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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: Sh. N. S. Saini & Sh. N. K. Choudhry
IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR Before Sh. N. S. Saini, Accountant Member And Sh. N. K. Choudhry, Judicial Member ITA No. 331/Asr./2018 : Asstt. Year : 2014-15 M/s P. D. Sekhsaria Trading Vs Dy. Commissioner of Income Company Pvt. Ltd., 4242, Tax, Circle-I, Ground Floor, Gurudwara Singh Bathinda, Punjab Sabha Street, Bathinda, Punjab (APPELLANT) (RESPONDENT) PAN No. AABCP1720E SA No. 03/Asr./2019 (in ITA No. 331/Asr./2018: Asstt. Year : 2014-15) M/s P. D. Sekhsaria Trading Vs Dy. Commissioner of Income Company Pvt. Ltd., 4242, Tax, Circle-I, Ground Floor, Gurudwara Singh Bathinda, Punjab Sabha Street, Bathinda, Punjab (APPELLANT) (RESPONDENT) PAN No. AABCP1720E Assessee by : Shri. Salil Kapoor, Adv. & Shri. Sanat Kapoor, Adv. Revenue by : Shri. M. P. Singh, CIT DR Date of Hearing :20.02.2019 Date of Pronouncement : 19.03.2019 ORDER Per N. S. Saini, Accountant Member: This is an appeal filed by the assessee against the order of CIT(A), Bathinda dated 26.03.2018.
The assessee has raised following grounds of appeal: “1. That on the facts and circumstances of the case the addition/disallowance of Rs.4,69,47,808/- made
ITA No. 331/Asr./2018 2 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. by the AO and upheld by the CIT(A) is illegal, bad in law and the same should be deleted. 2. That the CIT(A) has not interpreted the law in the correct manner and has grossly erred on facts and in law in upholding the transactions on which the assessee suffered a loss of Rs.4,69,47,808/- to be speculative transactions and hence impugned loss was not allowed to be set off with normal business income. 3. That the CIT(A) has failed to appreciate the fact that the date of notification for recognizing the association (NCDEX) on which the transactions were carried out is immaterial and that the language and the intention of the IT Act should prevail over the Rules and notifications (procedural laws). Reasoning adopted for interpreting provisions of clause ‘d’ of section 43(5) are equally applicable for clause ‘e’ of section 43(5). 4. That the CIT(A) failed to appreciate that prior to getting notified for the purpose of section 43(5)(e) NCDEX was already a recognized association as per Section 2 of Forward Contract Regulation Act, 1952 since 20-11-2003. 5. That the CIT(A) has failed to appreciate the fact that the retrospective amendment brought in Sec 43(5)(e) by the Finance (No.2) Act 2014 is not applicable to the appellant. It is well established that a provision cannot be read retrospectively to divest assessee of his vested rights. 6. That in view of the facts and circumstances the appellant cannot be held liable for non payment of commodities transaction tax since the same was levied with retrospective effect and much later than the dates of transactions. 7. That in any case the appellant was never liable to pay Commodities Transaction Tax since the appellant was trading in agricultural commodity derivatives and no CTT is payable on the same as
ITA No. 331/Asr./2018 3 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. clarified by the second proviso to Sec 43(5) inserted by the Finance Act 2018. 8. That the above amendment (ground no. 7) brought in by the Finance Act 2018 is clarificatory and retrospective in nature. 9. That the AO and CIT(A) have failed to appreciate that no CTT was payable in respect of the said trading in agricultural commodities derivatives under the CTT Act and as such the appellant could not have paid CTT. 10. That the evidence and explanation given by the appellant and the material available on record have not been properly considered and judiciously interpreted. 11. The CIT(A) has failed to appreciate the well settled position of law on these issues and has grossly erred in ignoring the judicial decisions delivered by ITAT, High Court and Supreme Court on the issues. 12. That the additions have been made on basis of mere surmises and conjectures and contrary to facts and evidence on record and cannot be justified by any material on record. 13. That the various observations made by the AO in the impugned order are illegal, bad in law and contrary to facts on record. 14. That the AO has grossly erred in charging interest U/s 234A, 234B and 234C of the IT Act and the interest is also wrongly worked out.” 3. The sole issue involved in this appeal is that the CIT(A) has erred in confirming the disallowance of loss claimed on account of trading in commodity derivative of Rs.4,69,47,808/- by treating the transactions carried on by the assessee
ITA No. 331/Asr./2018 4 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. between the period 21.05.2013 to 22.08.2013 as speculative transaction.
The brief facts of the case are that the Assessing Officer observed that these transactions were carried on NCDEX (the exchange) which was accorded recognition on 27.11.2013 after the date of transaction carried out by the assessee. Further, these transactions were not subjected to Commodity Transaction Tax (CTT) and therefore, are speculative in nature.
The assessee in appeal before the CIT(A) submitted as under. i. The Assessing Officer misunderstood that NCDEX was not recognized exchange whereas the same was recognized under forward contract regulation Act. ii. At the time of carrying out transaction there was no commitment for payment of commodity transaction tax, the amendment was made effective from 06.08.2014 by the Finance Act o 2014. iii. The Assessing Officer did not apply the provisions on assessment year basis and should have considered the factual position as applicable on first day of the assessment year i.e. 01.04.2014 when there was substantial compliance of each and every aspect. iv. the notified rules cannot be made effective from every perspective date. v. Procedural compliance cannot override statute. vi. The Assessing Officer did not apply CIT Vs NASA Finlease Pvt. Ltd. (2013) 358 ITR 305.
ITA No. 331/Asr./2018 5 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. vii. The notification of recognition of the exchange does not create any right or liability but it merely recognizes the eligibility. vii. A number of judicial precedents/decisions were also quoted. ACIT Vs Arnav Akshya Mehta (2012) 25 taxman.com 252 Vimal Oil Foods Ltd. Vs ACIT (2011) 55 taxman.com 107
The CIT(A) after considering the above arguments of the assessee observed that the moot question involved in this case was that the transactions carried out by the appellant during the period 21.05.2013 to 22.08.2013 (prior to approval of NCDEX on 27.11.2013) which are in the nature of trading in commodity derivatives are speculative transactions within the meaning of Section 43(5) of the Income Tax Act or these are saved by clause (e) of the proviso appended to the aforesaid section. The CIT(A) observed that a close look at the provisions shows that the main body of the section shows that any transaction which is settled otherwise than by actual delivery/transfer of commodity would as a general principle be treated as speculative transaction. However, there are number of exceptions carved out of this general rule proviso appended to this section gives the details. In the case of the appellant, since the transactions have been done in commodity derivatives, therefore, sub clause (e) is relevant.
The provisions of Section 43(5)(e) of the Act has been brought on the statute book by way of the Finance Act, 2013 w.e.f. 01.04.2014. The necessary Finance Bill 2013 was introduced in Lok Sabha on 28.02.2013 and the Presidential
ITA No. 331/Asr./2018 6 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. Assent received on 10.05.2013. This provision contained certain rules to be notified and therefore Rules 6DDC and 6DDD were notified on 10.05.2013. The CIT(A) observed that it is to be noted that even though the Finance Bill 2013 introduced Commodity Transaction Tax and Commodity Derivatives as Chapter VII but the word of charging of CTT was missing in Section 45(5)(e) of the Act. After the introduction of the basic provision, another important and noticeable change was brought by the Finance Bill of 2014, in these provisions that charging of Commodity Transaction Tax was made mandatory before extending the benefit of trading in these transactions as non-speculative. He further observed that the amendment contained in Finance Bill 2014 which subsequently became Finance Act on notification on 06.08.2014 completed the entire legislation in respect of transaction of trading in Commodity Derivatives by providing that only those transactions which are CTT charged and carried out in the eligible transaction format on recognized association would be treated as non-speculative.
The CIT(A) further went to and observe that it is a matter of fact that in the case of the present appellant the transactions were carried out at National Commodity and Derivatives Exchange Limited, Mumbai was approved on 27.11.2013 by Notification No. 90/2013.
He observed that now the facts as set out above, it isclear that the transactions of the appellant were carried out between the period 21.05.2013 to 22.08.2013 on a exchange which was approved on 27.11.2013. Thus, the question that arises are
ITA No. 331/Asr./2018 7 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. these transactions non-speculative and are saved by the proviso to the aforesaid section.
The appellant has quoted number of decisions given by different judicial foras related to Section 45(5)(d) of the Act to buttress the point that even in those cases the recognition of the exchanges came subsequently but the benefit of the provisions were extended to the transactions carried out on the earlier occasion. A considerable reliance has been placed on ACIT Vs Arnav Akshay Mehta (2012) 53 SOT 581 (Mum.) and the decision of CIT Vs NASA Finlease Pvt. Ltd. (2013) 358 ITR 305. In these cases, it was held that the appellant was entitled to treat the transaction as non-speculative even if the respective exchanges have been recognized subsequently. The primary reasoning given in these decisions was that the operations of the beneficial provisions come into play the moment they are enacted; the rules and notifications are merely subservient; any delay caused in issue of notifications cannot be put as an hindrance to the benefits to be given to the appellant.
The CIT(A) thereafter observed in his order that it is to be noted that Section 45(5)(d) of the Act is para material to the provision relating to transaction of trading in derivatives carried out on a recognized stock exchange has been held as non-speculative. However, in respect of these transactions and other eligibility test which are required to be passed is that they should be compliant to the provisions of the Securities Contracts Regulation Act 1956. It goes without saying that that
ITA No. 331/Asr./2018 8 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. these transactions must as a part of compliance to these Act would be STT paid.
The CIT(A) observed that it may be noted that Section 45(5)(d) of the Act was brought on the statute book by the Finance Act 2005 w.e.f. 01.04.2006. The security transaction tax which is relevant for these transactions was brought through the Finance Act 2004 and the exchanges dealing with the securities have been in place for a long time. It cannot be lost sight that in Section 45(5)(d) of the Act, the eligible transaction has to comply with the Securities Contracts Regulation Act 1956 because this statute has also been mentioned in the Section.
The CIT(A) further observed that the market of commodity transaction was not that stabilized as was the security transaction market. There was a rational behind prescribing compliance to the notified rules and approvals before treating the transactions of commodity derivatives as non-speculative. The courts have extended benefit of the earlier period/prior period to the security transactions carried out during the period even when the exchanges were not notified might be based on the consideration that these transactions were watched by SEBI also. A similar elbow space is not available in the commodity transactions mentioned in Section 45(5)(e) of the Act, therefore, any leverage provided to the transactions carried out during the period the respective stock exchange was found to be compliant to the rules and regulation might be counter-productive. Even otherwise it will create two class of transactions; one the transactions which
ITA No. 331/Asr./2018 9 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. have been carried out on recognized exchange after the thorough investigations of its being compliant and the other one would be set of transactions which are not certainly compliant and are in the area of doubt.
The CIT(A) further observed that it was held that rules and regulations are subservient to the main provision might be true in a case where the delegated legislation merely provide the formalities. In the present case, Rules 6DDC and 6DDD provides detailed conditions of the audit Trail required to be maintained electronically and to be transmitted to the designated authority. The Jaipur Bench of the Tribunal in the case of Prem Prakash Uma Shankar in ITA No. 91/JP/2013, order dated 20.02.2013 and in ITA No. 599/JP/2013, order dated 11.08.2015 held that the recognition was must for availing the benefit of the provisions.
The CIT(A) further observed that the decision in the case of CIT Vs NASA Finlease Pvt. Ltd. (2013) 358 ITR 305 (Del.) was not applicable because that decision was given in the context of Section 45(5)(d) of the Act where it had mentioned in para 5.7 about the systems of stock exchange was fully established, therefore, Hon’ble Court took a lenient view in respect of recognition by CBDT and treated this as mere formality. However, in the case of Section 45(5)(e) of the Act were not fully equipped and operationalized,, therefore, any laxity in permitting transactions before the due diligence is likely to cause damage to Revenue.
ITA No. 331/Asr./2018 10 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. 16. Further, it was mandatory upon the appellant to show that commodity transaction tax had been paid because the amendment made effective retrospectively from the date on which Section 45(5)(e) of the Act came on statute book. Any transaction on which CTT was either not paid or it has not been explained to the AO with the help of documentary evidence would not qualify for the protection under the aforesaid section. Such transaction would be treated as speculative. Hence, in consideration of the discussion made above, the transaction of the appellant are treated as speculative and the ground of appeal is dismissed.
The ld. AR of the assessee relied on his submission made before the AO and CIT(A).
The AR of the assessee submitted that provisions of Section 43(5)(e) were made applicable for the first time vide Finance Act, 2013 applicable w.e.f. 01.04.2014 i.e. A.Y. 2014- 15, to treat transactions of trading in commodity derivatives to be non-speculative after 1.04.2013. Section 43(5)(e) was inserted by Finance Act 2013 to provide that trading in Commodities derivatives carried out in recognized association will not be treated as speculative from A Y 2014-15. NCDEX was already a "recognized association" as defined in section 2(j) of Forward Contract (Regulation) Act, 1952 since 20-11- 2003 thus it was already a recognized association during the entire previous year 2013-14 relevant for AY 2014-15 and therefore, all transactions carried by the Appellant on NCDEX were carried on recognized association only. Therefore, the date of NCDEX getting notified as recognized association as per
ITA No. 331/Asr./2018 11 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. Income Tax Rules is irrelevant for passing the benefit of the section because getting notified under Income Tax Rules is only a procedural matter which cannot become hindrance to pass on statutory benefits available to the Appellant. In fact the procedure to be followed for getting such recognition was notified by CBDT on 04.07.2013.
In view of the new amendment and as procedural part, Explanation 2 to section 43(5) provided for such recognized associations to fulfill certain conditions as may be prescribed and get notified for the purpose. Rule 6DDC and form 3BC were prescribed on 4-7-2013 and NCDEX had applied for getting notified and got itself notified on 27-11-2013. Therefore, transactions carried between 21-5-2013 till 22-8- 2013 were treated as speculative. The BASIC fact that NCDEX was already an existing 'recognised association' since 20-11- 2003 was completely ignored.
The section nowhere states that such benefit will be from the date it gets notified. Correct inference from the Explanation 2 to section 43(5) which provided that such recognized association to fulfill such conditions as may be prescribed clearly means that during the period there are no rules prescribed for this purpose till then compliance of said condition is not relevant at all. In such procedural matters what is important is whether once procedures are prescribed thereafter whether they have been complied with or not, which in the given case of Appellant NCDEX has very well complied with in all respect.
ITA No. 331/Asr./2018 12 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. 21. We hereby reproduce quote from 7th edition of Shri Nani Palkhiwala, “An authority cannot make rules or issue notifications adversely affecting the assessee's rights with retrospective effect, unless the statute, either expressly or by necessary intendment, empowers the authority to do so. This principle has now received statutory recognition in s. 295(4)." The same principle is enunciated in the case of ITO v Ponnoose 75 ITR 174 (SC).
Section 295(4) restricts the authority to make rules that are applicable from retrospective date. According to Shri Nani Palkhiwala similar principle will also apply to Notifications made for making rules applicable. In this case relevant rule 6DDC was introduced on 4-7-2013 and thereafter only NCDEX could have applied for getting notified and got notified on 27- 11-2013. Obviously when there are no rules or conditions prescribed, compliances cannot be made applicable to transactions carried during the period when such rules or conditions were only not made by CBDT. Such additional condition can be made applicable only prospective and it is just impossible to apply to the period prior to its existence. In fact such compliance would be of academic purpose in such a situation. As per explanation in 2 to Section 43(5) for the purpose of clause (e) the expression "Recognised Association" means as below: "recognised association" means a recognised association as referred to in clause (j) of section 2 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and which fulfills such conditions as may be prescribed and is notified by the Central Government for this purpose.”
ITA No. 331/Asr./2018 13 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. 23. In the present case NCDEX was already a "recognised association" since 20-11-2003, (refer Page no. 3 & 4 of paper book- mail received from NCDEX). Thus the Appellant satisfied the requirement of the section as they existed on the date when the transactions were carried and obviously was not required to comply any additional condition when it was not prescribed at all. Therefore, the compliance of condition that such "recognized association" be notified as per the procedures as may be prescribed is only supplemental to the main provision and may be looked upon main condition only after the rules are prescribed for this purposes and not before that. Any procedural compliances cannot override main operative part of the section itself. Delay by CBDT in prescribing the Rules itself shows that the transactions till such date as veil as after such date will be non-speculative if carried on recognized association as provided in main section. Even if the rule 6DDC and Form 3BC notified on 4-7-2013 is studied then one will be able to note that it only contained primary details to be kept by such person in respect of the transactions carried and procedure to follow by filing of periodical returns etc. It does not guide as to how the transactions to be carried on. Therefore, this part of the definition as given in Explanation 2 to section 43(5) must be treated as procedural only. Extract of Section 43(5)(e): “As amended by Finance Act, 2013: The following clause (e) shall be inserted in proviso to clause (5) of section 43 by the Finance Act, 2013, w.e.f. 1-4-2014:
ITA No. 331/Asr./2018 14 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. “(e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognized association. shall not be deemed to be a speculative transaction.” 24. A few conditions have been laid down in order to qualify for the exclusion. These are similar to the conditions laid down for exclusion of securities derivative transactions from the definition of speculative transaction. The commodities derivatives transaction should be carried out electronically on a screen-based system on a recognized commodity exchange through a member or intermediary registered under the by- laws, rules and regulations of a recognized commodity exchange in accordance with the Forward Contracts (Regulation) Act (FCRA) and in accordance with the rules, regulations or by-laws made or directions issued under FCRA. The transaction should also be supported by a time stamped contract note, issued by such member or intermediary indicating the unique client identity number allotted under FCRA, or rules, regulations or by-laws, unique trade number and Permanent Account Number.
A further requirement is that the transactions are carried out in recognized association and it should comply with such conditions as may be prescribed by the central government and should be notified by the central government for this purpose. But only on 4 July 2013, the conditions and the procedure for making an application for any existing association to get notified as a recognized association were issued. Rule 6DDC & Form No. 3BC were notified vide notification no. 51/2013 dated
ITA No. 331/Asr./2018 15 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. 04.07.2013. Therefore, obviously, it needs some time for any Commodity Exchange before it is notified as a recognized commodity association as per Income Tax Rules in addition to its status under FCRA. This exactly happened to NCDEX also, therefore, getting an association notified as recognised association was a formality to be compiled with keeping in view the 1st year of introduction of these provisions and time taken by the Govt. to announce the relevant procedures.
Identical issue arose when section 43(5)(d) was introduced 1st time in Finance Act, 2005. If comparison is made in similar situation, when section 43(5)(d) was brought in the statute, when a similar concept was introduced for recognized stock exchanges to be notified for exclusion of securities derivatives transactions from the definition of speculative transactions carried from 1-4-2005 applicable for AY 2006-07, the conditions and procedure were notified in August 2005 and the first approvals were granted only subsequently in January 2006 with effect from the date of notification of the approval i.e. 25.01.2006. Case of NCDEX is much better than this in terms of date on which getting notified.
At that time, the tax authorities had taken a hyper technical stand leading to litigation as to whether transactions before the date of approval during that year would be treated as speculative, while transactions after the date of approval in the same year would not be treated as such. Fortunately, the decisions of various Courts held that the exclusion from the definition of speculative transactions would apply for the full
ITA No. 331/Asr./2018 16 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. year in respect of those approved stock exchanges, irrespective of the date of approval during the year. Reliance was placed on following decisions: Effective date of statute prevails upon procedural mechanism I. (2012) 25 Taxmann.com 252 (Mumbai) / (2012) 53 SOT 581 (Mumbai) - ITAT Mumbai Bench 'A" - ACIT, Vs. Arnav Akshay Mehta it was held as under:
Procedural compliance cannot override statute Delay in recognition of stock exchange - Procedural delay in recognition of stock exchange would not lead a derivative transaction to be categorized as speculative one. II. [2011] 12 taxmann.com 55 (Ahemdabad)/[2011] 46 SOT 276 (Ahmedabad)/[2011] : ACIT, Circle-2, Bhavanagar v. Hiren Jaswantrai Shah
there was a circular dt. 25-1-2006 issued for treating income / loss from derivative transaction in shares as regular business income was treated as curative and considered to be applicable retrospectively.
III. CIT vs. Nasa Finelease Pvt Ltd - ITA 647 / 2012 / Delhi HC, dt. 6-9-2013
It was the case of the assessee that the transaction was conducted by it from July 2005 to Sept 2005 cannot be rejected for the benefit of provision (d) of Sub-section 5 of Section 43(5) as there was a provision on the statute in the shape of clause (d). The lapse in the issue of notification etc.
ITA No. 331/Asr./2018 17 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. was only on account of delay by CBDT. Keeping in view relief was given to the assessee.
IV. [2011] 16 taxmann.com 159 (Delhi) IN the ITAT DELHI BENCH 'B’ Smt. Seema Jain v. Assistant Commissioner of Income-tax
Transactions in derivatives (futures and options) carried out in assessment year 2006-07 are eligible for benefit of section 43(5)(d)
The Parliament has enacted the law with effect from 1-4-2006, therefore, all the transactions carried on from 1-4-2005 to 31- 3-2006 will be in nature of business income. Though the stock exchanges as contended by the revenue, were recognized with effect from 25-1-2006 and transactions carried out only on the recognized exchanges will be eligible for the benefit of section 43(5)(d) but since the co-ordinate Bench had decided that the law is applicable from the assessment year 2006-07 onwards, respectfully following the aforesaid decision, it was to be held that the transactions in derivatives carried out in the previous year relevant to the assessment year 2006-07, i.e., from 1-4- 2005 to 31-3-2006 will be eligible for the benefit of section 43(5)(d).
V. [2009] 34 SOT 439 (DELHI) IN THE ITAT DELHI BENCH 'B' G.K. Anand Bros. Buildwell (P.) Ltd. v. Income-tax Officer, Ward-12{2), New Delhi
Section 43(5), read with section 28(i), of the Income-tax Act, 1961 - Speculative transactions - Assessment year 2006-07 -
ITA No. 331/Asr./2018 18 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. Whether loss arising in future and option transaction carried out in a recognized stock exchange is to be treated as a business loss and not as loss in speculative business - Held, yes
The recognized stock exchange means a recognized stock exchange as notified by the Central Government for this purpose. Therefore, even if the notification is from 25-1-2006 as per clause (d) inserted, the same will apply to all the transactions in relation to the assessment year 2006-07 and onwards. Clause (d) does not mention that unless the recognized stock exchange is notified, the transaction will not be deemed to be a speculative transaction. The power to notify the stock exchange is granted under the statute and hence, once the recognized stock exchange is notified, the same will apply in respect of all eligible transactions carried out in relation to the financial year relevant to the assessment year 2006-07 and onwards. The notification dated 25-1-2006 is by way of a subordinate legislation but cannot override the principal legislation enacted by the Parliament. It only clarifies but will not override unless statutorily so prescribed. Since there was no dispute to the fact that the transactions, in the instant case, in future and option segment were the eligible transactions carried out in a recognized stock exchange, loss in such transactions could not be deemed to be loss in the speculation business. Therefore, the loss-in-question was to be treated as a business loss and not as loss in speculation business.
ITA No. 331/Asr./2018 19 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. 28. Case of the Appellant is identical to above situation, even this time condition and procedure for applying were announced vide Notification no. 51 on 4-7-2013 vide Rule 6DDC, Rule 6DDD and form 3BC (ITA 6534 / 2012). Therefore, just because NCDEX was notified on 27-11-2013 will not make all transactions for entire period from 1-4-2013 till 26-11-2013 as made on unrecognized association. It is therefore submitted that for the 1st year of such amendment the date of notification is not important since it is impossible to even apply for getting notified before the guidelines are prescribed. Therefore, exclusion from the definition of speculative transaction would apply for the full year in respect of those recognized associations, irrespective of the date of approval during the year. The trading in commodity futures / derivative on NCDEX carried by assessee Company in this case be treated as non-speculative even for the period prior to its notification as recognized association i.e. transactions from 1-4-2013 till 26-11-2013.
However, AO contended that NCDEX was not a "recognized association" during the period when the company traded on it. In this regard it is submitted that it was very much a recognized association from the beginning of the F.Y. 2013-14 only, even much before 01.04.2013. As per explanation in 2 to Section 43(5) for the purpose of clause (e) the expression "Recognised Association" means as below: "recognised association" means a recognised association as referred to in clause (j) of section 2 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and which fulfills such conditions as may be
ITA No. 331/Asr./2018 20 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. prescribed and is notified by the Central Government for this purpose." 30. From the above it is clear that the entity should be "recognised association" as per section 2Q) of the Forward Contract (Regulation) Act, 1952 and not under Income Tax Act as such. Therefore, the transactions carried by the assessee were definitely on a recognized association only. Plain reading of clause (e) to the proviso to section 43(5) makes it clear that with effect from 1-4-2013, only those eligible transactions carried in commodity derivatives which are carried out in a recognized association, shall not be deemed to be speculative transactions. The conditions for an entity required to fulfill for being notified as recognized association for the purposes of clause (e) to section 43(5) were inserted by Income- tax 9th amendment Rules, 2013 with effect from 04-07-2013. These conditions as per rule 6DDC of Income-tax Rules, 1962 were at the relevant time were as under (Conditions that a recognised association is required to fulfill to be notified as a recognised association for the purposes of clause (e) of the proviso to clause (5) of section 43. 6DDC. For the purposes of douse (e) of the proviso to clause (5) of section 43, a recognised association shall fulfill the following conditions in respect of trading in derivatives, namely (i) the recognised association shall have the approval of the Forward Markets Commission established under the Forward Contracts (Regulation) Act, 1952 (74 of 1952) in respect of trading in derivatives and shall function in accordance with the
ITA No. 331/Asr./2018 21 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. guidelines or conditions laid down by the Forward Markets Commission; (ii) the recognised association shall ensure that the particulars of the client (including unique client identity number and PAN) are duly recorded and stored in its databases; (iii) the recognised association shall maintain a complete audit trail of all transactions (in respect of derivative market) for a period of seven years on its system; (iv) the recognised association shall ensure that transactions (in respect of derivative market) once registered in the system are not erased; (v) the recognised association shall ensure that the transactions (in respect of derivative market) once registered in the system are modified only in cases of genuine error and maintain data regarding all transactions (in respect of derivative market) registered in the system which have been modified and submit a monthly statement in Form No. 3BC to the Director General of Income-tax (Intelligence and Criminal Investigation), New Delhi within fifteen days from the last day of each month to which such statement relates.
Rule 6DDD provides the procedure for notification as required under Explanation 2 to section 43(5). This procedure is laid down as under:— "Notification of a recognised association for the purposes of clause (e) of the proviso to clause (5) of section 43. 6DDD. (1) An application for notification of a recognised association (as per clause (]) of section 2 of the Forward Contracts (Regulation) Act, 1952) as
ITA No. 331/Asr./2018 22 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. a recognised association for the purposes of clause (e) of the proviso to clause (5) of section 43 may be made to the Member (Legislation), Central Board of Direct Taxes, North Block, New Delhi. (2) The application referred to in sub-rule (1) shall be accompanied with the following documents, namely:- (i) approval granted by Forward Markets Commission for trading in derivatives; (ii) up-to-date rules, bye-laws and trading regulations of the recognised association; (iii) confirmation regarding fulfilling the conditions referred to in clause (ii) to clause (v) of rule 6DDC; (iv) such other information as the recognised association may like to place before the Central Government. (3) The Central Government may call for such other information from the applicant as it deems necessary for taking a decision on the application (4) The Central Government, after examining the information furnished by the recognised association under sub-rule (2) or sub-rule (3), shall notify the recognised association as a recognised association for the purposes of clause (e) of the proviso to clause (5) of section 43 or issue an order rejecting the application before the expiry of four months from the end of the month in which the application is received. (5) The notification referred to in sub-rule (4) shall be effective until the approval granted by the Forward Markets Commission is withdrawn or expired, or the notification is rescinded by the Central Government.]" 32. A combined reading of the provision of clause (e) to proviso to section 43(5) and the Explanation 2 to section 43(5)
ITA No. 331/Asr./2018 23 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. and above rules 6DDC and 6DDD indicate that an recognized association should be as referred to clause (j) of Section 2 of the FCRA, 1952 and further they are required to keep record of particulars of the clients, complete audit trail of all transactions and that such are not erased or modified as per Rule 6DDC. On an application filed with CBDT along with particulars as given in rule 6DDD, such recognized association will be notified as recognized association for the purpose of clause (e) to proviso to sub-section (5) of section 43. Therefore, it is undisputed that rule 6DDD is only procedural in nature. When a rule or provision does not affect or empower any right or create an obligation or only relates to procedures, then it is deemed to be retrospective otherwise such inference is likely to lead to absurdity. The notification issued under rule 6DDD does not empower any right or create obligation but only recognizes what is already in existence.
It is not a case that NCDEX was created after 27-11-2013 and, therefore, transactions could not have been carried out through them and, therefore, transactions carried out prior to this date would also be covered for being treated as non- speculative. In other words if transactions in derivatives are carried out through recognised associations which are already in existence during assessment year 2014-15 i.e., financial year 1-4-2013 & 31-3-2014 onwards and which are subsequently recognized under rule 6DDD and there is no allegation that such transactions or the recognized association has violated any condition prescribed under rule 6DDD then such recognition by CBDT would also cover transactions carried from the date sub clause (e) inserted. Therefore, from the
ITA No. 331/Asr./2018 24 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. above it will be very clear that the notification dated 27.11.2013 would be applicable for entire assessment year 2014-15 and not to the part assessment year. This interpretation will be correct because rules are supplemental to the main act and such sub ordinate legislations cannot override the principle legislation enacted by the Parliament. Therefore, the loss claimed by the assessee of Rs. 4,69,47,808/- should be treated as business loss and not as speculative loss.
In support of the above discussion the Appellant also submits that Section 2 of The Forward Contract(Regulation) Act, 1952 should be referred to (copy enclosed).
In view of our submission as well as various judicial pronouncements in which such identical view discussed and clarified the Appellant submits that NCDEX was a recognized association for the entire A.Y. 2014-15.
Issue discussed with reference to applicability of provision of section 43(5)(e) to transaction which is chargeable to Commodity Transaction Tax. As far as applicability of Commodities Transactions Tax is concerned, such requirement in the main section was inserted only by Finance Act (No.2) of 2014 passed on 6-8-2014. The provisions as on the 1st day of the assessment year as existed in the Act can be applied to the assessment of transactions for the entire previous year. Since, such requirement was not there even during the period when the transactions were carried on by the Appellant as well as on 1-4-2014 such amendment carried at a later date should not be made applicable to the transactions
ITA No. 331/Asr./2018 25 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. carried by Appellant. Applicability of the condition that transactions chargeable to CTT will be non- speculative, will not be applicable in the case of Appellant because such a condition was not in existence in the Income Tax Act itself during the period when these transactions were carried on. One of the amendments carried out by the 2013 budget was the introduction of Commodity Transaction Tax (CTT), effective 1 July 2013. Simultaneously, the budget amended the definition of speculative transaction under income tax laws to exclude commodity derivative transactions carried out in a recognized commodity association ("recognized commodity exchange") and inserted sub-clause (e) in the following manner: “As amended by Finance Act, 2013: The following clause (e) shall be inserted in proviso to clause (5) of section 43 by the Finance Act, 2013, w.e.f. 1-4-2014: "(e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognized association. shall not be deemed to be a speculative transaction." As a correct interpretation of above newly inserted section 43(5)(e) would be that this exclusion would apply to all commodity derivatives transactions in agricultural as well as non-agricultural commodities and not just non-agricultural commodity derivatives, which are subject to CTT.” 37. Since this amendment was effective from assessment year 2014-15, it would naturally apply to all transactions on or after 1 April 2013. This would also mean that all commodity derivative transactions are no longer to be treated as
ITA No. 331/Asr./2018 26 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. speculative transactions. Unfortunately, tax law makers do not believe in keeping things simple, they amended same section in August 2014 as below: “Section 43(5)(e) was next amended as under in August 2014 As amended by Finance Act (No. 2) Act, 2014: (the highlighted portion was inserted in August 2014). (e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognized association [which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013)]”. If the above insertion is correctly interpreted then, it would be very clear that said amendment is not applicable to the transactions made by the assessee since they were prior to its insertion of the same in the statute itself and therefore benefit endowed by the statute initially has to be given to the assessee. In conclusion, as per the provisions of Income Tax Act, as stood/existed on 01.04.2014, the only requirement for treating the transaction in respect of trading in commodity derivatives to become eligible and treated as non-speculative was that it should be carried out in a recognized association. The NCDEX in the case of Appellant was already a recognized association on 01.04.2014 (w.e.f. 27.11.2013), therefore transactions carried out in entire previous year will be eligible transactions and be treated as non-speculative (stressed).” 38. In fact when in CTT Act was introduced vide F A 2013 there was a proposal to amend section 36 due to insertion of CTT in FA 2013 to allow CTT as business expense but nowhere it hinted that it can impact benefit granted by newly inserted Sub-clause (e) to Section 43(5)... Kindly refer following part of CTT Act introduced-
ITA No. 331/Asr./2018 27 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. -(CTT Act is attached herewith in Annexure-2). "This amendment in section 36 of the Income-tax Act will take effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years. [Clauses 6,105 to 124]" There was no mention or proposal to amend section 43(5)(e) in CTT Act 2013 which was only inserted in August 2014 vide F A (No.2) 2014. 39. The specific amendment w.r.t. chargeability of CTT was brought in the Act only in FA (No. 2) in August 2014, but all such transactions of assessee were already carried almost one year before that date. Condition of chargeability of CTT was absent rather did not exist in the Act as on 01.04.2014. Therefore, the question of chargeability of CTT in this case cannot be made applicable to the transactions carried out in previous year relevant to the assessment year beginning on 01.04.2014.
As per Page no. 83 of the 7th edition of Shri Nani Paikhiwala, law to be applied is that in force in assessment year- “Though the subject of the charge is the income of the previous year, the law to applied is that in force in the assessment year, unless otherwise stated or implied; and any amendment which is in force at the beginning of the relevant assessment year must govern the case though the Income- Tax Act as it stands amended on the 1st April of a financial year must apply to the assessment of that year. Any amendments in the Act, which come into force after the 1st April of a financial year, would not apply to the assessment for that year, even if the assessment
ITA No. 331/Asr./2018 28 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. is actually made after the amendments come into force." This principle is also applied in the cases of CIT v Scindia Steam Navigation Co Ltd 42 ITR 589 (SC) & Karimtharuvi Tea Estates Ltd v State of Kerala 60 ITR 2S2 (SC). Two important paragraphs from the judgement by the Hon'ble Supreme Court are reproduced for reference: "Now, it is well-settled that the Income-tax Act, as it stands amended on the first day of April of any financial year must apply to the assessments of that year. Any amendments in the Act which come into, force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force.” “The learned judges held that as it was the Finance Act of 1946 that imposed the tax for the assessment year 1946-47, the total income had to be computed in accordance with the provisions of the Income-tax Act as on April 1, 1946; that as the amendments made by the Amendment Act of 1946 with effect from may 4, 1946, were not retrospective, they could not be taken into consideration merely because the assessee was assessed after that date ; and that the assessee was not liable to pay tax on the sum because the fourth proviso to section 10(2)(vii) of the Income-tax Act under which it was sought to be taxed was not in force in respect of the assessment year 1946-47.” 41. Now, if the present case is perused through further, then it is clear that the Company had transacted only between May 2013 till August 2013 and did not venture further due to heavy losses and change in business plan. The provisions of applicability of CTT did not exist during the entire period during which the Company had carried these transactions. If we do something today, we feel that the law applicable to it
ITA No. 331/Asr./2018 29 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. should be the law in force today, not tomorrow's backward adjustment of it. Therefore, it will be very unfair to deny the benefits existed on the date of actual conduct of business activity. The assessee cannot be pushed to perform impossible task or at no point of return by making a subsequent amendment.
Now it is a well settled rule of interpretation hallowed by time and sanctified by judicial decisions that, unless the terms of a statute expressly so provide or necessarily require it. retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than as regards matters of procedure. It is well settled that there is no equity about tax. If the provisions of a taxing statue are clear and unambiguous, full effect must be given to them irrespective of any consideration of equity. Where, however, the provisions are couched in language which is not free from ambiguity and admits of two interpretations a view which is favourable to the subject should be adopted. In fact such an interpretation is also in consonance with ordinary notions of equity and fairness would further fortify the court in adopting such a course, {reference from case: [1976] 105 ITR 179(SC) CIT v. Madho Pd. Jatia}.
To summarise, as on 1-4-2014 the Act only required that the transactions carried out on recognized association will be deemed as non-speculative and NCDEX fulfilled all conditions during the period when there were no rules prescribed as well as the period after they were prescribed clearly establishes
ITA No. 331/Asr./2018 30 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. that transactions carried for full year should be treated as non- speculative. Observation of Ld. AO that Appellant carried this business for the 1st time and it was not regularly engaged in trading in commodities trading is out of context and relevance. Infact, the Appellant Company is engaged into trading for more than 25 years and has full liberty to start any line of business at any point of time. The Act / Section nowhere states that the provision would be applicable only to the person who has carried such transactions in the past and not to the first timer. The case laws submitted by the Appellant were on identical issue of applicability of relevant rules and notifications which arose when section 43(5)(d) was introduced by Finance Act 2005.
Observation of Ld. AO that it was the intention of the legislature to keep trading in agricultural commodities derivatives away from the normal business transactions is totally wrong, without any basis and it is contrary to any logical inference, that can be drawn from exact wordings of the section as well as budget speech of Finance Minister which nowhere made any distinction between trading in agricultural or non-agricultural commodities derivatives, especially till specific amendment was brought in on 8th August 2014 vide Finance Act (No.2). The Appellant therefore prays that the loss of Rs. 4,69,47,808/- from trading in Commodities Derivatives be allowed as business loss and not the speculative.
The DR submitted that Authorized Reprehensive of the Assessee has raised the point that commodities transaction tax is not applicable to agriculture Commodities. This itself made it
ITA No. 331/Asr./2018 31 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. clear that the said transactions in the commodity derivatives are speculative, as it was very much clear that the legislation intended to keep these transactions (dealing in agricultural derivatives commodities) as speculative transactions. The Assessing Officer has also raised this point in Para 4 on Page 16 of Assessment Order.
The Authorized Representative of the assessee has stated that the transactions have been carried out much before the amendment date of law related much before to applicability of CTT. In this regard, it is being submitted that the audit u/s 44AB was conducted after the date of amendment and even if the P & L A/c was framed, the extraordinary item of loss in trading in commodities derivatives could have been added to the returned Income in the computation of income. In addition to these submissions reliance is being placed on the assessment Order of the Assessing Officer and Appellate Order of the Commissioner of Income Tax (Appeals).
In the rejoinder, the AR of the assessee submitted that transactions in commodities derivatives are held as non speculating w.e.f. 01.04.2013 by inserting sub clause (e) to Sec.43(5) of I.T. Act, 1961. Impugned transactions were carried from 21.05.2013 to 22.08.2013. Condition of chargeability of CTT was notified by amendment on 06.08.2014 and thus, income tax act nowhere provided for such compliance on the date when transactions were carried out or even on the first day of assessment year i.e. 01.04.2014. Since agricultural commodities are not liable for CTT appellant was not required to pay CTT therefore, it was pointed out and
ITA No. 331/Asr./2018 32 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. stated that condition of charging CTT cannot be applied in appellant’s case in the given circumstances.
Since appellant fully acted upon certain provision that existed in the act on the date when transactions were carried in 2013, the principle of promissory estoppel would prevail for which reliance is placed in Motilal Padampat Sugar Mills vs. Estate of U.P. (SC) (118 ITR Page 326 Internal Page 361).
The question of making disallowance of loss from commodity derivatives in the returned income at the time of conducting tax audit u/s.44AB does not arise since the loss was genuinely an allowable business loss.
We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case, the undisputed facts are that the assessee has suffered loss of Rs.4,69,47,808/- in trading in agricultural based commodity derivatives during the period 21.05.2013 to 22.08.2013. The assessee claimed the above loss as non-speculative loss and set off the same against other business income in the return of income filed for the assessment year 2014-15.
The AO has not allowed set off of this loss and treated the same as speculative business loss.
On appeal, the CIT(A) confirmed the action of the AO.
The above loss was treated as speculative loss on the ground that NCDEX association in which the said trade was
ITA No. 331/Asr./2018 33 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. carried out was notified as a recognized association u/s 43(5)(e) of the Act vide notification dated 27.11.2013 and the relevant trade was carried out during the period 21.05.2013 to 22.08.2013; secondly, Commodity Transaction Tax (CTT) was not paid in respect of the above transactions.
We find that clause (e) to Section 43(5) of the Act was inserted into the statue w.e.f. 01.04.2014 and therefore, the said provision was applicable w.e.f. assessment year 2014-15 and was in force during the year under consideration. Section 43(5) of the Act provides definition of speculative transaction giving rise to speculative income or speculative loss as a transaction of purchase of sale of commodity including share, etc. which is settled otherwise than by actual delivery.
However, certain exceptions have been provided in the first proviso of the said section itself. By virtue of this proviso, the transactions described in the proviso even when settled otherwise than by actual delivery, the same are treated as non-speculative. The Clause (e) of the said proviso as inserted w.e.f. 01.04.2014 reads as under: “Explanation 2. – For the purposes of clause (e), the expression- (i) “commodity derivative” shall have the meaning as assigned to it in Chapter VII of the Fianance Act, 2013; (ii) “eligible transaction” means any transaction,- (A) carried out electronically on screen-based systems through member or any intermediary, registered under the bye-laws, rules and regulations of the recognized association for trading
ITA No. 331/Asr./2018 34 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. in commodity derivative in accordance with the provisions of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and the rules, regulations or bye-laws made or directions issued under that Act on a recognized association; and (B) which is supported by a time stamped contract note issued by such member or intermediary to every client indicating in the contract note, the unique client identity number allotted under the Act, rules, regulations or bye-laws referred to in sub-clause (A), unique trade number and permanent account number allotted under this Act: (iii) “recognized association” means a recognized association as referred to the clause (j) of section 2 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and which fulfils such conditions as may be prescribed and is notified by the Central Government for this purpose:” 56. The contention of the Revenue is that though the provision was inserted w.e.f. assessment year 2014-15 but as the recognized association was notified by the notification dated 27.11.2013, the eligible transaction entered into prior to that date will not quantify as non-speculative transaction.
We find that similar issue arose before the Hon’ble Delhi High Court in the case of CIT Vs NASA Finelease Pvt. Ltd. reported in 358 ITR 305 (Del.) wherein in relation to clause (d) of first proviso to Section 43(5) of the Act which was inserted w.e.f. assessment year 2006-07 and the recognized stock exchange was notified vide notification dated 25.01.2006 and therefore, the transaction which were otherwise eligible during the period 01.04.2005 to the date of notification were to be treated as non-speculative or not was decided as under:
ITA No. 331/Asr./2018 35 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. “7. The factual position is not in dispute. NotificationNo.2/2006 dated 25thJanuary, 2006, issued by the Central Board of Direct Taxes does not specify any particular date and simply notifies the National Stock Exchange India Ltd. and Bombay Stock Exchange, Mumbai under proviso (d) to clause (5) to Section 43of the Act. The said proviso had become applicable with effect from 1stApril, 2006.Issue of notification obviously had to take some time as it involved processing and examination of applications etc. This was a matter relating to procedure and the delay in issue of notification or even framing of the Rules was due to administrative constraints. We agree with the tribunal that the delay occasioned, as procedure and formalities have to be complied with, should not disentitle and deprive an assessee, specially, when the transactions were carried through a notified stock exchange. The aforesaid delay is not attributable to the assessee. The notification, therefore, merits acceptance and should be given retrospective effect. Notification was procedural and necessary adjunct to the Section enforced with effect from 1stApril, 2006.The rule and notification issued in the present case effectuate the statutory and the legislative mandate. There is no good ground or reason why the notification in question should not be given effect from 1stApril, 2006.No reason or ground is alleged or argued to contend that National Stock Exchange India Ltd. could not and should not have been notified from 1stApril, 2006.” 58. A perusal of notification dated 27.11.2013 notifying NCDEX as recognized association, the language employed therein was similar to the language employed in notification dated 25.01.2006 whereby National Stock Exchange of India Ltd., Bombay and Bombay Stock Exchange Ltd., Bombay where notified as recognized stock exchange for the purpose of clause (d). Therefore, respectfully following the above decision of the Hon’ble Delhi High Court, we hold that the notification will take effect during the entire previous year 2013-14 relating to assessment year 2014-15.
ITA No. 331/Asr./2018 36 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. 59. The next issue raised by the ld. DR was that no Commodity Transaction Tax (CTT) paid in respect of trading transaction of the assessee under consideration and therefore, the same does not quantify for being treated as non- speculative.
We find that it is not in dispute that the trading transactions of the assessee were in agricultural commodity derivatives. As per the provisions of law, no CTT is legally chargeable in respect of agricultural commodity derivatives. The ld. AR of the assessee drawn our attention to the Second proviso to Section 43(5) of the Act inserted by the Finance Act, 2018 which reads as under: “Provided further that for the purposes of clause (e) of the first proviso, in respect of trading in agricultural commodity derivatives, the requirement of chargeability of commodity transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013) shall not apply.” 61. The ld. DR pointed out that the above Second proviso was inserted w.e.f. 01.04.2019 and therefore, was not applicable in the assessment year 2014-15.
We find that vide inserting clause (e) in the First proviso to Section 43(5) of the Act, the Hon’ble Finance Minister stated in the Parliament as under: "149. There is no distinction between derivative trading in the securities market and derivative trading in the commodities market, only the underlying asset is different. It is time to introduce Commodities Transaction Tax (CTT) in a limited way. Hence, I propose to levy CTT on non-agricultural commodities future contracts at the same rate as on equity futures, that is commodities futures contracts
ITA No. 331/Asr./2018 37 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. at the same rates as on equity futures, that is at 0.001 per cent of the price of the trade. Trading in commodity derivatives will not be considered as 'speculative transaction' and CTT shall be allowed as deduction if the income from such transaction forms part of business income. As I said, agricultural commodities will be exempt." 63. Thus, from the speech of the Hon’ble Finance Minister at the time of insertion of clause (e), it is observed that all eligible transactions in all commodity derivatives were proposed to be treated as non-speculative transaction. The Hon’ble Finance Minister has not brought any distinction between agricultural commodity derivatives and non- agricultural commodity derivatives for this purpose. Thus, it shows that it was not intended to treat only non-agricultural commodity derivatives transactions as non-speculative transaction.
However, a condition was imposed in the section that all being treated as non-speculative transaction amongst several other transactions like time stamped contract note, distinctive trade number, transaction in a recognized association etc. was chargeable to CTT. However, CTT was not chargeable in respect of agricultural commodity derivatives. Thus, it transpires that an uninitiated consequence followed. That an otherwise eligible transaction in agricultural commodity derivative which satisfies all other substantial provisions of clause (5) of First proviso to Section 43(5) of the Act was still to be treated as speculative transaction because it was not subjected to CTT and as per the provision of law was not possible because CTT was not leviable in respect of agricultural commodity derivatives. To remove
ITA No. 331/Asr./2018 38 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. this unintended consequence, Second proviso to Section 43(5) of the Act was inserted which has already been quoted above. As per the Second proviso trading in agricultural commodity derivative that satisfies all other conditions specified in clause (5) will not be treated as speculative merely because the said transaction was not subjected to CTT.
In the above back ground, in our considered view, the Second proviso which has been inserted by the Finance Act 2018 is curative and therefore is to be treated as came into force from the date from which clause (5) itself was inserted in the statute i.e. with effect from 01.04.2014. Our above view finds support from the decision of the Hon’ble Supreme Court in the case of Allied Motors Pvt. Ltd. Vs CIT 224 ITR 677 (SC) wherein it was held that a proviso which is designed to eliminate unintended consequence which may cause undue hardship to the assessee and unjust in a specific situation is to be read as retrospective with effect from which the main section was inserted.
To the same effect is the decision of the Hon’ble Delhi High Court in the case of CIT Vs Ansal Land Mark Township Pvt. Ltd. 377 ITR 635 (Del.) wherein decision of the Agra Bench of the Tribunal in the case of Rajeev Kumar Agarwal Vs Addl.CIT (2014) 34 ITR (T) 349 (Agr.) was confirmed wherein it was held that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically by the statue. It was held that Second proviso to Section 40(a)(ia) of the Act must be given retrospective effect of the point of time when the
ITA No. 331/Asr./2018 39 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd. related legal provision was introduced. Thus, in view of the above discussion as in the instant case, it is not in dispute that the assessee’s transactions in agricultural commodity derivative were otherwise eligible transaction within the meaning of Section 43(5)(e) of the Act, we set aside the orders of the lower authorities on this issue and direct the AO to treat the loss of Rs. 4,69,47,808/- in said transaction as non- speculative business loss and accordingly allow set off of the same from other business income as per law. Thus, this ground of appeal of the assessee is allowed.
As we have adjudicated the appeal of the assessee itself and allowed the same in favour of the assessee, the Stay Petition filed by the assessee has become infructuous and accordingly the same is dismissed.
In the result, the appeal of the assessee is allowed and the Stay Petition of the assessee is dismissed. (Order Pronounced in the Open Court on 19/03/2019)
Sd/- Sd/- (N. K. Choudhry) (N. S. Saini) Judicial Member Accountant Member Dated: 19/03/2019 *Subodh* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT
ASSISTANT REGISTRAR