TaxTMI 
TaxTMI 
2019 (3) TMI 2011
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....ot 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 ....
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....reas 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. 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 6. The CIT(A) after considering the above arguments of the assessee observed that the moo....
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....ational Commodity and Derivatives Exchange Limited, Mumbai was approved on 27.11.2013 by Notification No. 90/2013. 9. 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 these transactions non-speculative and are saved by the proviso to the aforesaid section. 10. The appellant has quoted number of decisions given by different judicial for as 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 b....
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....igations 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. 14. 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. 15. 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 fo....
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....le 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. 20. 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. 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, eit....
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.... 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: "(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 me....
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.... 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 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 ....
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....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. 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 ....
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....ecognised 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 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 trans....
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....s 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) 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. 33. It is not a case that NCDEX was created after 27-11-2013 and, ther....
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....l 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-agricul....
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....on 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. 40. 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....
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.... 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}. 43. 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 that transactions carried for full year....
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.... 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). 47. 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 stated that condition of charging CTT cannot be applied in appellant's case in the given circumstances. 48. 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....
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....le 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 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 ....
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....yed 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. 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. 60. 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 tradin....
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....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 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. 65. 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 e....