SNOWTEX INVESTMENT LIMITED versus PRINCIPAL COMMISSIONER OF INCOME TAX, CENTRAL-2, KOLKATA

Citation: [2019] 8 S.C.R. 687 · Decided: 30-04-2019 · Supreme Court of India · Bench: D.Y. CHANDRACHUD · Disposal: Dismissed

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Judgment (excerpt)

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SNOWTEX INVESTMENT LIMITED
v.
PRINCIPAL COMMISSIONER OF INCOME TAX, CENTRAL-2,
KOLKATA
(Civil Appeal No. 4483 of 2019)
APRIL 30, 2019
[DR. DHANANJAYA Y CHANDRACHUD AND
HEMANT GUPTA, JJ.]
Income Tax Act, 1961: ss.43(5)(d), 73 – Assessment year 2008-
2009 – Assessee-NBFC having sole business of share trading –
Transacting in future and options – Whether the speculation loss is
capable of set off against the profits of trading in  future and options
–  Held: The loss which occurred to the assessee as a result of its
activity of trading in shares (a loss arising from the business of
speculation) is not capable of being set off against the profits which
it has earned against the business of futures and options since the
latter would not constitute profits and gains of a speculative business
– Finance Act, 2005.
Income Tax Act, 1961: s.73  – Amended provisions brought
on the statute book after the assessment year in question – Whether
retrospective in nature – Held: The Parliament amended s.43(5)
with effect from 1 April 2006 in relation to the business of trading
in derivatives – However, in respect of trading in shares, Parliament
brought about a specific amendment in the Explanation to s.73  with
effect from 1 April 2015 – The latter amendment was intended to
take effect from the date stipulated by Parliament – There is no
reason to hold that it was clarificatory or that the intent of Parliament
was to give it retrospective effect.
Dismissing the appeal, the Court
HELD : 1. The provisions of Section 43(5) were amended
by the Finance Act, 2005. Prior to the amendment, Section 43(5)
defined a ‘speculative transaction’ to mean a transaction in which
a contract for the purchase or the sale of any commodity including
stocks and shares is settled otherwise than by the actual delivery
   [2019] 8 S.C.R. 687
687
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SUPREME COURT REPORTS
[2019] 8 S.C.R.
or transfer of the commodity or scrips. The impact of the
amendment by the Finance Act, 2005 was that an eligible
transaction on a recognised stock exchange in respect of trading
in derivatives was deemed not to be a speculative transaction.
With effect from 1 April 2006, trading in derivatives was by a
deeming fiction not regarded as a speculative transaction when
it was carried out on a recognized stock exchange. [Para 14]
[694-C-E]
2. Section 73 deals with losses from speculation business.
Under sub-Section (1) of Section 73, a loss computed in relation
to speculation business carried on by an assessee can only be
set off against the profits and gains of another speculation
business. The Explanation to Section 73 contains a deeming fiction
where certain businesses shall, for the purposes of the section,
be deemed to be speculation businesses. The Explanation also
carves out an exception in respect of certain specified businesses
which shall lie outside the fold of the deeming fiction. Prior to the
amendment of the Explanation by the Finance (No. 2) Act 2014
with effect from 1 April 2015, the business of trading in shares
carried on by a company was not excluded from its purview.  While
on the one hand, Parliament amended Section 43(5) with effect
from 1 April 2006 as a result of which trading in derivatives on
recognised stock exchanges fell outside the purview of the
business of speculation, a corresponding amendment to the
Explanation to Section 73 in respect of trading in shares was
brought in only with effect from 1 April 2015. In the instant case,
there is no dispute about the fact that the assessee was registered
as an NBFC under the provisions of the Reserve Bank of India
Act, 1934. Section 73(1) does not define specifically, the
circumstances in which the principal business of a company would
be regarded as a business of the specified description. It is evident
that the assessee itself stated that share trading was its sole
business during the assessment year in question i.e. A.Y. 2008-
2009. The principal business of the assessee was not of granting
loans and advances during the assessment year. As a
consequence, the deeming fiction under Section 73 would be
attracted. Hence, the finding of the High Court, on the first aspect,
cannot be faulted. [Paras 16, 17, 20, 22] [695-E-F; 696-B-C, F ;
697-A, G]
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3. The provisions of Section 43(5) were amended with effect
from 1 April 2006.  While amending the provisions of Section
43(5), the Parliament indeed was cognizant of the provisions which
were contained in Section 7

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