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The Tax Publishers Fiduciary Shares & Stock (P) Ltd. v. Asstt. CIT [ITA No. 321/Mum/2013, dt. 13-5-2016] : 2016 TaxPub(DT) 2536 (Mum-Trib) Explanation to section 73 of the Act by Finance (No. 2) Act, 2014 whether retrospective *Facts:* Assesseee was in the business of investment consultancy, share trading, broking etc. They reported the following as the net business income -- Brokerage and Commission : 5,50,41,964.56 Profit/(Loss) on sale of shares - speculation : (-)(11,30,493.74) Profit/(Loss) on sale of shares -Derivatives : (-)(59,48,289.62) Profit/(Loss) on Trading of shares : (-)(2,13,23,589.99) Taxable profits : 2,66,39,591.02 Assessing officer held that the trading of shares loss 2.13 crores + speculative loss 0.11 crores + expenses incurred for such speculative losses are not to be adjusted against the brokerage income thus disallowed the same holding it falling under section 73 explanation that speculative loss cannot be adjusted against non-speculative income. Commissioner (Appeals) upheld the same. On further appeal, assesses's ground was that since they were in the business of shares and dealings the explanation inserted vide finance act, 2014 would apply retrospectively to them. Reasoning being that the carve out was to exempt speculative losses of share trader, broker to be outside the scope of the said explanation also confirmed by the Wanchoo committee and Circular No. 204, dated 27-7-1976. Thus companies whose principal business is not the business of trading in shares and they have purchased and sold shares and incurred losses, only such companies fall in the ambit of the Explanation to section 73 of the Act so that their losses are treated as speculation loss, which was the object to be achieved by the insertion of the Explanation to section 73 of the Act. In support of his contentions that the insertion of amendment by Finance (No. 2) Act, 2014 in the Explanation to section 73 of the Act is clarificatory in nature and therefore such amendment will have to be given retrospective effect, i.e. from the year in which the Explanation was inserted. Held in favour of the assessee that they were entitled to the set off as claimed the explanation inserted to section 73 was also held to be retrospective. 5.6.3 The insertion of the amendment in the Explanation to section 73 of the Act by the Finance (No. 2) Act, 2014, in our view, is curative and classificatory in nature. If the amendment is applied prospectively from A.Y. 2015-16, a piquant situation would arise that an assessee who has earned profit from purchase and sale of shares in A.Y. 2015-16 would be treated as normal business profit and not speculation business profit in view of the exception carried out by the amendment in Explanation to section 73 of the Act. In these circumstances, speculation business loss incurred by trading in shares in earlier years will not be allowed to be set off against such profit from purchase and sale of shares to such companies in A.Y. 2015-16. For this reason also, the amendment inserted to Explanation to section 73 of the Act by Finance (No. 2) Act, 2014 is to be applied retrospectively from the date of the insertion to Explanation to section 73 of the Act. The ITAT has referred to a number of judgments and circumstances where clarificatory amendments were held to be retrospective in nature.

The Tax Publishers

Fiduciary Shares & Stock (P) Ltd. v. Asstt. CIT [ITA No. 321/Mum/2013, dt. 13-5-2016] : 2016 TaxPub(DT) 2536 (Mum-Trib)

Explanation to section 73 of the Act by Finance (No. 2) Act, 2014 whether retrospective

Facts:

Assesseee was in the business of investment consultancy, share trading, broking etc. They reported the following as the net business income --

Brokerage and Commission : 5,50,41,964.56

Profit/(Loss) on sale of shares - speculation : (-)(11,30,493.74)

Profit/(Loss) on sale of shares -Derivatives : (-)(59,48,289.62)

Profit/(Loss) on Trading of shares : (-)(2,13,23,589.99)

Taxable profits : 2,66,39,591.02

Assessing officer held that the trading of shares loss 2.13 crores + speculative loss 0.11 crores + expenses incurred for such speculative losses are not to be adjusted against the brokerage income thus disallowed the same holding it falling under section 73 explanation that speculative loss cannot be adjusted against non-speculative income. Commissioner (Appeals) upheld the same. On further appeal, assesses's ground was that since they were in the business of shares and dealings the explanation inserted vide finance act, 2014 would apply retrospectively to them. Reasoning being that the carve out was to exempt speculative losses of share trader, broker to be outside the scope of the said explanation also confirmed by the Wanchoo committee and Circular No. 204, dated 27-7-1976. Thus companies whose principal business is not the business of trading in shares and they have purchased and sold shares and incurred losses, only such companies fall in the ambit of the Explanation to section 73 of the Act so that their losses are treated as speculation loss, which was the object to be achieved by the insertion of the Explanation to section 73 of the Act. In support of his contentions that the insertion of amendment by Finance (No. 2) Act, 2014 in the Explanation to section 73 of the Act is clarificatory in nature and therefore such amendment will have to be given retrospective effect, i.e. from the year in which the Explanation was inserted.

Held in favour of the assessee that they were entitled to the set off as claimed the explanation inserted to section 73 was also held to be retrospective.

5.6.3 The insertion of the amendment in the Explanation to section 73 of the Act by the Finance (No. 2) Act, 2014, in our view, is curative and classificatory in nature. If the amendment is applied prospectively from A.Y. 2015-16, a piquant situation would arise that an assessee who has earned profit from purchase and sale of shares in A.Y. 2015-16 would be treated as normal business profit and not speculation business profit in view of the exception carried out by the amendment in Explanation to section 73 of the Act. In these circumstances, speculation business loss incurred by trading in shares in earlier years will not be allowed to be set off against such profit from purchase and sale of shares to such companies in A.Y. 2015-16. For this reason also, the amendment inserted to Explanation to section 73 of the Act by Finance (No. 2) Act, 2014 is to be applied retrospectively from the date of the insertion to Explanation to section 73 of the Act.

The ITAT has referred to a number of judgments and circumstances where clarificatory amendments were held to be retrospective in nature.