Case: Snowtex Investment Limited Vs. Principal Commissioner of Income Tax, Central-2, Kolkata

undue hardship to the Assessee, had taken the view that Section 43-B would not be attracted unless the sum payable by the assessee by way of tax, duty, cess or fee was payable in the same accounting year. If the tax was payable in the next accounting year, Section 43-B would not be attracted. This was done in order to prevent any undue hardship to Assessees such as the ones before us. The Memorandum of Reasons takes note of the combined effect of Section 43-B and the first proviso inserted by the Finance Act, 1987. After referring to the fact that the first proviso now removes the hardship caused to such taxpayers it explains the insertion of Explanation 2 as being for the purpose of removing any ambiguity about the term any sum payable under Clause (a) of Section 43-B. This Explanation is made retrospective. The Memorandum seems to proceed on the basis that Section 43-B read with the proviso takes care of the hardship situation and hence Explanation 2 can be inserted with retrospective effect to make clear the ambit of Section 43-B(a). Therefore, Section 43-B(a), the first proviso to Section 43-B and Explanation 2 have to be read together as giving effect to the true intention of Section 43-B. If Explanation 2 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 holistic reading of the provisions of Section 43-B. The memorandum proceeded on the basis that Section 43-B read with the proviso was intended to alleviate a situation of hardship. Hence, Explanation 2 was enacted with retrospective effect to clarify the ambit of Section 43-B(a). This Court held that if Explanation 2 is retrospective, the first proviso would be similarly so construed. This position was re-enforced by a departmental circular. The Court, in other words, interpreted the intent of Parliament. 27. A similar line of enquiry has been adopted in the subsequent decision of this Court in Alom Extrusions (supra). In that case, while construing the provisions of Section 43-B, this Court held: 25. Before concluding, we extract hereinbelow the relevant observations of this Court in CIT v. J.H. Gotla (1985) 4 SCC 343 which reads as under: (SCC p. 360, para 47) 47. ... we should find out the intention from the language used by the legislature and if strict literal construction leads to an absurd result i.e. result not intended to be subserved by the object of the legislation found in the manner indicated before, and if another construction is possible apart from strict literal construction then that construction should be preferred to the strict literal construction. Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if 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 the legislature. 28. In a more recent decision in Commissioner of Income Tax v. Vatika Township Pvt. Ltd. (2015) 1 SCC 1 , a Constitution Bench of this Court held thus: 42.1. Notes on Clauses appended to the Finance Bill, 2002 while proposing insertion of proviso categorically states that this amendment will take effect from 1.6.2002. These become epigraphic2 words, when seen in contradistinction to other amendments specifically stating those to be clarificatory or retrospectively depicting clear intention of the legislature. It can be seen from the same notes that a few other amendments in the Income Tax Act made by the same Finance Act specifically making those amendments retrospective. For example, Clause 40 seeks to amend Section 92-F. Clause (iii-a) of Section 92-F is amended so as to clarify that the activities mentioned in the said Clause include the carrying out of any work in pursuance of a contract. (emphasis supplied). This amendment takes effect retrospectively from 1-4-2002. Various other amendments also take place retrospectively. The Notes on Clauses show that the legislature is fully aware of three concepts: (i) prospective amendment with effect from a fixed date; (ii) retrospective amendment with effect from a fixed anterior date; and (iii) clarificatory amendments which are retrospective in nature. 29. In M/s. Vijay Industries (supra), decided on 1 March 2019, a three judge Bench of this Court held that the provisions of Section 80AB which were introduced by the Finance (No. 2) Act, 1980 with effect from 1 April 1981 could not be regarded as clarificatory in nature. The Court held that the provision was made with prospective effect and the amendment would not apply to assessment years 1979-1980 and 1980-1981 because the amended provision was brought on the statute book after the assessment years in question. 30. In conclusion, we therefore, hold that the amendment which was 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 legislative wisdom, the Parliament amended Section 43(5) with effect from 1 April 2006 in relation to the business of trading in derivatives, Parliament brought about a specific amendment in the Explanation to Section 73, insofar as trading in shares is concerned, with effect from 1 April 2015. The latter amendment was intended to take effect from the date stipulated by Parliament and we see no reason to hold either that it was clarificatory or that the intent of Parliament was to give it retrospective effect. 31. The consequence is that in A.Y. 2008-2009, 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) was not capable of being set off against the profits which it had earned against the business of futures and options since the latter did not constitute profits and gains of a speculative business.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]19. At this stage, we will deal with the first submission which is that the Explanation to Section 73, as it stood prior to the amendment, excluded from the deeming definition of a speculation business, a situation where the principal business of a company was granting of loans and advances20. In the present 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. 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 High Court was justified in rejecting it. The circumstance, which in our view is of crucial significance, is how the Assessee construed its own line of business. The High Court has extracted what the Assessee stated before the assessing officer namely:... in our case the share trading is our sole business during the assessment year under concernFrom the above statement of the Assessee, 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. 2008-200922. The correctness of this aspect of the submission which has been urged by learned senior Counsel need not be determined in the facts of the present aspect, since we are of the view that the High Court was justified in relying upon the specific admission of the Assessee that during the assessment year in question, its sole business was of dealing in shares. We must also advert to the circumstance that while the Assessee had furnished loans and advances of Rs. 11.32 crores during the assessment year, this included interest free lending to the extent of Rs. 9.58 crores. Having regard to these facts and circumstances, the specific admission of the Assessee before the assessing officer assumes significance. The Assessee made an admission on a statement of fact which in our view, must bind it. In this view of the matter, 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 faulted24. While amending the provisions of Section 43(5), the Parliament indeed was cognizant of the provisions which were contained in Section 73(4). The above memorandum indicates that the provisions of Section 73(4) were proposed to be amended so as to reduce the period of carry forward of speculation losses from eight assessment years to four assessment years. Having introduced an amendment to Section 73(4), the Parliament would have, if it intended to bring about a parity with the provisions of Section 43(5) introduced a specific amendment. Parliament, however, did not do so by the Finance Act 2005. It was only with effect from 1 April 2015 that an amendment was brought about to exclude trading in shares from the deeming provision contained in the Explanation to Section 73. Parliament may have had reasons to allow the situation to continue until the amendment was brought into force, including its view in regard to the stability of the stock market. Insofar as this Court is concerned, It would be difficult to hold that the provisions which were contained in the Finance Act (No. 2) 2014 insofar as they amended the Explanation to Section 73 were clarificatory or that notwithstanding the provision by which the amendment was brought into force with effect from 1 April 2015, that it should be given retrospective effect. We reject the second submission29. In M/s. Vijay Industries (supra), decided on 1 March 2019, a three judge Bench of this Court held that the provisions of Section 80AB which were introduced by the Finance (No. 2) Act, 1980 with effect from 1 April 1981 could not be regarded as clarificatory in nature. The Court held that the provision was made with prospective effect and the amendment would not apply to assessment years 1979-1980 and 1980-1981 because the amended provision was brought on the statute book after the assessment years in question30. In conclusion, we therefore, hold that the amendment which was 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 legislative wisdom, the Parliament amended Section 43(5) with effect from 1 April 2006 in relation to the business of trading in derivatives, Parliament brought about a specific amendment in the Explanation to Section 73, insofar as trading in shares is concerned, with effect from 1 April 2015. The latter amendment was intended to take effect from the date stipulated by Parliament and we see no reason to hold either that it was clarificatory or that the intent of Parliament was to give it retrospective effect31. The consequence is that in A.Y. 2008-2009, 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) was not capable of being set off against the profits which it had earned against the business of futures and options since the latter did not constitute profits and gains of a speculative business.