SNOWTEX INVESTMENT LIMITED versus PRINCIPAL COMMISSIONER OF INCOME TAX, CENTRAL-2, KOLKATA on 30 April 2019

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 iscapable of set off against the profits of trading in future and options– Held: The loss which occurred to the assessee as a result of itsactivity of trading in shares (a loss arising from the business ofspeculation) is not capable of being set off against the profits whichit has earned against the business of futures and options since thelatter would not constitute profits and gains of a speculative business– Finance Act, 2005.

Income Tax Act, 1961: s.73 – Amended provisions broughton the statute book after the assessment year in question – Whetherretrospective in nature – Held: The Parliament amended s.43(5)with effect from 1 April 2006 in relation to the business of tradingin derivatives – However, in respect of trading in shares, Parliamentbrought about a specific amendment in the Explanation to s.73 witheffect from 1 April 2015 – The latter amendment was intended totake effect from the date stipulated by Parliament – There is noreason to hold that it was clarificatory or that the intent of Parliamentwas to give it retrospective effect.

Dismissing the appeal, the Court

HELD : 1. The provisions of Section 43(5) were amendedby the Finance Act, 2005. Prior to the amendment, Section 43(5)defined a ‘speculative transaction’ to mean a transaction in whicha contract for the purchase or the sale of any commodity includingstocks and shares is settled otherwise than by the actual delivery

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Aor transfer of the commodity or scrips. The impact of theamendment by the Finance Act, 2005 was that an eligibletransaction on a recognised stock exchange in respect of tradingin derivatives was deemed not to be a speculative transaction.With effect from 1 April 2006, trading in derivatives was by adeeming fiction not regarded as a speculative transaction whenBit 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 relationto speculation business carried on by an assessee can only beCset off against the profits and gains of another speculationbusiness. The Explanation to Section 73 contains a deeming fictionwhere certain businesses shall, for the purposes of the section,be deemed to be speculation businesses. The Explanation alsocarves out an exception in respect of certain specified businessesDwhich shall lie outside the fold of the deeming fiction. Prior to theamendment of the Explanation by the Finance (No. 2) Act 2014with effect from 1 April 2015, the business of trading in sharescarried on by a company was not excluded from its purview. Whileon the one hand, Parliament amended Section 43(5) with effectfrom 1 April 2006 as a result of which trading in derivatives onErecognised stock exchanges fell outside the purview of thebusiness of speculation, a corresponding amendment to theExplanation to Section 73 in respect of trading in shares wasbrought in only with effect from 1 April 2015. In the instant case,there is no dispute about the fact that the assessee was registeredFas an NBFC under the provisions of the Reserve Bank of IndiaAct, 1934. Section 73(1) does not define specifically, thecircumstances in which the principal business of a company wouldbe regarded as a business of the specified description. It is evidentthat the assessee itself stated that share trading was its sole

business during the assessment year in question i.e. A.Y. 2008-G2009. The principal business of the assessee was not of grantingloans and advances during the assessment year. As aconsequence, the deeming fiction under Section 73 would beattracted. 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 ;H697-A, G]

3. The provisions of Section 43(5) were amended with effectfrom 1 April 2006. While amending the provisions of Section43(5), the Parliament indeed was cognizant of the provisions whichwere contained in Section 73(4). A memorandum contained inthe Finance Act, 2005 indicated that the provisions of Section73(4) were proposed to be amended so as to reduce the periodof carry forward of speculation losses from eight assessment yearsto four assessment years. Having introduced an amendment toSection 73(4), the Parliament would have, if it intended to bringabout a parity with the provisions of Section 43(5) introduced aspecific amendment. Parliament, however, did not do so by theFinance Act 2005. It was only with effect from 1 April 2015 thatan amendment was brought about to exclude trading in sharesfrom the deeming provision contained in the Explanation toSection 73. Parliament may have had reasons to allow the situationto continue until the amendment was brought into force, includingits view in regard to the stability of the stock market. It wouldbe difficult to hold that the provisions which were contained inthe Finance Act (No. 2) 2014 insofar as they amended theExplanation to Section 73 were clarificatory or thatnotwithstanding the provision by which the amendment wasbrought into force with effect from 1 April 2015, that it should begiven retrospective effect. [Paras 23, 24] [697-H; 698-A, C-G]

Commissioner of Income Tax (Central)-I, New Delhi v.Vatika Township Private Ltd. (2015) 1 SCC 1 : [2014]12 SCR 1037 – followed.

Allied Motors (P) Ltd. v. Commissioner of Income Tax,Delhi (1997) 3 SCC 472 : [1997] 2 SCR 780 ;Commissioner of Income Tax v. Alom Extrusions Ltd.(2010) 1 SCC 489 : [2009] 15 SCR 1154 ; VijayIndustries v. Commissioner of Income Tax (2019) 4 SCC184 – relied on.

Commissioner of Income Tax v. Savi Commercial P. Ltd.(2015) 373 ITR 243 – referred to.

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Case Law Reference

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4483of 2019.

CFrom the Judgment and Order dated 22.11.2016 of the High Courtat Calcutta in ITAT No. 199 of 2016.

R. V. Easwar, Sr. Adv., Naveen R. Nath, Ms. Lalit Mohini Bhat,Rahul Jain, Ms. Rubal Bansal, Advs. for the Appellant.

Arijit Prasad, Sr. Adv., Ms. Rukhmini Bobde, Mrs. Anil Katiyar,DAdvs. for the Respondent.

The Judgment of the Court was delivered by DR. DHANANJAYA Y. CHANDRACHUD, J.

1. Leave granted.

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2. This appeal arises from a judgment of a Division Bench of theHigh Court of Calcutta dated 22 November 2016 in an appeal underSection 260A of the Income Tax Act, 1961.

3. The appellant was registered as a non-banking financial companyFunder the Reserve Bank of India Act, 1934. The appellant filed its returnof income on 27 September 2008. The return was processed underSection 143(1) on 8 October 2009. On the case being selected for scrutiny,a notice was issued under Section 143(2). By an order dated 14 December2010 the assessing officer recorded that the principal business activityof the assessee is trading in shares and securities. The loss from shareGtrading was held to be a speculation loss. The assessing officer held thatin view of the provisions of Section 43(5)(d), activities pertaining to futuresand options could not be treated as speculative transactions.The lossfrom speculation was held not to be capable of being set off against theprofits from business.

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4. Against the order of the assessing officer for assessment year2008-2009, an appeal was filed before the CIT(A). The CIT(A) heldthat the assessee derived income from trading in derivatives and sharebusiness along with dividend and interest and was an NBFC. The CIT(A)inter alia held that the provisions of Section 43(5) came into existencewith effect from 1 April 2006 and hence, transactions in futures andoptions must be treated as business income as distinct from trading inshares. Consequently, the CIT(A) rejected the contention of the assesseethat the assessing officer had erred in not allowing the speculation lossto be set off against profits of trading in futures and options.

5. The Revenue appealed against the decision of the CIT(A).The Income Tax Appellate Tribunal[1] by its decision dated 6 November2015 held that the claim of the assessee for setting off the loss fromshare trading should be allowed against the profits from transactions infutures and options, since the character of the activities was similar.The ITAT held that the assessee which was in the business of sharetrading had treated the entire activity of the purchase and sale of shareswhich comprised both of delivery based and non-delivery based trading,as one composite business.

6. The Revenue appealed before the High Court which by itsjudgment dated 22 November 2016 accepted its submission. The HighCourt held that the profits which had arisen from trading in futures andoptions were not profits from a speculative business. Hence the loss ontrading in shares could not be set off against the profits arising from thebusiness of futures and options.

7. The dispute in the present case pertains to assessment year2008-2009.

8. Mr. R.V. Easwar, learned senior counsel appearing on behalfof the appellant has urged two submissions in order to assail the decisionof the High Court. First, it has been submitted that the Explanation toSection 73 as it stood prior to its amendment with effect from 1 April2015 by Finance (No. 2) Act, 2014 contemplated that where any part ofthe business of a company, other than a company, the principalbusiness of which is the granting of loans and advances, consistsin the purchase of shares of other companies, the company shall, for thepurposes of this section, be deemed to be carrying on a speculation 1 “ITAT”

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Abusiness. In other words, the explanation as it then stood clarified thatwhere the principal business of the company consists of the grant ofloans and advances, the deeming fiction provided in the explanation wouldnot be attracted. In the present case, it was urged that the principalbusiness of the assessee for AY 2008-2009 was of granting loans andadvances. This submission was sought to be buttressed on the basis ofBthe figures drawn from the balance sheet of the appellant as extractedin the order of assessment. Those figures, it has been submitted, indicatethat for the financial year ending 31 March 2008, the following positionemerges:(i) The total funds available – Rs 13.48 crores;C

(ii) Funds deployed for loans and advances - Rs 11.32 crores

(iii) Percentage – 84%

(iv) Deployed for share business – Rs 1.28 crores D(v) Percentage – 9.5%

(vi) Unsecured loans – Rs 5.92 crores

Consequently, the submission which has been urged under thefirst head is that the assessee having deployed a substantial part of itsfunds during the assessment year for loans and advances, the High CourtEerred in accepting the view of the assessing officer. It was urged thatthe assessee has a certificate as an NBFC under the provisions of theReserve Bank of India Act 1934.

9. The second limb of the submissions, which is in the alternative,is that the provisions of the Explanation to Section 73 were amended soFas to bring trading in shares within its purview by Finance (No. 2) Act2014. It was urged that this amendment should be construed to beretrospective, though Parliament has brought it into force with effectfrom 1 April 2015. In this regard, it was submitted that insofar as tradingin derivatives is concerned, the provisions of Section 43(5) were amendedby Finance Act, 2005 to provide that an eligible transaction in respect ofGtrading in derivatives of securities carried out on a recognised stockexchange shall not be deemed as a speculative transaction. It was urgedthat there was a clear anomaly in the provisions of law. The anomaly, itwas submitted, consisted in the fact that delivery based trading in shareswas treated as a speculative business until the amendment to theHExplanation to Section 73 was brought into force on 1 April 2015. On the other hand, what was essentially speculative and non-delivery based,namely, trading in derivatives on recognised stock exchanges wasremoved from the purview of the business of speculation with effectfrom 2006-2007. Reliance has been placed on the Circular of the CBDTdated 27 February 2006 explaining the provisions of the Finance Act,2005 and on the Circular dated 21 January 2015 explaining the provisionsof Finance (No. 2) Act, 2015. Hence, it is urged that even thoughParliament brought into force the amendment to the Explanation to Section73 with effect from 1 April 2015, this would not affect the judicial authorityof this Court to indicate that the amendment must, by its very nature, beregarded as retrospective having regard to the intent and purpose of theamendment. Reliance was placed on the decisions of this Court inAlliedMotors (P) Ltd.v. Commissioner of Income Tax, Delhi2 and inCommissioner of Income Tax v. Alom Extrusions Ltd.3.

10. On the other hand, it has been urged on behalf of the Revenueby Mr Arijit Prasad that in evaluating what constitutes the principalbusiness of the assessee within the meaning of the Explanation to Section73, the High Court has relied on two significant circumstances. Thefirst circumstance is the admission of the assessee before the assessingofficer to the effect that share trading was the sole business of theassessee during the assessment year in question. The secondcircumstance is that while the assessee had received interest on loansof Rs 2,21,917, it had paid out interest of Rs 62,84,111.60. The Revenuehas urged that the figures from the balance sheet of the assessee wouldindicate that while the assessee had borrowed unsecured loans to thetune of Rs 5.92 crores and had given loans and advances of Rs 11.32crores, this included interest free lending of Rs. 9.58 crores. In thisbackground, the High Court came to the conclusion that the principalbusiness for the assessment year was not the granting of loans andadvances. This finding was supported on the above two grounds.

11. On the second issue of the claim of retrospectivity, it wasurged that though the Court has the power in an appropriate case, basedon the intent of the legislature to hold that an amendment is retrospective,the position in this case is quite distinct. In the present case, it wassubmitted that when the provisions of Section 43(5) were amended witheffect from 2006 by the Finance Act 2005, the legislature took note of

2 (1997) 3 SCC 472

3 (2010) 1 SCC 489

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Athe provisions of Section 73. Yet it did not consider it appropriate tomake a corresponding amendment in the Explanation to Section 73 andit is only nine years thereafter that an amendment to the latter provisionwas introduced. Hence, it was urged that the intent of the legislaturewas not to make the amendment to the Explanation to Section 73retrospective.B

12. Reliance has been placed on the decisions of this Court inCommissioner of Income Tax (Central)-I, New Delhiv. VatikaTownship Private Ltd.4and on the judgment of a three judge Benchof this Court in Vijay Industriesv Commissioner of Income Tax5.

C13. These submissions now fall for consideration.

14. The provisions of Section 43(5) were amended by the FinanceAct, 2005. Prior to the amendment, Section 43(5) defined a ‘speculativetransaction’ to mean a transaction in which a contract for the purchaseor the sale of any commodity including stocks and shares is settledDotherwise than by the actual delivery or transfer of the commodity orscrips. The impact of the amendment by the Finance Act, 2005 wasthat an eligible transaction on a recognised stock exchange in respect oftrading in derivatives was deemed not to be a speculative transaction.With effect from 1 April 2006, trading in derivatives was by a deemingfiction not regarded as a speculative transaction when it was carried outEon a recognized stock exchange.

15. The circular of the CBDT dated 27 February 2006 indicatedthat this amendment was occasioned by the changes which wereintroduced by SEBI both at the legal and technological level for bringingin greater transparency in the market for derivatives. Explaining theFreason for the amendment, the Circular states:

“3.10 Excluding ‘trading in derivatives’ on recognised stockexchanges from the ambit of ‘speculative transactions’

Existing provisions of clause (5) of section 43 define ‘speculativetransaction’ to mean a transaction in which a contract for theGpurchase or sale of any commodity including stocks and shares issettled otherwise than by the actual delivery or transfer of thecommodity or scrips. The proviso to section 43(5) lists out certaintransactions which are not deemed to be speculative transactions.

4 (2015) 1 SCC 1H5 (2019) 4 SCC 184

Systemic and technological changes introduced by SEBI haveresulted in sufficient transparency in the stock markets and haveto a large extent curbed the scope for generating fictitious lossesthrough artificial transactions or shifting of incidence of loss fromone person to another. The screen based computerized tradingprovides for audit trail. In the wake of these developments, thepresent distinction between speculative and non-speculativetransactions, in respect of trading in derivatives of securities islosing relevance.

The Finance Act, 2005 has, accordingly, amended section 43(5)to provide that an eligible transaction in respect of trading inderivatives of securities carried out on a recognised stock exchangeshall not be deemed as speculative transaction. The notificationprescribing the rules and the conditions to be fulfilled by a stockexchange to be recognized by the Central Government for thepurposes of section 43(5) [i.e., Rules 6DDA and 6DDB of theIncome-tax Rules, 1962] has been published in the Official Gazetteon 1[st]July, 2005 vide S. O. No. 932(E).

Applicability: From A.Y. 2006-07 onwards.”

Applicability: From A.Y. 2006-07 onwards.”

16. Section 73 deals with losses from speculation business. Undersub-Section (1) of Section 73, a loss computed in relation to speculationbusiness carried on by an assessee can only be set off against the profitsand gains of another speculation business. The Explanation to Section73 contains a deeming fiction where certain businesses shall, for thepurposes of the section, be deemed to be speculation businesses. TheExplanation also carves out an exception in respect of certain specifiedbusinesses which shall lie outside the fold of the deeming fiction. Priorto the amendment of the Explanation by the Finance (No. 2) Act 2014with effect from 1 April 2015, the business of trading in shares carriedon by a company was not excluded from its purview. However, by theamendment which was brought into force from 1 April 2015, theexplanation to Section 73 reads as follows:

“Explanation - Where any part of the business of a company (otherthan a company whose gross total income consists mainly ofincome which is chargeable under the heads “Interest onsecurities”, “Income from house property”, “Capital gains” and“Income from other sources”, or a company the principal business A

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Aof which is the business of trading in shares or banking or thegranting of loans and advances) consists in the purchase and saleof shares of other companies, such company shall, for the purposesof this section, be deemed to be carrying on a speculation businessto the extent to which the business consists of the purchase andsale of such shares.”B

17. While on the one hand, Parliament amended Section 43(5)with effect from 1 April 2006 as a result of which trading in derivativeson recognised stock exchanges fell outside the purview of the businessof speculation, a corresponding amendment to the Explanation to Section73 in respect of trading in shares was brought in only with effect from 1CApril 2015.

18. The submission which has been urged on behalf of the appellantis that there was no logical reason to exclude from the purview ofspeculation business, trading in shares, whereas trading in derivativeswas excluded, as we have seen, from the ambit of Section 43(5) after 1DApril 2006. We will consider this aspect of the alternative submissionsubsequently.

19. At this stage, we will deal with the first submission which isthat the Explanation to Section 73, as it stood prior to the amendment,excluded from the deeming definition of a speculation business, a situationEwhere the principal business of a company was granting of loans andadvances.

20. In the present case, there is no dispute about the fact that theassessee was registered as an NBFC under the provisions of the ReserveBank of India Act, 1934. Section 73(1) does not define specifically, theFcircumstances in which the principal business of a company would beregarded as a business of the specified description. In the present case,the principal business was urged to be the granting of loans and advances.We cannot accept this submission and are of the view that the HighCourt was justified in rejecting it. The circumstance, which in our viewGis of crucial significance, is how the assessee construed its own line ofbusiness. The High Court has extracted what the assessee stated beforethe assessing officer namely:

“………… in our case the share trading is our sole business duringthe assessment year under concern”.

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From the above statement of the assessee, it is evident that theassessee itself stated that share trading was its sole business during theassessment year in question i.e. A.Y. 2008-2009.

21. Mr. R.V. Easwar, learned senior counsel submits that whilethe assessee did make this statement before the assessing officer, itshould not be regarded as conclusive. It was urged that the submissionof the assessee was also rejected on the basis that while it had receivedinterest on loans of Rs 2.21 lakhs, it had paid out interest of Rs 62.84lakhs. The submission is that, it is not merely the receipt of interest onloans and advances, but the deployment of funds which should have abearing in determining the principal nature of the business. In this context,reliance was placed on the view taken by a Division Bench of theCalcutta High Court in Commissioner of Income Taxv. SaviCommercial P. Ltd.6. The High Court, while dealing with the provisionsof the Explanation to Section 73, observed that income alone cannot betaken into account and where the activity of granting loans and advances“is on a larger scale than the business of buying and selling shares” thatwould be an important indicator. In other words, it was held that profitalone cannot be made a distinctive factor.

22. The correctness of this aspect of the submission which hasbeen urged by learned senior counsel need not be determined in thefacts of the present aspect, since we are of the view that the High Courtwas justified in relying upon the specific admission of the assessee thatduring the assessment year in question, its sole business was of dealingin shares. We must also advert to the circumstance that while the assesseehad furnished loans and advances of Rs 11.32 crores during theassessment year, this included interest free lending to the extent of Rs9.58 crores. Having regard to these facts and circumstances, the specificadmission of the assessee before the assessing officer assumessignificance. The assessee made an admission on a statement of factwhich in our view, must bind it. In this view of the matter, the principalbusiness of the assessee was not of granting loans and advances duringthe assessment year. As a consequence, the deeming fiction under Section73 would be attracted. Hence, the finding of the High Court, on the firstaspect, cannot be faulted.

23. That leads the Court to the second submission which has beencanvassed in the course of the hearing of the appeal. The provisions of6 (2015) 373 ITR 243

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ASection 43(5) were amended with effect from 1 April 2006. The FinanceAct, 2005 contained the following memorandum explaining theamendment:

“The proposed amendment, therefore, seeks to provide that aneligible transaction carried out in respect of trading in derivativesBin a recognised stock exchange shall not be deemed to be aspeculative transaction. The proposed amendment also seeks tonotify relevant rules etc. regarding conditions to be fulfilled byrecognised exchanges in this regard. Further it is also proposedto amend sub-section (4) of section 73 so as to reduce the periodof carry forward of speculation losses from eight assessment yearsCto four assessment years.”

24. While amending the provisions of Section 43(5), the Parliamentindeed was cognizant of the provisions which were contained in Section73(4). The above memorandum indicates that the provisions of Section73(4) were proposed to be amended so as to reduce the period of carryDforward of speculation losses from eight assessment years to fourassessment years. Having introduced an amendment to Section 73(4),the Parliament would have, if it intended to bring about a parity with theprovisions of Section 43(5) introduced a specific amendment. Parliament,however, did not do so by the Finance Act 2005. It was only with effectEfrom 1 April 2015 that an amendment was brought about to excludetrading in shares from the deeming provision contained in the Explanationto Section 73.Parliament may have had reasons to allow the situationto continue until the amendment was brought into force, including itsview in regard to the stability of the stock market. Insofar as this Courtis concerned, It would be difficult to hold that the provisions which wereFcontained in the Finance Act (No. 2) 2014 insofar as they amended theExplanation to Section 73 were clarificatory or that notwithstanding theprovision by which the amendment was brought into force with effectfrom 1 April 2015, that it should be given retrospective effect. We rejectthe second submission.G

25. Even though an amendment, including one in the context ofthe Finance Act is brought into force with effect from a stipulated date,the Court may as an exercise of statutory interpretation, determinewhether the amendment is clarificatory or was intended to operate withretrospective effect. Such an exercise was carried out by this Court in H

its decision in Allied Motors(supra). Interpreting the provisions ofSection 43B, this Court held thus:

“10…While interpreting Section 43-B without the first provisosome of the High Courts, in order to prevent undue hardship tothe assessee, had taken the view that Section 43-B would not beattracted unless the sum payable by the assesee by way of tax,duty, cess or fee was payable in the same accounting year. If thetax was payable in the next accounting year, Section 43-B wouldnot be attracted. This was done in order to prevent any unduehardship to assessees such as the ones before us. TheMemorandum of Reasons takes note of the combined effect ofSection 43-B and the first proviso inserted by the Finance Act,1987. After referring to the fact that the first proviso now removesthe hardship caused to such taxpayers it explains the insertion ofExplanation 2 as being for the purpose of removing any ambiguityabout the term “any sum payable” under clause (a) of Section 43-B. This Explanation is made retrospective. The Memorandumseems to proceed on the basis that Section 43-B read with theproviso takes care of the hardship situation and hence Explanation2 can be inserted with retrospective effect to make clear the ambitof Section 43-B(a). Therefore, Section 43-B(a), the first provisoto Section 43-B and Explanation 2 have to be read together asgiving effect to the true intention of Section 43-B. If Explanation2 is retrospective, the first proviso will have to be so construed.Read in this light also, the proviso has to be read into Section 43-B from its inception along with Explanation 2.”

26. The decision of the Court was intrinsically based on a holisticreading of the provisions of Section 43-B. The memorandum proceededon the basis that Section 43-B read with the proviso was intended toalleviate a situation of hardship. Hence, Explanation 2 was enactedwith retrospective effect to clarify the ambit of Section 43-B(a). ThisCourt held that if Explanation 2 is retrospective, the first proviso wouldbe similarly so construed. This position was re-enforced by adepartmental circular. The Court, in other words, interpreted the intentof Parliament.

27. A similar line of enquiry has been adopted in the subsequentdecision of this Court inAlom Extrusions(supra). In that case, whileconstruing the provisions of Section 43-B, this Court held:

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A“25. Before concluding, we extract hereinbelow the relevantobservations of this Court in CIT v. J.H. Gotla (1985)[7] whichreads as under: (SCC p. 360, para 47)

“47. … we should find out the intention from the language usedby the legislature and if strict literal construction leads to an absurdBresult i.e. result not intended to be subserved by the object of thelegislation found in the manner indicated before, and if anotherconstruction is possible apart from strict literal construction thenthat construction should be preferred to the strict literalconstruction. Though equity and taxation are often strangers,attempts should be made that these do not remain always so andCif a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction.

The test to be applied is essentially one of the intent of thelegislature.

28. In a more recent decision in Commissioner of Income TaxDv. Vatika Township Pvt. Ltd.8, a Constitution Bench of this Courtheld thus:

“42.1. “Notes on Clauses” appended to the Finance Bill, 2002while proposing insertion of proviso categorically states that “thisamendment will take effect from 1.6.2002”. These becomeEepigraphic[9] words, when seen in contradistinction to otheramendments specifically stating those to be clarificatory orretrospectively depicting clear intention of the legislature. It canbe seen from the same notes that a few other amendments in theIncome Tax Act made by the same Finance Act specificallyFmaking those amendments retrospective. For example, clause 40seeks to amend S.92-F. Clause (iii-a) of S.92-F is amended “so asto clarify that the activities mentioned in the said clause includethe carrying out of any work in pursuance of a contract.” (emphasissupplied). This amendment takes effect retrospectively from 1-G4-2002. Various other amendments also take place retrospectively.The Notes on Clauses show that the legislature is fully aware ofthree concepts:

7 (1985) 4 SCC 343

8 (2015) 1 SCC 1

9 Ed.: As per the Oxford Dictionary, “epigraphic” here means : intending to suggest theHtheme or purpose of the amendment

(i) prospective amendment with effect from a fixed date;

(ii) retrospective amendment with effect from a fixed anteriordate; and

(iii) clarificatory amendments which are retrospective innature.”

29. In M/s. Vijay Industries (supra), decided on 1 March 2019,a three judge Bench of this Court held that the provisions of Section80AB which were introduced by the Finance (No. 2) Act, 1980 witheffect from 1 April 1981 could not be regarded as clarificatory in nature.The Court held that the provision was made with prospective effect andthe amendment would not apply to assessment years 1979-1980 and1980-1981 because the amended provision was brought on the statutebook after the assessment years in question.

30. In conclusion, we therefore, hold that the amendment whichwas brought by Parliament to the Explanation to Section 73 by the Finance(No 2) Act 2014 was with effect from 1 April 2015. In its legislativewisdom, the Parliament amended Section 43(5) with effect from 1 April2006 in relation to the business of trading in derivatives, Parliament broughtabout a specific amendment in the Explanation to Section 73, insofar astrading in shares is concerned, with effect from 1 April 2015. The latteramendment was intended to take effect from the date stipulated byParliament and we see no reason to hold either that it was clarificatoryor that the intent of Parliament was to give it retrospective effect.

31. The consequence is that in A.Y. 2008-2009, the loss whichoccurred to the assessee as a result of its activity of trading in shares (aloss arising from the business of speculation) was not capable of beingset off against the profits which it had earned against the business offutures and options since the latter did not constitute profits and gains ofa speculative business.

32. For the reasons we have indicated, we find no error in thedecision of the High Court. The appeal is, accordingly, dismissed. Thereshall be no order as to costs.

33. Pending application(s), if any, shall stand disposed of.

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