Income Tax Appellate Tribunal - Amritsar
Mesers P.D Sekhsaria Trading Company , ... vs Deputy Commissioner Of Income Tax, ... on 19 March, 2019
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:
Thi s i s an appeal filed by the assessee agai nst the orde r of CIT(A), Bathi nda dated 26.03.2018.
2. The assessee has rai sed foll owi ng grounds of appeal :
"1. That on the facts and circumst ances of the case the addition/disallowance of Rs.4,69,47,808/- made 2 ITA No. 331/Asr./2018 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
by the AO and upheld by the CIT(A) is illegal, ba d 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 uph olding the t ran sactions on which the assessee suffered a loss of Rs.4,69,47,808/- t o be speculative transactions and hence impugned loss was not allowe d to be set off with normal business income.
3. That the CIT(A) has failed to a ppreciate the fact that the date of notification for recognizing the associati on (NC DEX) on which the transactions were carrie d out is immaterial and that the language and the intention of the IT Act sh ould prevail over th e Rules and notifications ( procedural laws) . Reasoning adopted for interpreting provisi ons of clause 'd' of secti on 43(5) are equ ally applicable for clause 'e' of section 43(5).
4. That the CIT(A) failed to appre ciate that prior t o getting notified for the purpose of section 43(5)(e) NCDEX was al ready a recogni zed associati on as pe r Section 2 of Forward Cont ract Re gulation Act, 195 2 since 20-11-2003.
5. That the CIT(A) has failed to a ppreciate the fact that the retrospe ctive amendment brought in Se c 43(5)(e) by the Finance (No.2) Act 2014 is n ot applicable to the appellant. It is well establishe d 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 t ransaction tax since the same wa s levied with retrospe ctive effect and much later than the dates of transactions.
7. That in any case the appellant was never lia ble to pay Commodities Transaction Tax since the appellant was trading in agricu ltural commodity derivatives and no CTT is payabl e on the same a s 3 ITA No. 331/Asr./2018 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 20 18 is clarificat ory and retrospective in nature.
9. That the AO and C IT(A) have failed to appreciat e that no CTT wa s paya ble in respect of the sai d trading in agricultural comm odities 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 mate rial available on re cord hav e not been prope rly conside red and judiciously interpreted.
11. The CIT(A) has failed to appreciate the wel l settled position of law on these issues and has grossly erred in ign oring the judicial decisi on s delivered by ITAT, High Court and Supreme Court on the issues.
12. That the additions have been made on basis of mere surmises and conje ctures and contrary t o 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 orde r a re illegal , ba d in law an d contra ry to facts on record.
14. That the AO has grossly erred in chargin g interest U/s 234A, 234B and 234C of the IT Act and the interest is also wrongly worked out."
3. The sol e i ssue i nvol ved i n thi s appeal i s that the CIT(A) has erre d i n confi rmi ng the di sall owance of l oss cl aimed on account of tra di ng i n commodi ty deri vati ve of Rs.4,69,47,808/- by treati ng the transacti ons carri ed on by the assessee 4 ITA No. 331/Asr./2018 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
between the peri od 21.05.2013 t o 22.08.2013 a s specul ati ve transacti on.
4. The bri ef facts of the case are that the Assessi ng Offi cer observed that these transacti ons were carri ed on NCDEX (the exchange) whi ch was accorde d recogni ti on on 27.11.2013 after the date of transacti on carri ed out by the assessee. Further, these transacti ons were not subjected to Comm odi ty Transacti on Tax (CTT) and therefore, are spe cul ati ve in nature.
5. The assessee i n appeal before the CIT(A) submi tted as under.
i . The Assessi ng Offi cer mi sunderstood that NCDEX was not recogni zed exchange whereas the same was recogni zed under forwa rd contract regul ati on Act.
ii . At the ti me of carryi ng out transacti on there was no commi tment for payment of commodi ty transacti on tax, the amendment was made effecti ve from 06.08 .2014 by the Fi nance Act o 2014.
iii . The Assessi ng Offi cer di d not appl y the provi si ons on assessment year basi s and shoul d have consi dered the factual posi ti on as appli cabl e on fi rst day of the assessment year i .e. 01.04.2014 when there was substanti al compli ance of each and every aspect.
i v. the noti fi ed rul es cannot be made effecti ve from every perspecti ve date.
v. Proce dural compli ance cannot overri de statute. vi . The Assessi ng Offi cer di d not appl y CIT Vs NASA Fi nl ease Pvt. Ltd. (2013) 358 ITR 305.
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vii . The noti fi cati on of recogni ti on of the exchange does n ot create any ri ght or li abili ty but it merel y recogni zes the eli gi bili ty.
vii . A number of judi ci al precedents/deci si ons were al so quoted.
ACIT Vs Arnav Akshya Mehta (2012) 25 taxman.com 252 Vi mal Oil Foods Ltd. Vs ACIT (201 1) 55 taxman.com 107
6. The CIT(A) after consi deri ng the above arguments of the assessee observed that the moot questi on i nvol ved i n thi s case was that the t ransacti ons ca rri ed out by the appel l ant duri ng the peri od 21.05.2013 to 22.08.2013 (pri or to approval of NCDEX on 27.11.2013) whi ch are i n the nature of tradi ng i n commodi ty deri vati ves are specul ati ve transacti ons wi thi n the meaning of Secti on 43(5) of the Income Tax Act or these are saved by cl ause (e) of the provi so appended t o the aforesai d secti on. The CIT(A) observed that a cl ose l ook at the provi si ons shows that the mai n body of the secti on shows tha t any transacti on whi ch i s settl ed otherwi se than by actual deli very/transfer of commodi ty woul d as a general pri nci pl e be treated as specul ati ve transacti on. However, there a re numbe r of excepti ons carved out of thi s general rul e provi so appended to thi s secti on gives the detail s. In the case of the appell ant, si nce the transacti ons have been done in commodi ty deri vati ves, therefore, sub cl ause (e) i s rel evant.
7. The provi si ons of Secti on 43(5)(e) of the Act has been brought on the statute book by w ay of the Finance Act, 2013 w.e.f. 01.04.2014. The necessa ry Fi nance Bill 2013 was i ntroduced i n Lok Sabha on 28.0 2.2013 and the Presi denti al 6 ITA No. 331/Asr./2018 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
Assent recei ved on 10.05.2013 . Thi s provi si on contained certai n rul es to be noti fi ed and therefore Rul es 6DDC and 6DDD were notifi ed on 10.05.2013. The CIT(A) obse rved that i t is to be noted that even though the Fi nance Bill 2013 i ntroduced Commodi ty Transacti on Tax and Commodi ty Deri vatives as Chapter VII but the word of chargi ng of CTT wa s mi ssi ng i n Secti on 45(5)(e) of the Act. After the i ntroducti on of the basi c provi si on, another i mportant and n oti ceabl e change was brought by the Fi nance Bill of 2014, i n these provi si ons that chargi ng of Commodi ty Transacti on Tax was made mandatory before extendi ng the benefi t of trading in these transacti ons as non-specul ati ve. He further observed that the amendment contai ned i n Fi nance Bill 2014 whi ch subsequentl y became Fi nance Act on noti fi cation on 06.08.2014 compl eted the enti re l egi sl ati on i n respect of transacti on of tra di ng in Commodi ty Derivati ves by provi di ng that onl y those transacti ons whi ch are CTT charged and carri ed out i n the eli gi bl e transacti on format on recogni zed associ ati on woul d be treated as non-specul ati ve.
8. The CIT( A) further went t o an d observe that i t i s a matter of fact that in the case of the present a ppel l ant the transacti ons were carri ed out at Nati onal Commodi ty and Deri vatives Exchange Li mi ted, Mumbai was approved on 27.11.2013 by Noti fi cati on No. 90/2013.
9. He observed that now the fact s as set out above, i t i scl ear that the transacti ons of the appel lant were carri ed out between the peri od 21.05.2013 to 22.08.2013 on a exchange whi ch was approved on 27.11 .2013. Thus, t he questi on that ari ses are 7 ITA No. 331/Asr./2018 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
these transacti ons non-specul ative and are saved by the provi so to the aforesai d secti on.
10. The appel l ant has quoted number of deci si ons gi ven by di fferent judi ci al foras rel ated to Secti on 45(5)(d) of the Act to buttress the poi nt that even in those ca ses the recogni ti on of the exchanges came subsequen tl y but the benefit of the provi si ons were extended to the transacti ons carri ed out on the earli er occasi on. A consi derabl e reli ance has been pl aced on ACIT Vs Arnav Akshay Mehta (20 12) 53 SOT 581 (Mum.) and the deci si on of CIT Vs NASA Fi nl ease Pvt. Ltd. (2013) 358 ITR
305. In these cases, i t was hel d that the appell ant was entitl ed to treat the transacti on as n on-specul ati ve even if the respecti ve exchanges have been recogni zed subse quentl y. The pri mary reasoni ng gi ven in these deci si ons was that the operati ons of the benefi ci al provi si ons come into pl ay the moment they are enacted; the rul es and noti fi cati ons are merel y subservi ent; any del ay caused i n i ssue of notifi cati ons cannot be put as an hi ndrance to the benefi ts to be gi ven to the appell ant.
11. The CIT(A) thereafter observed in hi s order that i t i s to be noted that Secti on 45(5)(d) of the Act i s para materi al to the provi si on rel ati ng to transact i on of tradi ng i n deri vatives carri ed out on a recogni zed stock exchange has been hel d as non-specul ati ve. However, i n respect of these transacti ons an d other eli gi bili ty test whi ch are requi red to be passed i s that they shoul d be compli ant to the provi si ons of the Securi ti es Contracts Regul ati on Act 1956. It goes wi thout sayi ng that that 8 ITA No. 331/Asr./2018 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
these transacti ons must as a pa rt of compl i ance to these Act woul d be STT pai d.
12. The CIT(A) observed that i t may be noted that Secti on 45(5)(d) of the Act was brought on the statute book by the Fi nance Act 2005 w.e.f. 01.04.2006. The securi ty transacti on tax whi ch is rel evant for these transacti ons was brought through the Fi nance Act 2004 and the exchanges deali ng wi th the securi ties have been i n pl ace for a l ong ti me. It cannot be l ost si ght that i n Secti on 45(5)(d) of the Act, the eli gi bl e transacti on has to compl y wi th the Securi ties Contract s Regul ati on Act 1956 because thi s statute has al so been menti oned i n the Secti on.
13. The CIT(A) further observed that the market of commodi ty transacti on was not that stabili zed as was the securi ty transacti on market. There was a rati onal behi nd prescri bi ng compli ance to the noti fi ed rules and approval s before treati ng the transacti ons of commodi ty deri vatives as non-specul ati ve. The courts have extended benefi t of the earli er peri od/pri or pe ri od to the securi ty transacti ons carri ed out duri ng the pe ri od even when the exchanges were not noti fi ed mi ght be based on the consi derati on that these transacti ons were watched by SE BI al so. A si mil ar el bow space i s not avail abl e i n the commodi ty transacti ons menti oned i n Secti on 45(5)(e) of the Act, therefore, any l everage provi ded to the transacti ons carri ed out duri ng the peri od the respecti ve stock exchange was found to be compli ant to the rul es and regul ati on mi ght be counter-producti ve. Even otherwi se i t will create two cl ass of transacti ons; one the transacti ons whi ch 9 ITA No. 331/Asr./2018 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
have been carri ed out on recogni zed exchange after the thorough i nvesti gati ons of i ts being compli ant and the other one woul d be set of transa cti ons whi ch are not certai nl y compl i ant and are in the area of doubt.
14. The CIT(A) further observed that i t was hel d that rul es and re gul ati ons are subservi ent to the mai n provi si on mi ght be true i n a case where the del egated l egi sl ati on merel y provi de the formal iti es. In the pre sent case, Rul es 6DDC and 6DDD provi des detai l ed condi ti ons of the audi t Trail requi red to be mai ntained el ectroni call y and to be transmi tted to the desi gnated authori ty. The Jai pur Bench of the Tri bunal i n the case of Prem Praka sh Uma Shan kar i n ITA No. 91/JP/2013, orde r dated 20.02 .2013 and i n ITA No. 599/JP/2013, orde r dated 11.08.2015 hel d that the recogni ti on was must for availi ng the benefit of the provi si ons.
15. The CIT(A) further observed that the deci si on in the case of CIT Vs NASA Fi nl ease Pvt. Ltd. (2013) 358 ITR 305 (Del .) was not appl i cabl e because that deci si on was gi ven in the context of Secti on 45(5)(d) of the Act where i t had menti oned i n para 5.7 about the systems of stock exchange was full y establi shed, therefore, Hon'bl e Court took a l enient vi ew i n respect of recogni ti on by CBDT and treated thi s as mere formal ity. However, i n the case of Secti on 45(5)(e) of the Act were not full y equi pped and ope rati onali zed,, therefore, any l axi ty i n permi tti ng transacti ons before the due dili gence i s li kel y to cause damage to Revenue.
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16. Further, i t was mandatory upon the appell ant to show that commodi ty transacti on tax had been pai d because the amendment made effecti ve retrospecti vel y from the date on whi ch Secti on 45(5)(e) of the Act came on statute book. Any transacti on on whi ch CTT was either not pai d or i t has not been expl ai ned to the AO wi th the hel p of documentary evi dence woul d not qualify for the protecti on under the aforesai d secti on. Such transacti on woul d be treated as spe cul ati ve. Hence, i n consi derati on of the di scussi on made above, the transacti on of the appel l ant are treated as specul ati ve and the ground of appeal i s di smi ssed.
17. The l d. AR of the asse ssee reli ed on hi s submi ssi on made before the AO and CIT(A).
18. The AR of the assessee submi tted that provi si ons of Secti on 43(5)(e) were made applicabl e for the fi rst ti me vi de Fi nance Act, 2013 appli cabl e w.e.f. 01.04.2014 i .e. A.Y. 2014- 15, to treat t ransacti ons of tra di ng i n commodi ty deri vati ves to be non-specul ati ve after 1.04.2013. Secti on 43(5)(e) was i nserted by Fi nance Act 2013 to provi de that tradi ng in Commodi ti es deri vati ves carri ed out i n recogni zed associ ati on will not be treated as specul ative from A Y 2014-15. NCDE X was al ready a "recogni zed associ ati on" as defi ned in secti on 2(j) of F orwa rd Contra ct (Regul ati on) Act, 1952 si nce 20-11- 2003 thus i t was al ready a recogni zed associ ati on duri ng the enti re previ ous year 2013-14 rel evant for AY 2014-15 and therefore, al l transacti ons carri ed by the Appel l ant on NCDEX were carri ed on recogni zed associ ati on onl y. Therefore, the date of NCDEX getti ng notifi ed as recogni zed associ ati on as per 11 ITA No. 331/Asr./2018 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
Income Tax Rul es i s i rrel evant for passi ng the benefi t of the secti on because getting notifi ed under Income Tax Rul es i s onl y a procedural matter whi ch cannot become hi ndrance t o pass on statutory benefi ts avail abl e to the Appell ant. In fact the procedure to be fol l owed for getti ng such recogni ti on was noti fi ed by CBDT on 04.07.2013.
19. In vi ew of the new amendment and as procedu ral part , Expl anati on 2 to secti on 43(5) provi ded for such recogni zed associ ati ons to ful fill certai n condi ti ons as may be prescri bed and get noti fied for the purpose . Rul e 6DDC and form 3BC were prescri bed on 4-7-2013 and NCDEX had appli ed for getti ng notifi ed and got i tsel f notifi ed on 27-11-2013. Therefore, t ransacti ons ca rri ed between 21-5-2013 till 22-8- 2013 were treated as specul ati ve. The BASIC fact that NCDEX was al ready an exi sti ng 'recogni sed associ ati on' since 20-11- 2003 was compl etel y i gnored.
20. The secti on nowhere states that such benefi t will be from the date it gets noti fied. Correct i nference from the Expl anati on 2 to secti on 43(5) whi ch provi ded that such recogni zed associ ati on to ful fill such condi ti ons as may be prescri bed cl earl y means that duri ng the peri od there are no rul es prescri bed for thi s purpose till then compli ance of sai d condi ti on i s not rel evant at all . In such proce dural matters what i s i mportant i s whether once procedu res are prescri bed thereafter whether they have been compli ed wi th or not, whi ch i n the given case of Appell ant NCDEX has very well compli ed wi th i n all respect.
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21. We hereby reproduce quote from 7 t h edi ti on of Shri Nani Pal khi wal a, "An authori ty cannot make rul es or i ssue noti fi cati ons adversel y affecti ng the assessee 's ri ghts wi th retrospecti ve effect, unl ess the statute, either expressl y or by necessary i ntendment, empowers the authori ty to do so. Thi s pri nci pl e has now recei ved statutory recogni ti on i n s. 295(4)." The same pri nci pl e i s enunci ated in the case of ITO v Ponnoose 75 ITR 174 (SC).
22. Secti on 295(4) restri cts the authori ty to make rul es that are appl i cabl e from retrospecti ve date. Accordi ng to Shri Nani Pal khi wal a si mil ar pri nci pl e will al so apply to Notifi cati ons made for maki ng rul es appli cabl e. In thi s case rel evant rul e 6DDC was i ntroduced on 4-7-2013 and thereafter onl y NCDEX coul d have appli ed for getti ng noti fied and got noti fi ed on 27- 11-2013. Obvi ously when there are no rul es or condi ti ons prescri bed, com pli ances cannot be made appl i cable to transacti ons carri ed duri ng the peri od when such rul es or condi ti ons were onl y not made by CBDT. Such addi ti onal condi ti on can be made appli cabl e onl y prospecti ve and i t i s just i mpossi bl e to apply to the peri od pri or to i ts exi stence. In fact such compl i ance woul d be of academi c purpose i n such a si tuati on. As per expl anati on i n 2 to Secti on 43(5) for the purpose of cl ause (e) the expressi on "Recogni sed Associ ati on"
means as bel ow:
"recognised a ssoci ation" means a recognise d associati on a s referred t o in clause (j) of se ction 2 of the Forwa rd Contracts (Regulation) Act, 1952 (74 of 1952) and which fulfills such conditions as may be prescribed and is notifie d by the Central Government for this purpose."13 ITA No. 331/Asr./2018
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23. In the present case NCDEX was al ready a "recogni sed associ ati on" si nce 20-11-2003, (refer Page no. 3 & 4 of pape r book- mai l recei ved from NCDEX). Thus the Appel l ant sati sfi ed the requi rement of the secti on as they exi sted on the date when the transacti ons were carri ed and obvi ousl y was not requi red to compl y any addi ti onal conditi on when i t was not prescri bed at all . Therefore, the compl i ance of condi ti on that such "recogni zed associ ati on" be noti fi ed as per the procedure s as may be prescri bed is onl y suppl emental to the mai n provi si on and may be l ooked upon mai n condi ti on only after the rul es are prescri bed for thi s purposes and not before that. Any procedural compl i ances cannot overri de mai n operati ve part of the secti on i tsel f. Del ay by CBDT i n prescri bi ng the Rul es i tsel f shows that the transacti ons till such date as veil as after such date will be non-speculati ve i f carri ed on recogni zed associ ati on as provi ded i n mai n secti on. Even if the rul e 6DDC and Form 3 BC noti fi ed on 4-7-2013 i s studied then one will be abl e to note that i t onl y contai ned pri mary detai l s to be kept by such person i n respect of the transacti ons carri ed and procedure to fol l ow by fili ng of peri odi cal returns etc. It does not gui de as to how the tran sacti ons to be ca rri ed on . Therefore, thi s part of the defi ni tion as gi ven i n Expl anati on 2 to secti on 43(5) must be treated as proce dural onl y. Extract of Secti on 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. 1-4-2014:14 ITA No. 331/Asr./2018
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"(e) an eligible transaction in re spect of trading in commodity derivatives carried out in a recognized associati on.
shall not be deemed to be a speculative transaction."
24. A few condi ti ons have been l ai d down i n order to qual i fy for the excl usi on. These are si mil ar to the con di ti ons l ai d down for excl usi on of securi ti es deri vati ve transacti ons from the defi niti on of specul ati ve transacti on. The commodi ti es deri vati ves transacti on shoul d be carri ed out el ectroni call y on a screen-based system on a recogni zed commodi ty exchange through a member or i ntermedi ary regi stered under the by- l aws, rul es and regul ati ons of a re cogni zed commodi ty exchange in accordance wi th the Forwa rd C ontract s (Regul ati on) Act (FCRA) and in accordance wi th the rul es, regul ati ons or by-l aws made or di recti ons i ssued under FCRA. The transacti on shoul d al so be supporte d by a ti me stamped contract note , i ssued by such member or i ntermedi ary i ndi cati ng the uni que cli ent i dentity number all otted under FCRA, or rul es, regul ati ons or by-l aws, uni que trade number and Permanent Account Number.
25. A further re qui rement i s that the transacti ons are carri ed out in recogni zed associ ati on and it shoul d compl y wi th such condi ti ons as may be prescri bed by the central government and shoul d be notifi ed by the central government for thi s purpose . But onl y on 4 Jul y 2013, the condi ti ons and the procedu re for making an appl i cati on for any exi sting associ ati on to get noti fi ed as a recogni zed associ ation were i ssued. Rul e 6DDC & Form No. 3BC were n oti fi ed vi de noti fi cati on no. 51/2013 date d 15 ITA No. 331/Asr./2018 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
04.07.2013. Therefore, obvi ousl y, i t needs some ti me for any Commodi ty Exchange before i t is noti fi ed as a recogni zed commodi ty associ ati on as pe r Income Tax Rul es i n addi ti on to i ts status under FCRA. Thi s exactl y happened to NCDEX al so, therefore, getti ng an associ ation noti fi ed as recogni sed associ ati on was a formality to be compil ed wi th keepi ng i n vi ew the 1 s t year of i ntroducti on of these provi si ons and time taken by the Govt. to announce the rel evant procedures.
26. Identi cal i ssue arose when secti on 43(5)(d) was i ntroduced 1 s t ti me i n Fi nance Act, 2005. If compari son i s made i n simil ar situati on, when secti on 43(5)(d) was brought i n the statute, when a si mil ar concept was i ntroduced for recogni zed st ock exchanges to be noti fi ed for excl usi on of securi ti es deri vati ves transacti ons from the defi ni ti on of specul ati ve transacti ons carri ed from 1-4-2005 a ppl i cabl e for AY 2006-07, the condi ti ons and procedure we re noti fi ed i n August 2005 and the fi rst approval s were granted onl y subsequentl y in January 2006 wi th effect from the date of noti fi cati on of the approval i .e. 25.01.2006. Case of NCDEX i s much better than thi s i n terms of date on whi ch getti ng noti fi ed.
27. At that ti me, the tax authori ties had taken a hype r techni cal stand l eading to li ti gati on as to whether transacti ons before the date of a pproval duri ng that year w oul d be treate d as specul ative, whil e transacti ons after the date of approval i n the same year w oul d not be treat ed as such . Fortunatel y, the deci si ons of vari ous C ourts hel d that the excl usi on from the defi niti on of specul ati ve transactions woul d appl y for the full 16 ITA No. 331/Asr./2018 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
year in respect of those approved stock exchanges, i rrespecti ve of the date of approval duri ng the year. Reli ance was pl aced on foll owi ng deci si ons:
Effecti ve date of statute prevail s upon procedural mechani sm I. (2012) 25 Taxmann.com 252 (Mumbai ) / (2012) 53 SOT 581 (Mumbai ) - ITAT Mumbai Bench 'A" - ACIT, Vs. Arnav Akshay Mehta i t was hel d as under:
Procedural compliance cannot override statute Delay in recognition of stock exchange - Proce dural delay in recognition of stock exch ange would not lea d a derivative transaction to be categorize d as speculative one.
II. [2011] 12 taxmann.com 55 (Ahemdabad)/[2011] 46 SOT 276 (Ahmedabad)/[2011] : ACIT, Ci rcl e-2, Bhavanagar v. Hi ren Jaswantrai Shah there was a ci rcul ar dt. 25-1-2006 i ssued for treati ng i ncome / l oss from deri vative transacti on in shares as regul ar busi ness i ncome was treated as curati ve and consi dered to be appl i cable retrospecti vel y.
III. CIT vs. Nasa Fi nel ease Pvt Ltd - ITA 647 / 2012 / Del hi HC, dt. 6-9-2013 It was the case of the assesse e that the transacti on was conducted by it from Jul y 2005 to Sept 2005 cannot be rejected for the benefi t of provi si on (d) of Sub-secti on 5 of Secti on 43(5) as there wa s a provi si on on the statute i n the shape of cl ause (d). The l apse i n the i ssue of noti fi cati on etc. 17 ITA No. 331/Asr./2018 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
was onl y on account of del ay by CBDT. Keepi ng in view reli ef was gi ven to the assessee.
IV. [2011] 16 taxmann.com 159 (Del hi) IN the ITAT DELHI BENCH 'B' Smt. Seema Jai n v. Assi stant Commi ssi oner of Income-tax Transacti ons i n deri vati ves (futures and opti ons) carri ed out i n assessment year 2006-07 are eligi bl e for benefi t of secti on 43(5)(d) The Parl i ament has enacted the l aw wi th effect from 1-4-2006, therefore, all the transacti ons carri ed on from 1-4-2005 to 31- 3-2006 will be i n nature of busi ness i ncome. Though the stock exchanges as contended by the revenue, were recogni zed wi th effect from 25-1-2006 and transacti ons carri ed out onl y on the recogni zed exchanges will be eli gibl e for the benefi t of secti on 43(5)(d) but si nce the co-ordi nate Bench had deci ded that the l aw i s appli cabl e from the assessment year 2006-07 onwards, respectfull y foll owing the aforesaid deci si on, i t was to be hel d that the transacti ons i n deri vatives carri ed out i n the previ ous year rel evant to the assessment year 2006-07, i .e., from 1-4- 2005 to 31-3-2006 will be eli gi ble for the benefi t of secti on 43(5)(d).
V. [2009] 34 SOT 439 (DELHI) IN THE ITAT DELHI BENCH 'B' G.K. Anand Bros. Bui l dwell (P.) Ltd. v. Income-tax Offi cer, Ward-12{2), New Del hi Secti on 43(5), read wi th secti on 28(i ), of the Income-tax Act , 1961 - Specul ati ve transacti ons - Assessment year 2006-07 -
18 ITA No. 331/Asr./2018SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
Whether l oss a ri sing i n future and opti on transacti on carri ed out i n a recogni zed stock exchange i s to be treated as a busi ness l oss and not as l oss i n specul ati ve busi ness - Hel d, yes The recogni zed stock exchange means a recogni zed stock exchange as noti fi ed by the Central Government for thi s purpose. Therefore, even i f the noti fi cati on i s from 25-1-2006 as per cl ause (d) i nserted, the same will appl y to all the transacti ons in rel ati on to the assessment year 2006-07 and onwards. Cl ause (d) does not menti on that unl ess the recogni zed stock exchange i s notifi ed, the transacti on will not be deemed to be a specul ative transacti on. The power to noti fy the stock exchange i s granted under the statute and hence , once the recogni zed stock exchan ge i s noti fied, the same will appl y in respect of all eli gi bl e transacti ons ca rri ed out i n rel ati on to the financi al year rel evant to the assessment year 2006-07 and onwa rds. The n oti fi cati on dated 25-1-2006 i s by way of a subordi nate l egi sl ati on but cannot overri de the pri nci pal l egi sl ati on enacted by the Parl i ament. It onl y cl ari fi es but will not overri de unl ess statutoril y so prescri bed. Si nce there was no di spute to the fact that the transacti ons, i n the i nstant case, in future and opti on segment were the eli gi bl e transacti ons carri ed out i n a recogni zed stock exchange, l oss i n such transacti ons coul d not be deemed to be l oss in the specul ati on busi ness. Therefore, t he l oss-in-questi on was to be treated as a busi ness l oss and not as l oss i n specul ati on busi ness.
19 ITA No. 331/Asr./2018SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
28. Case of the Appel l ant i s i denti cal to above si tuati on, even thi s ti me condi ti on and procedure for appl yi ng were announced vi de Noti fi cati on no. 51 on 4-7-2013 vi de Rul e 6DDC, Rul e 6DDD and form 3BC (ITA 653 4 / 2012). Therefore, just because NCDEX was noti fi ed on 27-11-2013 will not make all transacti ons for enti re peri od f rom 1-4-2013 till 26-11-2013 as made on unrecogni zed associ ati on. It i s therefore submi tted that for the 1st year of such amendment the date of noti fi cati on i s not i mportant si nce i t i s i mpossi bl e to even appl y for getti ng noti fi ed before the gui deli nes are prescri bed. Therefore, excl usi on from the defini ti on of specul ati ve transacti on woul d apply for the full year i n respect of those recogni zed associ ati ons, i rrespect i ve of the date of approval duri ng the year. The trading i n commodi ty futures / deri vative on NCDEX carri ed by assessee Company i n thi s case be treate d as non-specul ati ve even for the peri od pri or to i ts noti fi cati on as recogni zed associ ati on i .e. transacti ons from 1-4-2013 till 26-11-2013.
29. However, AO contended that NCDEX was not a "recogni zed associ ati on" duri ng the peri od when the company traded on i t. In thi s regard i t i s submi tted that i t was very much a recogni zed associ ati on from the begi nni ng of the F.Y. 2013-14 only, even much before 01.04.2013. As pe r expl anati on in 2 to Secti on 43(5) for the purpose of cl ause (e) the expressi on "Recogni sed Associati on" means as bel ow:
"recognised association" means a recognise d associati on as referre d to in clause (j) of section 2 of the Forward C ontracts (Regulation) Act, 1952 (74 of 1952) and which fulfills such conditions as may be 20 ITA No. 331/Asr./2018 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 i t i s cl ear that the enti ty shoul d be "recogni sed associ ati on" as per secti on 2Q) of the Forward Contract (Regul ati on) Act, 1952 and not under Income Tax Act as such. Therefore, the transacti ons carri ed by the assessee were defi ni tel y on a recogni zed a ssoci ati on onl y. Pl ain readi ng of cl ause (e) to the provi so to secti on 43(5) makes i t cl ear that wi th effect from 1-4-2013, onl y those el i gi bl e transacti ons carri ed i n commodi ty deri vati ves whi ch are carri ed out i n a recogni zed a ssoci ati on, shall not be deemed t o be specul ative transacti ons. The condi ti ons for an enti ty requi red to ful fill for bei ng noti fied as recogni zed associ ati on for the purposes of cl ause (e) to secti on 43(5) were i nserted by Income- tax 9th amendment Rul es, 2013 wi th effect from 04-07-2013. These condi ti ons as per rul e 6DDC of Income-tax Rul es, 1962 were at the rel evant ti me were as under ( Condi ti ons that a recogni sed associ ati on i s requi red to ful fill to be noti fi ed as a recogni sed associ ati on for the purposes of cl ause (e) of the provi so to cl ause (5) of secti on 43.
6DDC. For the purposes of douse (e) of the provi so to cl ause (5) of secti on 43, a recogni sed associ ati on shall ful fill the foll owi ng condi ti ons i n respect of tradi ng in deri vati ves, namely (i ) the recogni sed associ ati on shall have the approval of the Forwa rd Markets Commi ssi on establi shed under the Forward Contracts (Regul ati on) Act, 1952 (74 of 1952) i n respect of tradi ng i n deri vati ves and shall functi on in accordance wi th the 21 ITA No. 331/Asr./2018 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
gui deli nes or condi ti ons l ai d down by the Forward Markets Commi ssi on;
(ii ) the recogni sed associ ati on shall ensure that the parti cul ars of the cli ent (incl udi ng uni que cli ent i denti ty number and PAN) a re dul y recorde d and st ore d in i ts databases;
(iii) the recogni sed associ ati on shall mai ntai n a compl ete audi t trail of all transacti ons (i n respect of deri vative market) for a peri od of seven years on i ts system;
(i v) the recogni sed associ ati on shall ensure that transacti ons (i n respect of deri vative market) once regi stered i n the system are not erased;
(v) the recogni sed associ ati on shall ensure that the transacti ons (in respect of deri vati ve market) once regi stered i n the system are modi fi ed only in cases of genui ne error and mai ntain data re gardi ng all transacti ons (i n respect of deri vati ve market) regi stered i n the system whi ch have been modi fi ed and submi t a monthly statement in Form No. 3BC t o the Di rector General of Income-t ax (Intelli gence and Cri mi nal Investi gati on), New Del hi wi thi n fifteen days from the l ast day of each month to whi ch such statement rel ates.
31. Rul e 6DDD provi des the procedure for noti fi cati on as requi red under Expl anati on 2 to secti on 43(5). Thi s procedu re i s l ai d down as under:--
"Notification of a recognised a ssociation for the purposes of clause (e) of the provi so to clause (5) of section 43.
6DDD. (1) An application for notification of a recognise d association (as per cla use (]) of section 2 of the Forward Contracts (Regulation) Act, 1952) as 22 ITA No. 331/Asr./2018 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 Membe r (Legislati on), Central Boa rd of Direct Taxes, North Bl ock, New De lhi.
(2) The application referre d to in sub-rule (1) shall be accompanied with the following documents, namely:-
(i) approval granted by Forwa rd Ma rkets
Commission for trading in derivatives;
(ii) up-to-date rules, bye-laws and trading
regulations of the recognised a ssociation;
(iii) confirmation regarding fulfilling the conditions referred t o in clause (ii) to clause (v) of rule 6DDC;
(iv) such other information a s the recognised associati on 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 decisi on on the application (4) The Central G overnment, af ter examining the information furnished by the recognised association under sub-rule (2) or sub- rule (3), shall notify the recognise d association as a recognised association for the purposes of clause (e) of the proviso to clause (5) of section 43 or issue an orde r 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 Forwa rd Markets C ommission is withdrawn or expired, or the notification is rescinded by the Central Government.]"
32. A combi ned readi ng of the provi si on of cl ause (e) to provi so to secti on 43(5) and the Expl anati on 2 to secti on 43(5) 23 ITA No. 331/Asr./2018 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
and above rul es 6DDC and 6DDD indi cate that an recogni zed associ ati on shoul d be as referred to cl ause (j) of Secti on 2 of the FCRA, 1952 and further they a re re qui red to keep re cord of parti cul ars of the cli ents, compl ete audi t trail of all transacti ons and that such are n ot era sed or modi fi ed as per Rul e 6DDC. On an appli cati on fil ed wi th CBDT al ong wi th parti cul ars as gi ven i n rul e 6DDD, such re cogni zed a ssoci ati on will be notifi ed as recogni zed associ ati on for the purpose of cl ause (e) to provi so to sub-secti on (5) of secti on 43. Therefore, i t i s undi sputed that rule 6DDD i s onl y procedural i n nature. When a rul e or provi si on does not affect or empowe r any ri ght or create an obl i gati on or onl y rel ates to proce dures, then i t i s deemed to be retrospect i ve otherwi se such i nference i s li kel y to l ead to absurdi ty. The noti fi cati on i ssued under rul e 6DDD does not empower any ri ght or cre ate obli gati on but only recogni zes what i s al ready i n exi stence.
33. It i s not a case that NCDEX was created after 27-11-2013 and, therefore, t ransacti ons coul d not have been carri ed out through them and, therefore, transacti ons carri ed out pri or to thi s date woul d al so be covered for bei ng treated as non- specul ati ve. In other words i f transacti ons i n deri vatives are carri ed out through recogni sed associ ati ons whi ch are al ready i n exi stence duri ng assessment year 2014-15 i .e., fi nanci al year 1-4-2013 & 31-3-2014 onwards and whi ch are subsequentl y recogni zed under rul e 6DDD and there i s no all egati on that such transacti ons or the re cogni zed associ ati on has vi ol ated any condi ti on prescri bed under rul e 6DDD then such recogni ti on by CBDT woul d also cover transacti ons carri ed from the date sub cl ause (e) i nserted. Therefore, from the 24 ITA No. 331/Asr./2018 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
above it will be very cl ear that the noti fi cati on dated 27.11.2013 woul d be appl i cabl e for enti re assessment year 2014-15 and not to the pa rt asse ssment year. Thi s i nterpretati on will be correct be ca use rul es are suppl emental to the mai n act and such sub ordi nate l egi sl ati ons cannot overri de the pri nci ple l egi sl ati on enacted by the Parli ament. Therefore, the l oss cl ai med by the assessee of Rs. 4,69 ,47,808/- shoul d be treated as busi ness l oss and not as specul ati ve l oss.
34. In support of the above di scussi on the Appell ant al so submi ts that Secti on 2 of The Forwa rd C ontract(Regul ati on) Act, 1952 shoul d be referred to (copy encl osed).
35. In vi ew of our submi ssi on as well as vari ous judi ci al pron ouncements i n whi ch such identi cal vi ew di scussed and cl arifi ed the Appell ant submi ts that NCDEX wa s a recogni zed associ ati on for the enti re A.Y. 2014-15.
36. Issue di scussed wi th reference to appl i cabili ty of provi si on of secti on 43(5)(e) to transacti on whi ch is chargeabl e to Commodi ty Transacti on Tax. As far as appl i cabili ty of Commodi ti es Transacti ons Tax i s concerned, such requi rement i n the main secti on was inserted onl y by Fi nance Act (No.2) of 2014 passe d on 6-8-2014. The provi si ons as on the 1st day of the a ssessme nt year as exi sted i n the Act can be appl i ed to the assessment of transacti ons for the enti re previ ous year. Si nce, such requirement was not there even duri ng the peri od when the transacti ons were carri ed on by the Appel l ant as well as on 1-4-2014 such amendment carri ed at a l ater date shoul d not be made a ppli cabl e to the transacti ons 25 ITA No. 331/Asr./2018 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
carri ed by Appel l ant. Appli cabili ty of the condi ti on that transacti ons chargeabl e to CTT w ill be non- specul ative, will not be appl i cable i n the case of Appel l ant because such a condi ti on was not i n exi stence in the Income Tax Act i tself duri ng the peri od when these transacti ons were carri ed on. One of the amendments carri ed out by the 2013 budget was the i ntroducti on of Commodi ty Transacti on Tax (CTT), effective 1 July 2013. Si multaneousl y, the budget amended the defi niti on of specul ati ve transaction under i ncome tax l aws to excl ude commodi ty deri vative transacti ons carri ed out i n a recogni zed commodi ty associ ation ("recogni zed commodi ty exchange") and i nserted sub-clause (e) in the foll owi ng 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 re spect of trading in commodity derivatives carried out in a recognized associati on.
shall not be deemed to be a speculative transaction."
As a corre ct interpretation of a bove newly inserted section 43(5)(e) would be that this exclusion would apply to all commodity derivati ves transactions in agricultural a s well as n on-agricultural commoditie s and not just non-agricultural com modity derivatives, which are subject to CTT."
37. Si nce thi s amendment was effecti ve from assessment year 2014-15, i t woul d naturall y apply to all transacti ons on or afte r 1 April 2013. Thi s woul d al so mean that al l commodi ty deri vati ve transacti ons are no l onger to be treated as 26 ITA No. 331/Asr./2018 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
specul ati ve transacti ons. Unfortunatel y, tax l aw makers do not beli eve i n keepi ng thi ngs simpl e, they amended same se cti on i n August 2014 as bel ow:
"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 associati on [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 t o the transa ctions ma de by the assesse e since they were pri or t o 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, a s per the provisions of Income Tax Act, a s st ood/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 n on-speculative w as that it should be carrie d out in a recognized associ ation. The NCDE X in the case of Appellant was already a recognize d associati on on 01.04.2014 (w .e.f. 27.11.2013) , therefore transacti ons carried out in entire previous year will be eligible transactions and be treated a s non-speculative (stressed)."
38. In fact when i n CTT Act was introduce d vi de F A 2013 there was a proposal to amend secti on 36 due to inserti on of CTT i n FA 2013 to al l ow CTT as busi ness expense but nowhere i t hi nted that i t can i mpact benefi t granted by newl y i nserted Sub-cl ause (e) to Secti on 43(5)... Kindly refer fol l owi ng part of CTT Act i ntroduced-
27 ITA No. 331/Asr./2018SA 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 secti on 43(5)(e) in CTT Act 2013 which was only inserted in August 2014 vide F A (No.2) 2014.
39. The speci fi c amendment w.r.t. chargeabi li ty of CTT was brought i n the Act onl y in FA (No. 2) i n August 2014, but all such transacti ons of a ssessee we re al ready carri ed al most one year before that date. Condi ti on of chargeabi li ty of CTT was absent rather di d not exi st i n the Act as on 01.04 .2014. Therefore, the questi on of cha rgeabili ty of CTT i n thi s case cannot be made appli cabl e to the transacti ons carri ed out i n previ ous year rel evant to the assessment year be gi nni ng on 01.04.2014.
40. As per Page no. 83 of the 7th editi on of Shri Nani Pai khi wal a, 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 a pplied 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 1 st 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 yea r, would not apply t o the assessment for that year, even if the assessment 28 ITA No. 331/Asr./2018 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
is actually made after the amendments come int o force."
This principle is also applied in the cases of CIT v Scindia Steam Navigati on Co Ltd 42 ITR 589 (SC) & Karimtharuvi Tea Estates Ltd v State of Kerala 60 ITR 2S2 (SC). Tw o important pa ragraphs from the judgement by the Hon 'ble Supreme Cou rt a re 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 t o 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 ha d 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 take n into consideration merely because the assessee was assessed after that date ; and th at the assessee was not liable to pay tax on the sum because the fou rth proviso to se ction 10(2)(vii) of the Income-tax Act under which it was sought t o be taxed was not in force in respect of the assessment year 1946-47."
41. Now, i f the present case i s perused through further, then i t i s cl ear that the Company had transacted onl y between May 2013 till August 2013 and di d not venture further due to heavy l osses and change in busi ness pl an. The provi si ons of appl i cabili ty of CTT di d not exist duri ng the enti re peri od duri ng whi ch the Company had carri ed these transacti ons. If we do somethi ng today, we feel that the l aw appli cabl e to i t 29 ITA No. 331/Asr./2018 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
shoul d be the l aw i n force today, not tomorrow 's backwa rd adjustment of i t. Therefore, i t will be very unfai r to deny the benefits exi sted on the date of actual conduct of busi ness acti vi ty. The assessee cannot be pushed to pe rform i mpossi bl e task or at no poi nt of return by maki ng a subsequent amendment.
42. Now i t i s a well settl ed rule of i nterpretati on hall owed by ti me and sancti fied by judi ci al deci si ons that, unl ess the terms of a statute expressl y so provi de or necessari l y requi re i t. retrospecti ve operati on shoul d not be gi ven to a statute so as to take away or i mpai r an exi sti ng ri ght or create a new obl i gati on or i mpose a new li ability otherwi se than as regards matters of procedu re. It i s well settl ed that there i s no equi ty about tax. If the provi si ons of a taxi ng statue are cl ear an d unambi guous, full effect must be gi ven to them i rrespecti ve of any consi derati on of equi ty. Where, however, the provi si ons are couched i n l anguage whi ch i s not free from ambi gui ty and admi ts of two i nterpretati ons a view whi ch i s favourabl e to the subject shoul d be a dopted. In fact such an i nterpretati on i s al so i n consonance wi th ordi nary noti ons of equi ty and fai rness woul d further forti fy the court i n adopti ng such a course, {reference from ca se: [1976] 105 ITR 179(SC) CIT v. Madh o Pd. Jati a}.
43. To summari se, as on 1-4-2014 the Act onl y requi red that the transacti ons ca rri ed out on recogni zed associ ati on will be deemed as n on-specul ative and NCDEX ful fill ed all condi ti ons duri ng the peri od when there were no rul es prescri bed as well as the pe ri od after they were prescri bed cl earl y establi shes 30 ITA No. 331/Asr./2018 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
that transacti ons carri ed for full year shoul d be treated as non- specul ati ve. Observati on of Ld. AO that Appell ant carri ed thi s busi ness for the 1st ti me and i t was not regul arl y engaged i n tradi ng i n commodi ti es tradi ng i s out of context and rel evance. Infact, the Appel l ant Company i s engaged i nto tradi ng for more than 25 years and has full li berty to start any li ne of busi ness at any poi nt of time. The Act / Se cti on nowhere states that the provi si on woul d be appli cable only to the person who has carri ed such transacti ons i n the past and not to the fi rst ti mer. The case l aws submitted by the Appel l ant were on i denti cal i ssue of appli cabili ty of rel evant rul es and noti fi cati ons whi ch arose when secti on 43(5)(d) wa s i ntroduced by Fi nance Act 2005.
44. Observati on of Ld. AO that i t was the i ntenti on of the l egi sl ature to keep tradi ng in agri cul tural commodi ti es deri vati ves away from the normal busi ness transacti ons i s totall y wrong, wi thout any basi s and i t i s contrary to any l ogi cal i nference, that can be draw n from exact w ordi ngs of th e secti on as well as budget speech of Fi nance Mi ni ster whi ch nowhere made any di stincti on between tradi ng i n agri cul tural or non-agri cul tural commodi ti es deri vati ves, especi all y till speci fi c amendment was brought i n on 8 t h August 2014 vi de Fi nance Act (No.2). The Appell ant therefore prays that the l oss of Rs. 4 ,69,47,808/- from tra di ng i n Commodi ti es Deri vati ves be all owed as busi ness l oss and not the specul ati ve.
45. The DR submi tted that Authori zed Reprehensi ve of the Assessee has rai sed the poi nt that commodi ti es transacti on tax i s not appli cable to agri cul ture Commodi ti es. Thi s i tsel f made i t 31 ITA No. 331/Asr./2018 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
cl ear that the sai d transacti ons in the commodi ty deri vati ves are spe cul ati ve, as i t was very much cl ear that the legi sl ati on i ntended to keep these transactions (deali ng i n agri cultural deri vati ves commodi ti es) as specul ati ve transacti ons. The Assessi ng Offi cer has al so rai sed thi s poi nt i n Para 4 on Pa ge 16 of Assessment Orde r.
46. The Authori zed Representati ve of the assessee has state d that the transacti ons have been carri ed out much bef ore the amendment date of l aw rel ated much before to appl i cability of CTT. In thi s regard, i t i s bei ng submi tted that the audit u/s 44AB wa s conducted after the date of amendment and even i f the P & L A/c was framed, the extraordi nary item of l oss i n tradi ng i n commoditi es deri vati ves coul d have been added t o the returned Income i n the computati on of i ncome. In addi ti on to these submi ssi ons reli ance is bei ng pl aced on the assessment Order of the Assessi ng Offi cer and Appell ate Orde r of the Commi ssi oner of Income Tax (Appeal s).
47. In the rejoi nder, the AR of the a ssessee submi tted that transacti ons in commodi ti es deri vati ves are hel d as non specul ati ng w.e.f. 01.04.2013 by i nserti ng sub cl ause (e) to Sec.43(5) of I.T. Act, 1961 . Impugned transa cti ons were carri ed from 21.05.2013 to 22.08.2013. C ondi ti on of chargeabi li ty of CTT was noti fi ed by amendment on 06.08.2014 and thus, i ncome tax act nowhere provi ded for such compl i ance on the date when transacti ons were carri ed out or even on the fi rst day of assessment year i .e. 01.04.2014. Si nce agri cul tural commodi ties are not li abl e for CTT appell ant was not requi red to pay CTT therefore, i t was poi nted out and 32 ITA No. 331/Asr./2018 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
stated that condi ti on of chargi ng CTT cannot be appli ed i n appel l ant's case i n the gi ven ci rcumstances.
48. Si nce appell ant fully acted upon certai n provi si on that exi sted i n the act on the date when transacti ons were ca rri ed i n 2013, the pri nci pl e of promi ssory estoppel woul d prevail for whi ch reli ance i s pl aced i n Motilal Padampat Sugar Mi ll s vs. Estate of U.P. (SC) (118 ITR Page 326 Internal Page 361).
49. The questi on of making di sallowance of l oss from commodi ty deri vati ves i n the returned i ncome at the ti me of conducti ng tax audi t u/s.44AB does not ari se si nce the l oss was genui nely an all owabl e business l oss.
50. We have heard the ri val submissi ons and perused the orde rs of the l ower authori ti es and materi al s avail abl e on record. In the i nstant case, the undi sputed facts are that the assessee has suffered l oss of Rs.4,69,47,808/- i n tradi ng i n agri cul tural based commodi ty deri vati ves duri ng the peri od 21.05.2013 to 22.08.2013. The assessee cl aimed the above l oss as non-spe cul ati ve l oss and set off the same agai nst other busi ness i ncome in the return of i ncome fil ed for the assessment year 2014-15.
51. The AO has not all owed set off of thi s l oss and treated the same as specul ati ve busi ness l oss.
52. On appeal , the CIT(A) confi rmed the acti on of the AO.
53. The above l oss was treated as specul ati ve l oss on th e ground that NCDEX associ ati on in whi ch the sai d trade was 33 ITA No. 331/Asr./2018 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
carri ed out wa s noti fi ed as a recogni zed associ ati on u/s 43(5)(e) of the Act vi de noti fi cation dated 27.11.2013 and the rel evant trade was carri ed out duri ng the peri od 21.05.2013 to 22.08.2013; secon dl y, Commodi ty Transa cti on Tax (CTT) wa s not pai d i n respect of the above transacti ons.
54. We fi nd that cl ause (e) to Secti on 43(5) of the Act was i nserted into the statue w.e.f. 01 .04.2014 and theref ore, the sai d provi si on was appli cabl e w.e.f. assessment year 2014-15 and was i n force duri ng the year under consi derati on. Secti on 43(5) of the Act provi des defi ni tion of specul ati ve transacti on gi vi ng ri se to specul ati ve i ncome or specul ati ve l oss as a transacti on of purcha se of sal e of commodi ty i ncluding share, etc. whi ch i s settl ed otherwi se than by actual deli very.
55. However, certai n excepti ons have been provi ded in the fi rst provi so of the sai d secti on i tsel f. By vi rtue of thi s provi so, the transacti ons descri bed i n the provi so even when settl ed otherwi se than by actual deli very, the same are treated a s non-specul ati ve. The Cl ause (e) of the sai d provi so as i nserted w.e.f. 01.04.2014 rea ds as under:
"Explanation 2. - For the purpose s of clause (e), the expression-
(i) "commodity de rivative" 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-base d systems through member or a ny intermediary, registered under the bye-laws, rules an d regulations of the recognized association for trading 34 ITA No. 331/Asr./2018 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
in commodity derivative in accordance with the provisi ons of the Forward Cont racts (Regulation) Act, 1952 (74 of 1952) an d the rules, re gulations or bye-laws made or directi ons issu ed under that Act on a recogni zed 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-la ws referre d to in sub-clause (A), unique trade number and permanent account number allotted under this Act:
(iii) "recognized association" means a recognize d associati on as referred to the cla use (j) of secti on 2 of the Forward C ontracts (Regula tion) 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 contenti on of the Revenue is that though the provi si on was i nserted w.e.f. assessment year 2014-15 but as the recogni zed associ ati on was noti fi ed by the noti fi cati on dated 27.11 .2013, the el i gi bl e transacti on entered i nto pri or t o that date will not quanti fy as non-specul ati ve transacti on.
57. We fi nd that si mil ar i ssue arose before the Hon'bl e Del hi Hi gh Court i n the case of CIT Vs NASA Fi nelease Pvt. Ltd. reported i n 358 ITR 305 (Del .) wherei n i n rel ati on to cl ause (d) of fi rst provi so to Secti on 43(5) of the Act whi ch was i nserted w.e.f. asse ssment year 2006-07 and the recogni zed stock exchange was notifi ed vi de notificati on dated 25.01.2006 and therefore, the transacti on whi ch were otherwi se eli gi bl e duri ng the peri od 01.04.2005 to the date of noti fi cati on were to be treated as non-specul ati ve or not was deci ded as under:
35 ITA No. 331/Asr./2018SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
"7. Th e factual position is not in dispute. NotificationNo.2/20 06 dated 2 5thJa nuary, 2006, issu ed by the Ce ntral Board of Direct Taxe s does no t sp ecify 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 43o f the Ac t. T he said proviso had become applicable with effect from 1stApril, 2006.I ssue of notification obviously had to take some time as it involv ed processing a nd examination of applications etc. T his was a matter relating to procedure and th e delay in issue of notification or even framing of the R ules was du e to administrative constraints. We agree with the tribunal that th e delay occasioned, as procedure a nd formalities have to be complied with, sho uld n ot disentitl e and deprive an assessee, specially, when the transactions were carried through a notified s tock exchange. The aforesaid delay is not attributable to the assessee. The notification, therefore, merits acceptance and should be given retrospective eff e ct. Notification was procedural and necessary adjunct to the Section enforced with ef fect from 1stApril, 200 6.The rule and notification issued in the present case effect uate th e statutory and the legislative mandate. There is no good ground or reason why the notification in question should not be giv en eff ect from 1st April, 200 6.No r eason or ground is alleged or argued to contend t hat National Stock Exc hange India Ltd. could not and should not have been notifi ed from 1st April, 2006."
58. A perusal of noti fi cati on dated 27.11.2013 noti fyi ng NCDEX as recogni zed associ ati on, the l anguage empl oyed therei n was si mil ar to the l anguage empl oyed in noti fi cati on dated 25.01 .2006 whereby Nati onal Stock Exchange of Indi a Ltd., Bombay and Bombay St ock Exchange Ltd., Bombay where noti fi ed as recogni zed stock exchange for the purpose of cl ause
(d). Therefore , respectfull y foll owing the above deci si on of the Hon'bl e Del hi Hi gh Court, we hol d that the noti fi cati on will take effect duri ng the enti re previ ous year 2013-14 rel ati ng to assessment year 2014-15.
36 ITA No. 331/Asr./2018SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
59. The next i ssue rai sed by the l d. DR was that no Commodi ty Transacti on Tax (CTT) pai d in respect of tradi ng transacti on of the assessee under consi derati on and therefore, the same does not quanti fy for bei ng treated as non- specul ati ve.
60. We fi nd that it is not in di spute that the tradi ng transacti ons of the a ssessee were i n agri cul tural commodi ty deri vati ves. As pe r the provi si ons of l aw, n o CTT i s l egall y chargeabl e i n respect of agri cul tural commodi ty deri vati ves. The l d. AR of the assessee drawn our attenti on to the Second provi so to Secti on 43(5) of the Act inserted by the Fi nance Act, 2018 whi ch reads as under:
"Provide d further that for the purposes of clause (e) of the first proviso, in respe ct of trading in agricultural commodity de rivatives, the requi rement of chargeability of commodity transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013) shall not apply."
61. The l d. DR poi nted out that the above Second provi so wa s i nserted w.e.f. 01.04.2019 and therefore, w as not appli cabl e in the assessment year 2014-15.
62. We fi nd that vi de i nserti ng cl ause (e) i n the Fi rst provi so to Secti on 43(5) of the Act, the Hon'bl e Fi nance Mi ni ster stated i n the Parli ament as under:
"149. There is no distinction between derivative trading in the securities ma rket and derivative trading in the commodities market, only the underlying asset is different. It is time to introduce Commodities Transa ction Tax (CTT) in a limited way. Hence, I propose t o levy CTT on non-agricultural commodities future contracts at the same rate as on equity futures, that is commodities futures contract s 37 ITA No. 331/Asr./2018 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. T rading in commodity de rivatives will not be consi dered as 'speculative transacti on' 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'bl e Fi nance Mi ni ster at the ti me of i nserti on of cl ause (e), i t i s observed that all eli gi bl e transacti ons in all commodi ty deri vati ves were propose d to be treated as non- specul ati ve transacti on. The Hon'bl e Fi nance Mi ni ster has not brought any di sti ncti on between agri cul tural commodity deri vatives and non- agri cul tural commodi ty derivati ves for thi s purpose. Thus, i t shows that i t was not i ntended to treat onl y non-agri cultural commodi ty deri vati ves transacti ons as non-specul ative transacti on.
64. However, a condi ti on was imposed i n the secti on that all bei ng treated as non-specul ative transacti on amongst several other transa cti ons li ke time stamped cont ract note, di stincti ve trade number, transa cti on in a recogni zed associ ati on etc. was chargeabl e to CTT . However, CTT was not chargea bl e i n respect of agri cultural commodi ty deri vatives. Thus, i t transpi res that an unini ti ated consequence foll owed. That an otherwi se eli gi bl e transacti on i n agri cul tural commodi ty deri vati ve whi ch sati sfi es all other substanti al provi si ons of cl ause (5) of Fi rst provi so to Secti on 43(5) of the Act was still to be treated as specul ati ve transacti on because i t was not subjected to CTT and a s per the provi si on of l aw was not possi bl e because CTT was not l evi abl e i n respect of agri cul tural commodi ty derivati ves. To remove 38 ITA No. 331/Asr./2018 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
thi s uni ntended consequence, Second provi so to Secti on 43(5) of the Act w as i nserted whi ch has al ready been qu oted above . As per the Second provi so tradi ng in agri cul tural commodi ty deri vati ve that sati sfi es all other condi ti ons speci fi ed i n cl ause (5) will not be treated as specul ati ve merel y because the sai d transacti on was not subjected to C TT.
65. In the above ba ck ground, i n our consi dered vi ew, the Second provi so whi ch has been i nserted by the Fi nance Act 2018 i s curative and therefore i s to be treated as came i nto force from the date f rom whi ch cl ause (5) i tsel f was inserted i n the statute i .e. with effect from 01.04.2014. Our above view finds support from the deci si on of the Hon'bl e Supreme Court i n the case of Al li ed Motors Pvt. L td. Vs CIT 224 ITR 677 (SC) wherei n it was hel d that a provi so whi ch is desi gned to eli minate uni ntended consequence whi ch may cause undue hardshi p to the assessee and unjust in a specifi c si tuati on i s to be read as retrospecti ve wi th effect from whi ch the mai n secti on was i nserted.
66. To the same effect i s the deci sion of the Hon'bl e Del hi Hi gh Court i n the case of CIT Vs Ansal Land Mark Townshi p Pvt. Ltd. 377 ITR 635 (Del .) wherei n deci si on of the Agra Bench of the Tri bunal i n the case of Rajeev Kumar Agarwal Vs Addl .CIT (2014) 34 ITR (T) 349 (Agr.) was confi rmed wherein i t was hel d that a curati ve amendment to avoi d uni ntended consequences i s to be treated as retrospecti ve i n nature even though it may not state so specifi call y by the statue. It was hel d that Second provi so to Secti on 40(a)(i a) of the Act must be gi ven retrospe cti ve effect of the poi nt of ti me when the 39 ITA No. 331/Asr./2018 SA No. 03/Asr./2019 P.D. Sekhsaria Trading Company Pvt. Ltd.
rel ated l egal provi si on was introduced. Thus, i n vi ew of the above di scussi on as i n the instant case, i t i s not i n di spute that the assessee's transacti ons in agri cul tural commodi ty deri vati ve were otherwi se eli gibl e transacti on withi n the meaning of Secti on 43(5)(e) of the Act, we set a si de the orde rs of the l ower authori ti es on thi s i ssue and di rect the AO to treat the l oss of Rs. 4,69 ,47,808/- in sai d transacti on as non- specul ati ve business l oss and a ccordi ngl y all ow set off of the same from other busi ness i ncome as per l aw. Thus, thi s ground of appeal of the assessee i s all owed.
67. As we have a djudi cated the a ppe al of the assessee i tsel f and al l owed the same i n favour of the assessee, the Sta y Peti ti on filed by the assessee has become i nfructuous and accordi ngl y the same i s di smi ssed.
68. In the resul t, the appeal of the assessee i s all owed and the Stay Petition of the assessee is dismissed. (Orde r Pronounced i n 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