. It was, accordingly, contended that the principle of generlia specialibus non derogant applies only where the general. provision of a Statute and a special provision of a statute occupy the same field.
8. Again relying on the decision of the Supreme Court in the case of Shahzada Nand & Sons (supra), the learned counsel contended that the fundamental rule of construction laid down is that in case of doubt, the construction most beneficial to the subject is to be adopted and that the meaning and intention of the statute must be collected from the plain and unambiguous expression used therein rather than from any notions which may be entertained by the court as to what is just or expedient.
9. It was further contended by the learned counsel that in case there is any defect in the legislation, there is no scope for the courts to remedy the same. In this connection reliance was placed on the decision of the Supreme Court in the case of Smt. Tarulata Shyam v. CIT (1977) 108 ITR 345 (SC) at page 356, where Their Lordships have observed “Even if there be a casus omisus, the defect can be remedied only by legislation and not by judicial interpretation. Reliance was also placed on the decision of the Supreme Court in the case of CIT v. Shaan Finance (P) Ltd. (1998) 231 ITR 308 (SC) at page 317 for the proposition that in ineterpreting a fiscal statute, the court cannot proceed to make good deficiencies if there be any; the court must interpret the statute as it stands and in case of doubt in a manner favourable to the taxpayer. Reference was also made to the decision of the Supreme Court in the case of CIT v. N.C. Budharaja & Co. (1993) 204 ITR 412 (SC) at page 426 for the proposition that it is not reasonable or permissible for the court to rewrite the section or substitute words of its own for the actual words employed by the legislature in the name of giving effect to the supposed underlying object the underlying object of any provision has to be gathered on a reasonable interpretation of the language employed by the legislature. According to the learned counsel, the legislature in its wisdom has not used the words “notwithstanding anything contained in the Act or notwithstanding anything contained in sections 70, 71 and 72”. The legislature having used the expression “for the purpose of this section”, i.e., section 73, the intention of the legislature is limited only for the purpose of section 73 and not beyond that. It was accordingly, contended that the expression for the purposes of this section” cannot be treated as casus omisus. It was, accordingly, pleaded that the appeal of the assessee, may be allowed.
10. The learned Departmental Representative, on the other hand, contended that the assessee had filed the return of income and declared the loss in the return in Part-E as loss in speculation business. The loss suffered in earlier years was also carried forward as speculative business loss. In the subsequent returns also, the loss in share dealing has been disclosed as speculative business loss. In response to the contentions advanced on behalf of the assessee, the learned Departmental Representative pointed out that Chapter-VI of the Income Tax Act, 1961 deals with set off and carry forward of losses from various sources. Section 70 starts with the words “Save as otherwise provided in this Act”. So before giving effect to section 70, the other provisions of the Act have got to be kept in mind. Similarly, sections 71, 71A and 71B use the expression “subject to the provisions of this Chapter”, which means that all the provisions of the Act contained in the Chapter have got to be taken into account. It was contended that section 72 also provides an embargo in respect of losses suffered in a speculation business and also uses the expression “subject to the other provisions of this Chapter”. It is thus evident that section 73 cannot be ignored while giving effect to sections 70, 71 and 72 of the Act. It was further contended that section 43(5) defines speculative transaction and not speculative business. Reference was also made to section 28, Explanation 2which provides that the business in speculative transaction shall constitute a speculation business and a distinct and separate from any other business. It was further contended that section 73 of the Income Tax Act, 1961 corresponds to section 24(2) read with proviso under the 1922 Act. In order to curb the tendency of some tax payers to reduce the tax burden by manipulation, Explanation to section 73 was added by Taxation Laws (Amendment Act), 1975. Circular No. 204 dated 24-7-1976 explains the reasons for incorporating Explanation to section 73. It was contended that the jurisdictional High Court of Calcutta had the occasion to consider the applicability of the Explanation to section 73 in the following cases where it has been held that the Explanation was applicable in such cases of similar nature as that of the appellants :
Arvind Investments Ltd.s case (supra), Eastern Addition & Inds. Ltd.s case (supra), Aryasthan Corpn. Ltd. v. CIT (2002) 253 ITR 401 (Cal).
11. The learned Departmental Representative further contended that it is well established principle of law that the legislature cannot be presumed to have used any words or expressions unnecessarily. Relying upon the decision of the Supreme Court in the case of CWT v. Kirpashankar Dayashanker Worah (1971) 81 ITR 763 (SC), it was contended that in the case of ambiguity, one has to interpret the law reasonably keeping in view the intention of the legislature. My attention was also invited to Circular No. 587 dated 11-12-1991 in 187 ITR (St) 481 explaining the set off and carry forward of losses in share trading business, which also indicates the intention of the legislature.
12. The learned Departmental Representative further contended that the contentions advanced on behalf of the assessee if accepted would give absurd results. It was further contended that section 73 prohibits set off of any loss of a speculation business except against profits and gains, if any, of any speculation business. Explanation to section 73 is part of section 73 and, therefore, the prohibition is in regard to the speculation business as understood with reference to Explanation to section 73 also.
According to the learned Departmental Representative, there is no merit in the contention advanced on behalf of the assessee that the fiction created under Explanation to section 73 cannot be applied to the provisions of the sections 70, 71 and 72. The fiction has been created for a definite purpose and on reading the relevant provisions of the Act harmoniously, the purpose has been achieved. It was contended that the Act has clearly provided the treatment to be given in respect of losses suffered in the case of purchase and sale of shares by a company. Reliance was again placed on the decision of the Supreme Court in the case of Shahzada Nand & Sons (supra) in support of the contention that there is no scope for any, interpretation when the legislature has in clear and unambiguous term provided the definition of speculation business and limited the set off of loss only against the profits and gains of speculation business. Reliance was also placed on the decision of the Tribunal in the case of Paharpur Cooling Towers Ltd. v. Dy. CIT (I.T.A. Nos. 313 & 320 (Cal) of 1998, order dated 16-7-2002) in support of the contentions advanced on behalf of the revenue. It was, accordingly, pleaded that the appeal of the assessee may be dismissed.
13. I have given my thoughtful consideration to the rival contentions. It is not disputed that the assessee is engaged in the business of purchase and sale of shares. It is nobodys case that the appellant falls within the excluded category of companies under Explanation to section 73 of the Act. The appellant has suffered loss of Rs. 87,000 in the business of purchase and sale of shares. If the particular plea advanced in this case were not to be taken into account, the issue admittedly is covered by the decision of the jurisdictional High Court of Calcutta. In the case of Arvind Investments Ltd. (supra), Their Lordships of the Calcutta High Court held that Explanation to section 73 is attracted even when the entire business of the assessee-company was in share dealings and that the loss from such share dealings was to be regarded as speculation loss to be governed by provisions of section 73 for its set off and/or for carry forward and set off. In that case it had been argued on behalf of the company that Explanation to section 73 applies to those companies whose part of the business is the purchase and sale of shares and that the said Explanation shall have no application to such companies whose entire business was in share dealings. In the case CIT v. Sumati Kumar Sunil Kumar (1992) 193 ITR 537 at page 542 (Cal), Their Lordships of the Calcutta High Court held that in view of the special provisions of section 73 segregating speculation losses from other business losses, the speculation loss cannot be set off against the income disclosed even under the Voluntary Disclosure Scheme. In the case of CIT v. Sun Distributors & Mining Co. Ltd. (1993) 68 Taxman 223 at page 227 (Cal), Their Lordships of the Calcutta High Court held that Explanation to section 73 is applicable even in the case of a company where there has been only sale of shares in a particular year without any purchase of shares during the relevant previous year.
14. Thus, if one were to ignore the fresh plea advanced on behalf of the assessee-company, the issue could be said to be res integra. However, the learned counsel of the assessee-company having vehemently argued that the plea taken in this case was neither taken nor decided by the Honble High Court in the aforementioned case, I without prejudice to the above position proceed to consider the contentions advanced before the Division Bench as well as before me.
15. The contentions advanced by the parties have been recorded earlier. In order to appreciate the contentions, reference may be made to provisions of sections 70 to 80 of the Income Tax Act, 1961 of Chapter-VI which relate to losses sustained by an assessee. The Chapter provides the circumstances and conditions under which losses may be set off or carried forward to future years for set off. For the purpose of the present controversy, I consider it useful to reproduce provisions of sections 70, 71, 72 and 73 as under :
“70. 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 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.
71. (1) Where in respect of any assessment year the net result of the computation under any head of income, other than “Capital gains”, is a loss and the assessee has no income under the head Capital gains”, he shall, subject to the provisions of this Chapter, be entitled to have the amount of such loss set off against his income, if any assessable for that assessment year under any other head.
(2) ……….
(3) ……….
(4) ……….
72. (1) Where for any assessment year, the net result of the computation under the head “Profits and gains of business or profession” is a loss to the assessee, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off or where he had no income under any other head, the whole loss shall, subject to the other provisions of this Chapter, be carried for-ward to the following assessment year,”
“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 off under 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 the 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 eight assessment years immediately succeeding the assessment year for which the loss was first computed.
ExplanationWhere 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 banking or the granting of loans and advances consists in the purchase and sale of shares of other companies, such company shall, for the purpose 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.”
16. Section 70 provides for set-off of loss from one source in the same year against income from another source under the same head. The said section, however, starts with an expression “Save as otherwise provided in this Act”. Thus the applicability of section 70 is subject to other provisions of the Act. Section 71 provides for set off of loss from one head in the same year against income from other heads. A perusal of section 71 also reveals that its applicability has been made subject to the other provisions of Chapter, i.e., Chapter-VI section 72 provides as to how and when the unabsorbed business loss other than speculation loss can be carried forward to future year(s) for set off of income of other years. A plain reading of section 72 also reveals that its applicability is made subject to other provisions of Chapter-VI.
17. Section 73 of the 1961 Act deals separately with losses in speculation business which under the 1922 Act was dealt with, inter alia, in section 24(2) along with other business losses. Section 73 corresponds to 1st proviso to section 24(1) and section 24(2)(1) and (iii) of the 1922 Act. Explanation to section 73 was inserted by the Taxation Laws (Amendment) Act, 1975 which treats the business of purchase and sale of shares by companies (other than excluded companies) as speculation business. As a result of this Explanation, the losses from such dealings will be set off only against the gains from similar dealings in shares or other speculative activity. The sweep of speculation business is thus extended with effect from 1-4-1977 applicable for and from assessment year 1977-78. The scope and effect of the newly inserted Explanation have been elaborated in para Nos. 19.1 to 19.3 of Circular No. 204, dated 24-7-1976 of the Central Board of Direct Taxes as under :
“19.1 Treatment of losses in speculation business-section 73section 73 of the Income Tax Act provides that any loss computed in respect of speculation business carried on by an assessee will not be set off except against the profits and gains, if any, of another speculation business. Further, where any loss, computed in respect of a speculation business for an assessment year is not wholly set off in the above manner in the said year, the excess shall be allowed, to be carried forward to the following assessment year and set off against the speculation profits, if any, in that year, and so on. The Amending Act has added an Explanation to section 73 to provide that the business of purchase and sale of shares by companies which are not investment or banking companies or companies carrying on business of granting loans or advances will be treated on the same footing as a speculation business. Thus, in the case of aforesaid companies, the losses from share dealings will now be set off only against profits or gains of a speculation business. Where any such loss for an assessment year is not wholly set off against profits from a speculation business, the excess will be carried forward to the following assessment year and set off against profits, if any, from any speculation business.
19.2 The object of this provision is to curb the device sometimes resorted to by business houses controlling groups of companies to manipulate and reduce the taxable income of companies under their control.
19.3 This provision will come into force with effect from 1-4-1977 and will apply in relation to the assessment year 1977-78 and subsequent years.”
18. As a result of omission of section 109, Explanation to section 73 was amended with effect from 1-4-1988 by the Finance Act, 1987 (11 of 1987). As per Explanation to section 73, where any part of a business of a company other than
(i) for assessment years 1977-78 to 1987-88 an investment company as defined in section 109(ii);
(ii) for and from assessment year 1988-89 a company whose gross total income consists mainly of income which is chargeable under the heads interest on securities” (operative from assessment year 1988-89). Income from house property”, “Capital gains” and “Income from other sources”; and
(iii) for and from assessment year 1977-78, a company the principal business of which is the business of banking or granting of loans and advances, the said Explanation applies to a company and does not apply to individuals, firms, Hindu undivided families or association of persons. As per the said Explanation, if the business of a company which does not fall within the excluded categories, consists of purchase and sale of shares of other companies, then such a company shall be deemed to be carrying on speculation business for the purpose of section 73 to the extent to which the business consists of the purchase and sale of such shares.
19. Section 73 provides when and how speculation loss can be set off against speculation profits of the same or a future year or future years. Sub-section (1) of section 73 provides that 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 any speculation business. Explanation to section 73 provides that for the purposes of this section, a company whose business consists in the purchase and sale of shares of other companies 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. It is not disputed by the assessee that the appellant-company falls within the definition of the companies under Explanation to section 73. The contention advanced as already pointed out, is that the said Explanation has limited application to provisions of section 73 and its applicability does not extend to sections 70, 71 and 72. The learned counsel for the assessee has stressed upon the words “for the purposes of this section” used by the legislature in the Explanation to section 73. Once it is not disputed that Explanation is applicable with reference to all the clauses of section 73, then one has to see the consequences. At the cost of repetition, section 73 mandates that 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 any speculation business. It is not even disputed that for the purposes of clause (1) of section 73, the Explanation to section 73 is applicable. That being so, one may consider as to what is provided under sub-section (1) of section 73. It prohibits set off and carry forward of any loss suffered in speculation business against other profits. The Explanation to section 73 gives an inclusive definition of “speculation business” admittedly for the purposes of section 73. Sub-section (1) is part of section 73. Thus for purposes of sub-section (1) of section 73, the speculative business is to be understood as defined under section 43(5) as also under Explanation to section 73 of the Act. The consequences are that prohibition in regard to the set off of loss suffered in speculation business also applies to the loss suffered by a company trading in shares not falling within the excluded category of companies under the Explanation to section 73. Thus, the prohibition for set off is absolute in respect of the losses suffered by such a company whose business or part of business is of purchase and sale of shares. The next question that remains to be considered is as to whether one can overlook section 73 while giving effect to sections 70, 71 and 72 of the Act. As already pointed out section 70 is made applicable by the legislature subject to other provisions of the Act section 73 with its Explanation is part of the statute and, therefore, acts as a proviso to section 70. Similarly, section 71 and section 72 are made applicable by the legislature subject to other provisions of the Chapter. As pointed out earlier, sections 70 to 80 under Chapter VI deal with set off and carry forward of losses. Therefore, in giving effect to any of the aforementioned provisions of the Act, i.e., sections 70, 71 and 72 etc. one cannot lose sight of the other provisions of the Chapter, i.e., section 73 of the Act. In my view, harmonious construction of provisions of sections 70 to 80 is possible only if all the sections, viz. sections 70 to 80 are read conjunctively and harmoniously. Each section is not to be read in isolation. Their Lordships of the Supreme Court in the case of C.G.T v. N.S. Getti Chettiar (1971) 82 ITR 599 (SC) at page 605 held that “Words in the section of a statute are not to be interpreted by having those words in one hand and the dictionary in the other. In spelling out the meaning of the words in a section, one must take into consideration the setting in which those terms are used and the purpose that they are intended to serve. It is also well established principle of law that a statutory provision is to be construed in such a manner so that absurdity or mischief is avoided. The interpretation advanced on behalf of the assessee if accepted will result in absurdity. The enactment of Explanation to section 73 would be rendered redundant. In the case of Grasim Industries Ltd. v. Collector of Customs (2002) 128 STC 349 Their Lordships of the Supreme Court held”No word expression used in any statute can be said to be redundant or superfluous. It was established rule of interpretation that the court should not concentrate too much on the word and pay little attention to other words. No provision in the statute and no word in any section can be construed in isolation. When the words of Statute are clear, there is no scope for the court to take up itself the task of amending or altering a statutory provision”. Their Lordships further held that any interpretation which renders a provision ineffective is to be avoided. In the light of the aforementioned principles of interpretation, the contention advanced on behalf of the assessee that section 73 read with Explanation should be overlooked while giving effect to provisions of sections 70, 71 and 72 is bereft of any substance.
20. As rightly observed by the learned Accountant Member, whereas section 73 read with Explanation is a specific provision applicable in respect of losses suffered in speculation business, sections 70, 71 and 72 are general provisions and thus applying the principle of generalia specialibus non derogant, the special provision in section 73 overrides the general provisions in sections 70, 71 and 72 of the Act. I concur with the reasonings as well as findings of the learned Accountant Member in regard to this particular aspect of the matter. So, however, the contention of the learned counsel for the assessee is that such a provision is subject to the condition that there is nothing in the general provision expressed or implied indicating an intention to the contrary. The learned counsel, as already pointed out, relied upon the decision of the Supreme Court in the case of Shahzada Nand & Sons (supra). On perusal of all the provisions of Chapter VI relating to set off and carry forward of losses I am unable to find, either express on implied, intention of the legislature enabling to overrule the principle of generalia specialibus non derogant therefore, do not find substance in this contention advanced on behalf of the assessee.
21. Next contention advanced on behalf of the assessee is that “in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.” I have no hesitation in accepting the aforementioned principle laid down by Their Lordships of the Supreme Court time and again. However, I am unable to appreciate as to how this principle advances the case of the assessee. In my view, a plain reading of Chapter-VI does not leave me in any doubt about what is clearly expressed in section 73 read with Explanation as also other provisions of the Act relating to carry forward and set off of losses. No violence is required in the language of provisions of sections 70, 71, 72 and 73 in their interpretation as the plain reading of these provisions do not leave any doubt in my mind to understand the objects sought to be achieved on giving effect to the plain wording of the aforementioned provisions of the Act.
22. Next contention advanced on behalf of the assessee that there is a defect in legislation and the same cannot be cured by the courts, in my view, is also without any substance. Section 73 has been carefully drafted by the legislature to achieve the specific purpose of curbing the device sometimes resorted to by business houses to manipulate and reduce the taxable income of the companies under their control. I would like to explain as to why the legislature has used the expression for the purposes of this section in the Explanation to section 73 of the Act. In my considered view, the expression has been deliberately used in order to achieve the object of the legislation in so far as the intention of the legislature has been to make the Explanation applicable only in such cases of companies claiming loss in the business of purchase and sale of shares and the said Explanation is not intended to be operative in the event of there being a profit in the business of purchase and sale of shares. I would like to elaborate this further with reference to the provisions of sections 70, 71, 72 and 73, which have been reproduced elsewhere in this order.
23. As is evident from the plain reading of section 70, it enables the assessee to set off loss from any source against the income from any other source under the same head. The application of Explanation to section 73 may be examined in its application to section 70 suppose there is a loss in the business of the assessee other than the business of purchase and sale of shares and there is a profit in the business of purchase and sale of shares. If the legislature had used the expression in Explanation to section 73 for the purposes of this Act or for the purposes of this Chapter, then it would not be permissible for the assessee to set off the loss suffered in business against the profits derived in the business of purchase and sale of shares. However, since the intention of the legislature is only to place a restriction on the set off of loss suffered, in the purchase and sale of shares, the legislature has carefully permitted set off of loss suffered in business other than share trading business against the profits derived from share trading business. Therefore, the contention advanced on behalf of the assessee that there is an omission or mistake committed by the legislature in using the expression for the purposes of this section in Explanation to section 73, in my view, is not well-founded.
24. Similarly, a perusal of section 71 reveals that as per the Scheme of the Act the setting off of loss from one head other than loss in speculation business as defined under section 43 or under Explanation to section 73 against income from another head is permissible even against the profits derived from share trading business and in that case section 73 read with Explanation will not be attracted as the same applies only in the case of losses suffered in share trading business. Thus the purposes of using the expression for the purposes of this section in Explanation to section 73 can well be appreciated.
25. Similarly, section 72 will be applicable only when the assessee has suffered loss in business other than the business of share trading and other speculation business. If any company has earned profit in the share trading business the activity of the company, of share trading in that case is not to be treated as speculative business. The loss suffered in speculative business as defined under section 43 will not be set off against the profits of share trading business or any other business. Section 73 prohibits the set off and carry forward of loss suffered in speculation business with any other source of income other than speculation business and for the purpose of the prohibition, the loss suffered by the assessee in the business of purchase and sale of shares as per Explanation to section 73 is applicable. Thus, it is seen that the legislature has achieved the object by using the expression for the purposes of this section in Explanation to section 73 and that there is neither any omission nor mistake, as perceived on behalf of the assessee. This contention also, accordingly, does not hold water.
26. I, therefore, concur with the view expressed by the learned Accountant Member that the loss suffered by the assessee in the purchase and sale of shares falls within the category of speculative business loss as per Explanation to section 73 of the Act and, therefore, can be set off and carried forward only against profits and gains from speculation business. Therefore, the loss of Rs. 87,000 suffered in share trading business shall be carried forward as a loss in speculation business. The appeal of the assessee is, accordingly, dismissed.
27. The order passed in this case may be placed before the Bench for passing consequential order in accordance with majority view.
ORDER
B.K. Mitra
On a difference of opinions between the Members constituting this division bench, the following question was referred to a Third Member for his opinion under section 255(4) of the Income Tax Act, 1961 :
“Whether, on the facts and in the circumstances of the case, the Tribunal should have allowed carry forward of Rs. 87,000 as “business loss” under section 72 of the Income Tax Act, 1961 or as “speculation loss” under section 73 of the Income Tax Act, 196l.”
2. Honble Vice-President (KZ) has, as Third Member in this case and taking the totality of the facts and circumstances of the case into consideration in the light of the legal principles discussed in his order, concurred with the conclusion of the Accountant Member that the loss suffered by the assessee in the purchase and sale of shares falls within the category of speculative business loss as per Explanation to section 73 of the Act and, therefore, can be set off and carried forward only against profits and gains from speculation business. Therefore, in the esteemed views of the Honble Vice-President (KZ), the loss of Rs. 87,000 suffered in share trading business shall be carried forward as a loss in speculation business. The assessees appeal was, accordingly, to be dismissed.
3. In accordance with the majority view, therefore, the appeal is dismissed.