Income Tax Appellate Tribunal - Kolkata
Anand Mathur, Kolkata vs Ito, Ward - 43(3), Kolkata , Kolkata on 29 May, 2019
I.T.A. No. 1287/KOL/2017 (Assessment Year: 2013-2014)
Anand Mathur
IN THE INCOME TAX APPELLATE TRIBUNAL,
KOLKATA 'A' BENCH, KOLKATA
Before Shri P.M. Jagtap, Vice-President (KZ)
and Shri S.S. Viswanethra Ravi, Judicial Member
I.T .A. No. 1287/KOL/2017
Assessment Year: 2013-2014
Anand Mathur,.......... ...................................................................... Appellant
14, Noormal Lo hia Lane,
Kolkata-700 007
[PAN: AKQPM 0648 G]
-Vs.-
Income Tax Officer,.....................................................................Respondent
Ward-43(3 ), Kolkata,
3, Government Place, 2 n d Floor,
Room No. 2/34A,
Kolkata-700 001
Appearances by:
Shri Manish Tiwari, FCA, for the Appellant
Shri C.J . Singh, JC IT, Sr. D.R., fo r the Respondent
Date of concluding th e hearing : March 27, 2019
Date of pronouncing the order : May 29, 2019
O R D E R
Per Shri P.M. Jagtap, Vice-President (Kolkata Zone):-
This appeal filed by the assessee is directed against the order of ld. Commissioner of Income Tax (Appeals)-13, Kolkata dated 16.01.2017.
2. Ground No. 1 raised by the assessee in this appeal is general, which does not call for any specific adjudication.
3. Ground No. 2 raised by the assessee involves the issue relating to addition of Rs.77190/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of undisclosed interest income. Although the ld. Counsel for the assessee has made a submission in support of the assessee's case on this issue, it is observed that this issue was not 1 I.T.A. No. 1287/KOL/2017 (Assessment Year: 2013-2014) Anand Mathur pressed on behalf of the assessee during the course of appellate proceedings and the same accordingly was dismissed as not pressed by the ld. CIT(Appeals). We, therefore, do not entertain this issue now and dismiss Ground No. 2 of the assessee's appeal.
4. The issue involved in Ground No. 3 relates to the disallowance of Rs.39,10,971/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of assessee's claim for set off of loss arising from derivative transactions in commodity future and options against business income by treating the same as speculative loss.
5. The assessee in the present case is an individual, who filed his return of income for the year under consideration on 30.07.2013 declaring total income of Rs.7,97,120/-. In the said return, loss on Future Trading of Rs.39,10,971/- on account of commodity future and options was set off by the assessee against profit from non-speculative business. In this regard, it was explained by the assessee before the Assessing Officer during the course of assessment proceedings that in terms of section 43(5) of the Act and the relevant Circular, if the transaction of Future Trading is done through recognized stock exchange, the income from dealing in shares/commodities through derivatives, i.e. Futures and Options is not to be considered as speculation loss but it is to be treated as business income. It was submitted that all the transactions resulting into the loss of Rs.39,10,971/- in question were done through recognized stock exchange and, therefore, section 73(1) was not applicable. In support of this contention, reliance was placed by the assessee on the decision of the Hon'ble Delhi Bench of this Tribunal in the case of ITO - vs.- M/s. Emperor International Limited (ITA No. 2181/Del./2012 for A.Y. 2007-08). The contention raised on behalf of the assessee was not found tenable by the Assessing Officer. He held that the decision of the Tribunal in the case of M/s. Emperor International Limited (supra) cited on behalf of the assessee was distinguishable on facts as the assessee in the said case had incurred loss from trading in Share Futures, whereas in the 2 I.T.A. No. 1287/KOL/2017 (Assessment Year: 2013-2014) Anand Mathur assessee's case, loss was suffered from trading in Commodity Futures. He noted that as per the definition given in section 43(5) of the Act, speculative transaction was defined to mean a transaction in which a contract for the purchase and sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by actual delivery or transfer of the commodity or scripts. He also noted that as per the proviso (d) to section 43(5) of the Act, "an eligible transaction in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 carried out in a recognized stock exchange shall not be deemed to be a speculative transaction". He held that the combined reading of section 43(5) read with proviso (d) thereto thus made it clear that trading in share derivatives shall be treated as non-speculative transaction, while in commodity derivatives shall be treated as speculative transaction. He accordingly treated the loss of Rs.39,10,971/- suffered by the assessee in the transactions on account of Commodity Futures and Options as speculative loss and disallowed the claim of the assessee for set off of the same against profit from non- speculative business in the assessment completed under section 143(3) vide an order dated 18.01.2016.
6. The disallowance made by the Assessing Officer on account of its claim of set off of loss from derivatives in Commodity Futures and Options against profit from non-speculative business was challenged by the assessee in the appeal filed before the ld. CIT(Appeals). During the course of appellate proceedings before the ld. CIT(Appeals), the following submissions were made on behalf of the assessee in support of his case on this issue:-
"During the year the appellant incurred loss of Rs.39 ,10,971/- in transaction of commodity fut ure and adjust ed th e loss with the profit earned in commission business. But the Id assessing officer disallowed the adjust ment of loss from trading of commodity future with the profit of commission business st ating that th e loss on trading of commodity future being speculative loss and hence cannot be set -off against the profit of commission business.3
I.T.A. No. 1287/KOL/2017 (Assessment Year: 2013-2014) Anand Mathur The appellant submit s th at the appellant is engaged in the business of share and co mmo dity t rading besides the business of earning commission. During the year the appellant made so me transactio n in co mmodit y futures through recognized stock exchange and incurred loss of Rs.39 ,10,971/-. In this respect your k ind attention is drawn to the pro visio ns of section 43(5) of the IT Act 1961 which is as under:-
Sec 43(5 ) " speculative transaction" means a transaction in which a contract o r the purchase o r sale of any commodit y, including stock s and sh ares, is periodically or ultimatel y settled otherwise th an by the actual delivery or transfer of the co mmodit y or scraps:-
Provided that for the purposes of this clause-
(a) A cont ract in respect of raw materials o r merchandise entered in to by a person in t he course of his manufacturing or merchanting business to guard against loss th rough future price fl uctuation s in respect of h is co ntracts for actual delivery of goods manufactured by him o r merch andise sold by him; o r
(b) A contract in respect of stocks and sh ares entered into by a dealer or investor th erein to guard against loss in his holdings of st ocks and shares through price fluctuations; o r
(c) A cont ract entered into by a member of a forward market o r a stock exchange in the course of any t ransaction in the nature of jo bbing or arbit rage to guard against loss which may arise in the ordinary course of his business as such member or
(d) An eligible t ransaction in respect of t rading i n derivat ives referred t o in clause (ac) of section 02 of the securities contract s Act 1956 (42 of 1956) carried out in recognized stock exch ange.
Shall not be deemed t o be a speculative transactio n.
(i) Eligible t ransaction means any transactio n:-
(a) Carried o ut electronically on screen based syst em through a stock broker o r sub-broker or such othe r intermediary regist ered under section 12 o f the sec urities and exchange bo ard of India Act 1992 (1 5 of 1992) in accordance with the pro visions of the securities cont racts regulation Act 1956 (42 of 1956) or the securities and 4 I.T.A. No. 1287/KOL/2017 (Assessment Year: 2013-2014) Anand Mathur exchange bo ard of India Act 1992 or the deposit aries Act 1996 (22 of 1996) and the rules, regulatio ns or bye -laws made o r directions issued under those Acts or by banks or mutual funds o n a recognized stock exchange and:
(b) Which is support ed by a t ime stamped contract note issued by such stock broker or sub-broker or such other intermediary to every client indicating in the cont ract note the unique client identify number allotted under any Act referred to in sub clause (A) and permanent account number allotted under this Act .
(ii) recognized stock exchange means a reco gnized stock exchange as referred to in clause (f) of section 2 of the securities co ntracts regul ation Act 1956 (42 of 1956) and which fulfils such conditions as may be prescribed and notified 23 by the cent ral government for this purpose It is respectfully submitted th at in the present case the appell ant made transaction of fut ure t rading i.e. transactio n made in commodit y derivatives in future and o ptions thro ugh recognized stock exchange and incurred a loss of Rs.39,10,971/- during t he year. Hence, the loss incurred by the appel lant sh all be considered as business loss and not as specul ation loss".
Reliance was also placed by the assessee on the following judicial pronouncements:-
(i) G.K. Anand Bros. Buildwell (P) Ltd. -vs.-ITO[34 SOT 439];
(ii) Seema Jain -vs.- ACIT [6 ITR (Trib.) 488 (Del.)];
(iii) RBK Securities Pvt. Limited -vs.- ITO [118 TTJ (Mum) 465];
(iv) DCIT -vs.- SSKI Investors Services Pvt. Ltd. [113 TTJ (Mum) 511].
7. The ld. CIT(Appeals) did not find merit in the submissions made on behalf of the assessee on this issue and proceeded to confirm the action of the Assessing Officer in treating the loss from derivative transactions in Commodity Futures and Options as speculative loss for the following reasons given in his impugned order:-
"I h ave perused th e o bservat ion of the AO and the argument of the appellant. In t his regard it is pertinent to point out that there are so me fundament al differences between commodit y derivatives and security derivatives. Commodity derivat ives are traded on co mmodity exch anges and not on 5 I.T.A. No. 1287/KOL/2017 (Assessment Year: 2013-2014) Anand Mathur stock exchanges, t ransactions being routed th rough commodit y brokers and not th rough st ock brokers and regulated by the Fo rward Market s Commission and not by the Securities and Exchange Board of India (SEBI). Further, commodit y derivatives can be settled by delivery, unlike security derivatives, which could o nly be settled by payment or receipt of differences till recently. If one looks at the definit ion of specul ative t ransact ion, it pro vides that any transaction in wh ich a cont ract fo r the purchase o r sale of any commodity (including stocks and shares) is periodically or ultimatel y settled otherwise than by actual delivery o r transfer of the commodity o r script s. Commodity derivatives contract s are cert ainly cont racts for the purch ase or sale of commodities and, therefo re, would clearl y be covered by this definit ion if the t ransaction is squared off without delivery.
There is a specific exempt ion fo r security derivat ives, whereby such derivatives are not to be treated as specul ative transaction. However, th is exemptio n only applies to derivat ives traded on notified stock exchanges (Bombay Stock exch ange, National Stock Exchange, and United Stock Exchange) th rough stock brokers (i.e. securit y derivatives) and does not appl y to co mmodity derivatives which are traded on co mmo dity exchanges. T herefo re, clearly commodit y derivatives t ransactions squared up without delivery would amount to specul ative t ransactions.
Day t rading t ransactions in shares, where no delive ry is tak en but the transactions are squared up th e same day, would be regarded as speculation business and it woul d be possible to set off th e loss from such commodity derivat ives transactions against such profits from day trading in shares. It is import ant to not e that the prohibition on set off applies only to loss of a speculation business and not to speculat ion loss if they are considered as income from o ther sources.
It is also a matt er of fact th at NCDEX terminal is not a recognized stock exch ange as per rule 6 DDB r.w.s 43(5)(d) of the income Tax Act 1961. He therefo re, relying on the decisio n of ITAT J aipur bench in ITA No.9 1/JP/2013 dated 20.02.2013 Shri Prem Prak ash Gupta Vs ITO W-2(3), Alwar in case of Prem Prak ash Uma Sh ank ar disal lowed the loss by holding it to be a speculative loss.
Keeping in view of t he afo resaid fact it is clear th at the income from sh are earned by the appellant during th e year under the category of non specul ative transactions whereas derivative income is still under the catego ry of speculative business in nature which can be set off against only specul ative inco me. Therefore, th e addition made by the AO is here by upheld and the ground of appeal is di smissed".6
I.T.A. No. 1287/KOL/2017 (Assessment Year: 2013-2014) Anand Mathur
8. We have heard the arguments of both the sides and also perused the relevant material available on record. Although the ld. D.R. has strongly relied on the orders of the authorities below in support of the revenue's case on this issue, it is observed that similar issue has been decided in favour of the assessee by the Mumbai Bench of this Tribunal in the case of ACIT -vs.- Arnov Akshay Mehta [53 SOT 581] cited by the ld. Counsel for the assessee vide paragraphs no. 8 & 9 of its order, which read as under:-
"8. We h ave carefull y considered the rival contentio ns of the parties, perused the findings of the Commissioner (Appeals) as well as of th e Assessing Officer and th e material available on record. The assessee who is carrying o ut derivat ive t rading in commodit y through MCX Stock Exchange has incurred a loss of Rs.77 ,63,237. Th e Assessing Officer h as t reated such as a loss as speculation loss mainly on the gro und that Notification number 46 of 2009, issued by the CBDT , on 22nd May 2009, recognizing MCX as recognized St ock Exchange fo r the purpo se of sect ion 43(5), o nly from the said date and h as prospective effect and, therefo re, such a derivative t rading in commodity through MCX prio r to the said dat e will amount to speculation business. By Finance Act, 2005, clause (d) was inserted in the proviso to sub-section (5) of section 43 w.e.f. 1 s t April 2006, which pro vided that an " eligible transaction in respect of trading in derivat ive referred to in clause (a) of sect ion (2) of Securities Contract (Regulation) Act, 1956, carried out in a recognized Stock Exchange" sh all not be deemed to be speculati ve transactions. Thus, from 1 s t April 2006, trading in derivative carried th rough the recognized Stock Exch ange was treated as non-speculative t ransactions. For the purpose of clause (d), Rule 6 DDA and 6 DDB of I.T. Rules, 1962, provided th at notificatio n of recognized Stock Exch ange h as to be do ne by the Central Govt. (CBDT). In pursuance to this Rule, the CBDT h as notified the MCX Sto ck Exchange Lt d. by S.O. 1327(E) dated 22nd May 2009.
9. Now, the issue is wh ether such a notification given on 22nd May 2009, th ro ugh which MCX Stock Exchange has been recognized, can be h eld to be applicable for the t ransact ion undert aken in the assessment year 2007-08 i.e., after 1 s t April 2006. From the combined reading of cl ause (d) of proviso to section 43(5), Rule 6 DDA, 6 DDB and Expl anation (ii) to sectio n 43(5), it would be seen th at the rules which has been prescribed are o nly procedural in nature, as it prescribes the method as to how to appl y for necessary recognition and consequent notification. Hence, these are purely procedural mechanism. When a rule or pro visio n does not effect o r empower any right o r create an obligatio n but merely relat es to procedural mechanism, then it is deemed to be ret rospective unless such an inference is likel y to lead t o an absurdity. If the amendment is made in procedural mechanism, it will apply to 7 I.T.A. No. 1287/KOL/2017 (Assessment Year: 2013-2014) Anand Mathur all the proceedings pending o r to be initiated. Onc e in the statute, it h as been provided that w.e.f. 1 s t April 2006, an eligible t ransaction carried out in a reco gnized Stock Exchange will not be treated as speculation t ransaction, then simply because procedural mechanism h as taken a long time to recognize the Stock Exchange, it will not lead to an inference that the same would be applicable fro m the date when the Stock Exchange h as been recognized by t he Cent ral Go vt. The notificatio n issued under Rule 6DDB, does not empower any right o r create obligation but onl y recognizes what is al ready pro vided in st atut e. T hus, the t ransactions carried out through MCX Stock Exchange after 1 s t April 2006, would be eligible fo r being treated as non-speculation within th e meaning of clause
(d) of proviso to section 43(5). Vario us case laws, as h ave been relied upon by the learned Counsel also , support this view that recognition by th e Central Go vt. of the Stock Exchange from a later date will not debar the t ransact ion as no n-speculatio n, especially after 1 s t April 2006. Therefore, in our o pinio n, th e assessee's derivative trading through MCX Stock Exchange in the assessment year 2007-08 is non-speculation t ransaction and, therefore, the lo ss incurred in such t ransactions is to be treat ed as no rmal business loss and, acco rdingly, the findings of the Commissioner (Appeals), to this ext ent , is uphel d. Accordingly the gro und raised by the Revenue is dis missed" .
As the issue involved in the present case as well as all the material facts relevant thereto are similar to the case of Arnov Akshay Mehta (supra), we respectfully follow the decision of the coordinate bench of this Tribunal and direct the Assessing Officer to allow the claim of the assessee for set off of loss in question incurred by the assessee in Commodity Futures and Options against profit from non-speculation business as claimed. Ground No.3 of the assessee's appeal is accordingly allowed.
9. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on May 29, 2019.
Sd/- Sd/-
(S.S. Viswanethra Ravi) (P.M. Jagtap)
Judicial Member Vice-President (KZ)
Kolkata, the 29 t h day of May, 2019
8
I.T.A. No. 1287/KOL/2017 (Assessment Year: 2013-2014) Anand Mathur Copies to : (1) Anand Mathur, 14, Noormal Lo hia Lane, Ko lkata-700 007 (2) Income Tax Officer, Ward-43(3 ), Kolkata, 3, Government Plac e, 2 n d Floor, Room No. 2/34A, Ko lkata-700 001 (3) Commissioner of Income Tax (Appeals )-13, Ko lkata, (4) Commissio ner of Income Tax- , (5) The Depart ment al Represent ative (6) Guard File By order Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S. 9