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M/s Snowtex Investment Limited v. Principal Commissioner of Income Tax, Central-2, Kolkata

Civil Appeal · 2019 INSC 593Decided 30 Apr 2019
Civil Appeal No. 4483 of 2019
Dr. Justice D.Y. Chandrachud · Justice Hemant Gupta

Background

Snowtex Investment Limited, a non-banking financial company (NBFC), suffered a loss from trading in shares during assessment year 2008-09 and wanted to set this off against its profits from trading in futures and options. The tax department treated the share-trading loss as a "speculation loss" under Section 73 of the Income Tax Act, which can only be set off against other speculation profits, not against regular business profits like futures/options income. The company argued its principal business was actually giving loans and advances (which would exempt it from this speculation-loss rule), and alternatively that a 2015 amendment excluding share trading from the speculation definition should be read backward to cover 2008-09 too. The dispute travelled from the Assessing Officer up through appellate tax authorities and the Calcutta High Court, which ruled against the company.

Decision Breakdown

The Supreme Court upheld the High Court's decision and dismissed the appeal. It held that the company's own admission before the Assessing Officer, that "share trading is our sole business" for that year, was binding, so its principal business could not now be recharacterized as lending, especially since a large share of its "loans" were actually interest-free. On the retrospectivity argument, the Court held that Parliament's 2014 amendment excluding share-trading from the deemed-speculation rule was expressly made effective only from 1 April 2015, and nothing suggested it was meant to be clarificatory or retrospective: the mere fact that a related provision (on derivatives trading) had been changed earlier, in 2006, did not mean Parliament intended parity at that time. Consequently, the company's 2008-09 share-trading loss remained a speculation loss and could not be set off against its futures-and-options profits.

Lesson Learnt

Statements a taxpayer makes to the tax officer about the nature of its own business can be treated as binding admissions later, and a law's effective date set by Parliament will not be extended backward by courts merely because it would have helped the taxpayer or because a related provision changed earlier.

Official source (sci.gov.in)View Judgment (PDF)

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