2009-VIL-340-ITAT-DEL
Equivalent Citation: [2009] 34 SOT 439 (DELHI)
Income Tax Appellate Tribunal DELHI
IT APPEAL NO. 2870 (DELHI) OF 2009
Date: 01.10.2009
GK. ANAND BROS. BUILDWELL (P.) LTD.
Vs
INCOME-TAX OFFICER, WARD-12(2), NEW DELHI
BENCH
I.P. BANSAL AND DEEPAK R. SHAH, JJ.
JUDGMENT
Deepak R. Shah, Accountant Member. - This appeal by the assessee is directed against the order of the learned Commissioner of Income-tax (Appeals)-XV, New Delhi, dated 29-5-2009 in an appeal against assessment framed under section 143(3) of the Income-tax Act (‘the Act’).
2. The only issue raised in this appeal is against disallowance of loss on future and option transaction carried at the stock exchange by treating the same as speculation business loss.
3. The assessee is carrying on business as builder, developer and contractor. During the year it has also done trading in shares by way of future and option transactions. This resulted into a loss of Rs. 20,36,328, The Assessing Officer was of the opinion that loss in future and option segment is to be considered as speculation loss in terms of section 43(5) read with Explanation to section 73. The assessee submitted that the transactions are carried on through a broker M/s. Marck Securities Pvt. Ltd. who is a registered member of National Stock Exchange. The speculative transaction is defined in section 43(5). Clause (d) of the Proviso to section 43(5) provides, "an eligible transaction in respect of trading in derivatives referred to in Securities Contracts (Regulation) Act, 1956 carried out in a recognized stock exchange, shall not be deemed to be a speculative transaction." The phrases "eligible transaction" as also "recognized stock exchange" is defined in Explanation below the Proviso to section 43(5). It was also noted that clause (d) is inserted in the Proviso by Finance Act, 2005 with effect from 1-4-2006. Accordingly, for assessment year 2006-07 the transaction in the derivatives in the form of future and option cannot be considered as speculative transaction and hence loss in such transac- tion cannot be classified as loss in speculation business. The Assessing Officer held, that the transactions are carried on at National Stock Exchange and Bombay Stock Exchange. Bombay Stock Exchange Ltd. and National Stock Exchange of India Ltd. are recognized Stock Exchanges as per Notification dated 25-1-2006. Therefore the transactions in F&O segment prior to 25-1-2006 are regarded as speculative loss.
The learned CIT(A) held as under :—
"1.3 I have considered the submission of the appellant, the findings of the Assessing Officer and the facts on record. As far as the contention of the appellant that F&O/derivative transaction incapable of physical delivery and hence outside the scope of section 43(5) on the basis of the decision of Mumbai Tribunal in RBK Securities Limited (IT Appeal No. 2465/Mum./2006), DCIT v. SSKI Investors Services Private Limited (ITA No. 3182/Mum./2004), P.S. Kapoor v. ACIT 29 SOT 587 , in the first 2 of the decisions, the assessment year involved was prior to assessment year 2006-07. It was during assessment year 2006-07 that amendment to section 43(5) was made by inserting clause (d) thereto. In case of P.S. Kapoor ( supra), it was only held that the provisions of section 43(5)(d) was clarificatory and hence retrospective. In the appellant’s case, the assessment year involved is assessment year 2006-07. Accordingly, section 43(5)(d) read with Notification No. 2/2006, dated 25-1-2006, and Explanatory Memorandum in respect of Notification SO 89(E), dated 25-1-2006 would apply. Although section 43(5) inserted by Finance Act, 2005 is operative for assessment year 2006-07, since the rules thereto i.e., Rule 6DDA and Rules 6DDB were notified on 1-7-2005, and thereafter the Notification mentioning recognition of BSE and NSE for the purposes of the amended section 43(5) came about on 25-1-2006, the eligible transaction in respect of trading in derivative in the recognized stock exchange shall not be deemed to be a speculative transaction only with effect from 25-1-2006. This is the import of Notification No. 2/2006, dated 25-1-2006. Accordingly I hold that the appellant’s derivative transaction up to and including 24-1-2006 for the year under appeal should be construed as speculative transaction within the meaning of section 43(5) of the Act."
The assessee is in further appeal before us.
4. At the time of hearing the learned counsel for the assessee Shri Kapil Goyal submitted that the issue is covered by the decision of Special Bench of the Tribunal at Kolkata in Shree Capital Services Ltd. v. Asstt. CIT [IT Appeal No. 1294 (Kol.) of 2008, dated 31-7-2009]. The Tribunal in the said case held that clause (d) of section 43(5) is prospective in nature and will be effective from the date from which the Legislature made it effective, i.e., 1-4-2006 and will be applicable to assessment year 2006-07 onwards. The learned DR Ms. Ruchika C. Govil on the other hand, relied upon the observations of the learned Commissioner (Appeals).
5. We have considered the rival submissions. Section 43(5) defined ‘speculative transaction’ means a transaction in which a contract for the purchase or sale of any commodity including stocks and shares is periodical or ultimately settled otherwise than by the actual delivery or the transfer of commodity or scrips. Proviso below section 43(5) carves out exceptions to section 43(5). As per clause (d) of the said Proviso "an eligible transaction in respect of trading in derivatives referred in Securities Contracts (Regulation) Act, 1956 carried out in a recognized stock exchange shall not be deemed to be a speculative transaction." Clause (d) in the Proviso was inserted by Finance Act, 2005 with effect from 1-4-2006. Therefore, if a transaction falls within clause (d) of the Proviso will not be deemed to be a speculative transaction in respect of transaction pertaining to assessment year 2006-07. Under clause (d) of the Proviso, a transaction is not a speculative transaction provided it is an eligible transaction within the meaning of clause (i) of Explanation and it is carried on at recognized stock exchange as explained in clause (ii) of the said Explanation below Proviso to section 43(5)(d). 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 a particular date, as per clause (d) inserted, the same will apply to all the transactions in relation to 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 financial year relevant to assessment year 2006-07 and onwards. The Special Bench of Tribunal in the case of Shree Capital Services Ltd. (supra) in Para 7 held that "clause (d) of section 43(5) is prospective in nature and will be effective from the date from which the Legislature made it effective, i.e., 1-4-2006 and will be applicable to assessment year 2006-07 onwards". The notification is by way of a subordinated Legislation but cannot override the principal Legislation enacted by the Parliament. It only clarifies but will not override unless statutorily so prescribed. Since there is no dispute to the fact that the transactions in the present case in F&O segment are the eligible transactions carried out in a recognized stock exchange, loss in such transactions cannot be deemed to be transaction in speculation business. The same being considered as regular business transaction, loss incurred in the same is to be treated as business loss and not loss in speculation business.
6. In the result, the appeal is allowed.
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