TaxTMI 
TaxTMI 
2017 (8) TMI 1316
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....om 01.04.2006." D.B. Income Tax Appeal No.623/2009 admitted on 04.11.2009 "(i) Whether in the facts and circumstances of the case the ITAT was justified in law in holding that amendment of clause (d) of proviso to Section 43(5) is retrospective which excludes derivative transactions from the definition of speculation transaction despite the fact that the amendment made by the finance Act 06 clearly says that it would be applicable for Assessment Year 06-07 and onwards? (ii) Whether in the facts and circumstances of the case the ITAT was justified in law in holding that section 50C cannot be made applicable on agreement to sale giving liberty to assessee to undervalues the property and evade the tax as well as evade stamp duty?" 3. Mr. R.B. Mathur, counsel for the appellant has taken us to the definition of Section 43 (5) and more particularly to Clause (d) which came into force w.e.f. 01.04.2006 where notification was published on 25.01.2006 read with Rule 6DDA and 6DDB which reads as under:- 43 (5) "speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is perio....
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....42 of 1956), and which fulfils such conditions as may be prescribed and notified by the Central Government for this purpose. " 6DDA. Conditions that a stock exchange is required to fulfil to be notified as a recognised stock exchange for the purposes of clause (d) of proviso to clause (5) of section 43.-For the purposes of clause (d) of proviso to clause (5) of section 43, a stock exchange shall fulfil the following conditions in respect of trading in derivatives, namely :- (i) the stock exchange shall have the approval ofthe Securities and Exchange Board of India established under the Securities and Exchange Board of India Act, 1992 (15 of 1992) in respect of trading in derivatives and shall function in accordance with the guidelines or conditions laid down by the Securities and Exchange Board of India ; (ii) the stock exchange shall ensure that theparticulars of the client (including unique client identity number and PAN) are duly recorded and stored in its databases ; (iii) the stock exchange shall maintain acomplete audit trial of all transactions (in respect of cash and derivative market) for a period of seven years on its system ; ....
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....reading of Clause (d) to Section 43(5) makes it clear that with effect from 1/4/2006, only those eligible transaction in derivatives referred to under Section 2(ac) of 1956 Act which are carried out in a recognized stock exchange shall not be deemed to be a speculative transaction. It is only because, the transactions in derivatives referred to under Section 2(ac) of the Act carried out in a recognized stock exchange were covered under Section 43(5) of the Act, the legislature could exclude those transactions from the purview of Section 43(5) with effect from 1/4/2006. In other words, unless the transactions referred in Clause (d) were covered under Section 43(5), there would be no question of excluding those transactions from the purview of Section 43(5). 25. Chapter IV of the Act contains provisions relating to the computation of profits and gains of business or profession. Section 28 in Chapter IV of the Act inter alia provides that the profits and gains of any business or profession which are carried on by the Assessee at any time during the previous year shall be chargeable to income tax under the head 'profits & gains of business or profession'. Explanation 2....
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....nsactions only with effect from 1/4/2006. 37. The argument advanced on behalf of theAssessee that Clause (d) inserted to the proviso to Section 43(5) by Finance Act, 1995 with effect from 1/4/2006 is clarificatory and hence retrospective in nature, cannot be accepted, because, firstly, the legislature by Finance Act, 1995 has specifically provided that Clause (d) to the proviso to Section 43(5) shall come into operation prospectively with effect from 1/4/2006. Secondly, insertion of Clause (d) was not necessitated on account of the fact that the provisions of Section 43(5) were unworkable or interpretation of Section 43(5) resulted in unintended consequences. Thirdly, even after insertion of Clause (d), all transactions in derivatives are not taken outside the purview of Section 43(5). It is only those derivative transactions which are covered under Clause (d) are taken outside the purview of Section 43(5) and the rest of the transactions in derivatives would continue to be covered under Section 43(5) of the IT Act. In these circumstances, the argument that Clause (d) inserted to the proviso to Section 43(5) has retrospective effect cannot be accepted." 4. He has relied....
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....erwise innocent into a wager. Heading transactions are, however, to be distinguished from the speculative transactions, inasmuch as they are genuine transactions entered into for purposes of insuring against adverse price fluctuations. In hedging transactions neither delivery nor transfer is contemplated and yet they cannot be treated as speculative transactions in the commercial parlance. The technique of hedge trading is very pithily explained by a well known Economist, W R Natu, in his book Regulation of Forward Markets, at page 9, as under: The hedge contract is so called because it enables the persons dealing with the actual commodity to hedge themselves, i.e. to insure themselves against adverse price fluctuations. A dealer or a merchant enters into a hedge contract when the sells or purchases a commodity in the forward market for delivery at a future date. His transaction in the forward market may correspond to a previous purchase or sale in the ready market or he may propose to cover it later by a corresponding transaction in the ready market, or he may offset it by a reverse transaction on the forward market itself." 14. Considering the facts of the case, we....
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....taken by the Assessing Officer and CIT (A). 5. Mr. Sanjay Jhanwar, counsel for the respondent has relied upon the Supreme Court Judgment referred by the tribunal in the case of Allied Motors Pvt. Ltd. Vs. Commissioner of Income Tax CIT 224 ITR 677 (SC) wherein while considering the cae under Section 43B has held as under:- "8. This position is reinforced by a departmental Circular No. 550 : dated 1st of January 1990, )See Taxmann's Direct Taxes Circulars, Vol.4, 1995 edn., pp. 2. 1741, 2.1750): "AMENDMENT OF PROVISIONS RELATING TO CERTAIN DEDUCTIONS TO BE ALLOWED ONLY ON ACTUAL PAYMENT: 15.1. Under the existing provisions of Section 43B of the Income-tax Act 1961, a deduction for any sum payable by way of tax, duty, cess or fee, etc., is allowed on actual payment basis only. The objective behind these provisions is to provide for a tax disincentive by denying deduction in respect of a 'statutory liability' which is not paid in time. The Finance Act, 1987, inserted a proviso to Section 43B to provide that any sum payable by way of tax or duty, etc., liability for which was incurred in the previous year will be allowed as a deduction, if it is ac....
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.... in the well known words of Judge Learned Hand, one cannot make a fortress out of the dictionary; and should remember that statutes have some purpose and object to accomplish whose sympathetic and imaginative discovery is the surest guide to their meaning. In the case of R.B Jodha Mai Kuthiala v. Commissioner of Income-Tax, [1971] 82 ITR 570, this Court said that one should apply the rule of reasonable interpretation. A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole." 6. He has also referred to another decision in the case of Commissioner of Income Tax Kolkata-III Vs. Alom Extrusions Limited-(2009)319ITR306(SC) wherein the Supreme Court has held as under:- "15. We find no merit in these civil appeals filed by the Department for the following reasons: firstly, as stated above, Section 43B [main section], which stood inserted by Finance Act, 1983, ....
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....disallowed under Section 43B of the Act while computing the business income of the previous year? That was a case which related to Assessment Year 19841985. The relevant accounting period ended on June 30, 1983. The Income Tax Officer disallowed the deduction claimed by the assessee which was on account of sales tax collected by the assessee for the last quarter of the relevant accounting year. The deduction was disallowed under Section 43B which, as stated above, was inserted with effect from 1st April, 1984. It is also relevant to note that the first proviso which came into force with effect from 1st April, 1988 was not on the statute book when the assessments were made in the case of Allied Motors (P) Limited (supra). However, the assessee contended that even though the first proviso came to be inserted with effect from 1st April, 1988, it was entitled to the benefit of that proviso because it operated retrospectively from 1st April, 1984, when Section 43B stood inserted. This is how the question of retrospectivity arose in Allied Motors (P) Limited (supra). This Court, in Allied Motors (P) Limited (supra) held that when a proviso is inserted to remedy unintended consequences an....
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....#39;, operate from 1st April, 1988, when the first proviso was introduced. It is true that the Parliament has explicitly stated that Finance Act, 2003, will operate with effect from 1st April, 2004. However, the matter before us involves the principle of construction to be placed on the provisions of Finance Act, 2003. 16. Before concluding, we extract hereinbelow the relevant observations of this Court in the case of Commissioner of Income Tax. Bangalore v. J.H. Gotla reported in MANU/SC/0126/1985: [1985] 156 I.T.R. 323, which reads as under: 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., a result not intended to be subserved by the object of the legislation found in the manner indicated before, then 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 lit....
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....red and sometimes unsecured and that too for a defined period. The rights of the shareholders and debenture-holders are different as also their remedies. To the extent the comparison could bear between the two, the procedures are by and large the same for both in the matter of issue, allotment, transfers and forfeiture. Shares, therefore, are distinct from debentures, although in the usual parlance they both are grouped together in many legislations and referred to sometimes by the generic term of scrip. It is on account of their free transferability and marketability, they are referred together. The stamp duty on the share certificates and debenture certificates and on their transfers is totally different and bears no comparison. The incidents of debenture certificates as seen from our discussion above are different from the incidents of share certificates and hence bear no comparison. Therefore, there is no equation between shares and debentures except as referred to above. 24. Share has been defined in Section 2(46) ofthe Companies Act to mean a share in the share capital of a company which in turn would mean that it would represent contribution of the shareholder towards the....
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....The learned counsel for the respondent-assessee contended that the word commodity cannot include debenture because debenture is an instrument. Therefore, in view of the first part of the transaction, that purchase or sale of any commodity including stock and shares will not include debentures. Further, the learned counsel also relied on the same judgment for the proposition that no question of buying and selling of commodities arises when there is no allotment. In the present case, no allotment has been made and there is no dispute regarding the same. The learned counsel also relied the R.D. Goyals case cited supra, wherein the Apex Court has considered the scope of words "creation", issue" and "allotment" and paragraphs 38 and 39 reads as follows: 38. It was noticed: (SCC pp. 86-87, para 10) The words allot and distribute found in clause (b) of the resolution do not carry the matter further. Their meaning should be gathered from the context in which they were used. Clauses (b) and (c) of the resolution must be read harmoniously with clause (a). The word allotment has not been defined in the Companies Act. The meaning of the word allot or allotment will have to be gathered fr....
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....ment of Apex Court in R.D. Goyals (supra) case as well as the judgment of the Calcutta High Court in Nirmal Trading Co. (supra) cited supra, we are of the view that the transaction relating to the partial non-convertible security debentures will not come within the expression "commodity" or "shares" or "stocks" and since there was no allotment the question of purchase or sale will not arise. 8. The two tribunals, namely, Allahabad High Court and BombayHigh Court has taken the view in favour of the assesee which was not challenged by the department and in view of the observations made by the Supreme Court in the case of Radhasoami Satsang Vs. Commissioner of Income Tax-(1992)193 ITR 321 (SC) and more particularly in Para 13 and 14 it has been held as under:- "13. We are aware of the fact that strictly speaking res judicata does not apply to incometax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the or....