TMI Blog2017 (5) TMI 719X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee had submitted a working to demonstrate that even if the concerns which were selected by the Transfer Pricing Officer for assessment year 2007-08 are taken as comparables for the instant year also, the transactions with ATL-Mauritius would still to be at arm's length price. All this goes to show that the Transfer Pricing Officer was fully aware of the manner in which the TNM method was applied by the assessee company and there is no adverse observations in this regard. The material on record, in our view, clearly belies the averment of the Revenue that the matter be restored back to the file of Transfer Pricing Officer for verifying the application of TNM method. Rather, in our view, the fact-situation clearly points to the contrary inasmuch as the assessee had fully explained its position in the course of proceedings before the Transfer Pricing Officer and no justifiable fault has been pointed out by the Transfer Pricing Officer; and, even before us the same position continues on behalf of the Revenue. Under these circumstances, in our view, the plea of the Ld. Departmental Representative is untenable and is hereby rejected. In the final analysis, it is held that the action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was capital in nature is not tenable. At this stage, it may also be relevant to mention that the Assessing Officer has only made a bald assertion and not given reason to justify as to why the acquisition of media rights in terms of the agreement dated 12/04/2006 has to be treated as capital in nature. Therefore, considering the entirety of the facts and circum stances of the case, in our view, the assessee made no mistake in treating the amount forfeited by BCCI as a deduction allowable while computing the income for the year under consideration. Thus, on this aspect assessee succeeds. Structured interest swap loss - treated as a speculation loss as against business loss treated by the assessee - Held that:- In order to treat the impugned interest rate swap arrangement to be ‘speculative’ in terms of section 43(5) of the Act, the Revenue would have to demonstrate that an interest rate swap arrangement was a tradable commodity. This crucial aspect has not been addressed by the lower authorities and infact the assessee has been consistently arguing that instant arrangement do not qualify to be a commodity for the purposes of section 43(5) of the Act. No doubt, before us the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,59,200/- on account of alleged difference in ALP calculated as per RPM taking AE as tested party in relation to sales made to Associated Enterprises. The reasons given by him for doing so are wrong, contrary to the facts of the case and against provisions of law. (iv) The observations made by the Ld. Transfer Pricing Officer (TPO) for rejecting TNM Method and adopting RPM Method as MAM and recommending adjustment to income and confirming the same by the Ld. CIT (A) are misplaced, wrong, contrary to the facts of the case and based on assumptions, presumptions and surmises. (v) The Ld. CIT (A)/TPO/AO erred in law and facts in treating the telecasting of Programmes Films and distribution of TV channels through its local distributors as Resale of Programmes by AE and applying RPM without considering the facts of the case, documents and substance of the transaction. (vi) Without prejudice to above contentions, even if PLI of AE being 42.29% as worked out by TPO is accepted as comparable as per TNMM, the PLI of assessee is 56%. Hence, the adjustment to ALP is unwarranted and wrong. (vii) The Ld CIT (A)/AO failed to appreciate that: a) The assessee produce or pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (A)/TPO/AO ought to have accepted the facts that issuance of corporate guarantees by assessee to lender bank for its AE, does not involve any costs to the assessee, does not have any bearing on profits, income, losses or assets of assessee hence outside the ambit of expression 'international transaction'. 3. Disallowance u/s 14 A - ₹ 69,94,985/- (i) The Ld. CIT (A)/AO erred in law and facts in disallowing ₹ 41,44,060/- out of interest and ₹ 28,50,925/- out of expenses u/s 14 A of the Act. The reasons given by them for doing so are wrong, contrary to the facts of the case and against the provisions of law. (ii) The Ld. CIT(A)/AO erred in law and facts in disallowing interest relating it to investments made during the year and earlier years, already proved to have been made out of internal accruals / interest free funds and no borrowed funds are utilised for earning exempt income. The reasons given by them for doing so are wrong, contrary to the facts of the case and against the provisions of law. (iii) The Ld. CIT(A)/ A.O. failed to appreciate that the assessee had far more internal accruals and interest free funds than these inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to market loss nor the loss on account of currency exchange fluctuation and interest rate swap is neither commodity nor it is purchase or sale of commodity or shares securities settled otherwise than delivery. 6. The Ld. CIT (A) grossly erred in law and facts in dismissing the appeal by repeating the order of the TPO/ AO without considering applying mind to the submissions of the assessee and denying justice to the appellant, thereby acted against the principles of natural justice. 3. Before we proceed to adjudicate the respective Grounds of appeal, a brief background of the case can be summarized as follows. The appellant is a company incorporated under the provisions of the Companies Act, 1956, and is, inter-alia, engaged in the business of broadcasting and distribution of TV Channels. For the assessment year under consideration, it filed a return of income on 26/09/2008 declaring a total income of ₹ 459,60,84,672/-, which was subsequently revised to ₹ 471,34,52,865/-. The return of income so filed was subject to a scrutiny assessment and in an order passed under section 143(3) r.w.s. 144C of the Act dated 15/02/2012, the total income has been assessed at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chmarked by applying the Transaction Net Margin Method (TNMM), and the Profit Level Indicator(PLI) was determined at 56.36% based on the formulae of Operating Profit/Operating Cost (OP/OC). It was asserted that since the margin of the selected comparables was 0.13%, the stated value of the international transaction of sale of T.V programmes and films was at an arm's length price. After considering the submissions and evidences relied upon by the assessee, the Transfer Pricing Officer has differed with the assessee on the determination of the arm's length price. Firstly, the Transfer Pricing Officer rejected the TNM Method selected by the assessee and instead he has selected the Resale Price Method (RPM) as most appropriate method in order to benchmark the international transaction of sale of programmes and films. Secondly, the Transfer Pricing Officer selected ATL, Mauritius as the tested party and computed the gross profit earned by ATL, Mauritius and attributed 90% of such profits to the assessee company and in this manner an addition of ₹ 24,91,59,200/- was computed in order to determine the arm's length price of the international transaction of sale of TV Prog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to his notice. It has been explained that the observation of the Transfer Pricing Officer is based on sales instances tabulated by him at the end of para 6.4 of his order. It is pointed out that the Transfer Pricing Officer has wrongly assumed that the instances of such sales are to the associated enterprises, whereas the correct position is that these are instances of sales made to the non-associated enterprises. The Ld. Representative for the assessee pointed out that even before the Transfer Pricing Officer, vide communication dated 14/10/2011, copy of which has been placed in the Paper Book at pages 115 to 126 it has been explained that if the Sale Price of the goods sold to non-associated enterprise is seen, then the Sale Price of the goods sold to associated enterprises is found to be higher. In this context, the Ld. Representative for the assessee referred to page 119 of the Paper Book to demonstrate that the Tabulation prepared by the Transfer Pricing Officer is wrong inasmuch as these are instances of sales to non-associated enterprises. Under these circumstances, it was pointed out that the Transfer Pricing Officer has misdirected himself in rejecting the comparability an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed telecasting rights of such programme and films to its associated enterprise, ATL Mauritius for enabling the telecast of such products on the channels of its associated enterprise in the territories of UK, USA, Africa, Middle East, etc. The said transaction has been entered in terms of a Memorandum of Understanding dated 01/10/2005, copy of which has been placed in the Paper Book at pages 63 to 66. Thus, assessee has entered into an international transaction within the meaning of section 92B of the Act with the its associated enterprise ATL Mauritius, for sale of rights of TV programmes and films, which were already exhibited on its TV channels in India. During the year under consideration, assessee has received a sum of ₹ 79,35,25,132/- as proceeds against the export/sale of TV programmes and films to ATL Mauritius. At this stage, we may also refer to the associated enterprise (ATL) and as per the material on record it transpires that the said concern is operating TV channels in various countries like, UK, USA, Middle East, South Africa, etc. The channels are managed and distributed by its subsidiaries in UK and USA. It is also emerging from record that ATL Mauritius had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of services; (iv) the price so arrived at is adjusted to take into account the functional and other differences, including differences in accounting practices, if any, between the international transaction 55a[or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of gross profit margin in the open market; (v) the adjusted price arrived at under sub-clause (iv) is taken to be an arm's length price in respect of the purchase of the property or obtaining of the services by the enterprise from the associated enterprise; 7.2 The first attack set-up by the appellant against the selection of RPM is that the same has been inappropriately applied by the Transfer Pricing Officer inasmuch as the transactions of ATL with Zee TV-USA and Asia TV-UK are not between unrelated entities. The said proposition is being supported by the phraseology of Sub-clause(i) of clause(b) of Rule 10B (1) of the Rules. Quite clearly, the RPM, at the threshold, refers to the price at which the property purchased by the enterprise from an associated enterprise is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch a burden has been discharged by the Transfer Pricing Officer? The discussion in the order of Transfer Pricing Officer reveals two reasons which have weighed with him to conclude that the transactions are dubious. Firstly, according to him, the programmes have been sold at throwaway prices to the associated enterprise as compared to the actual cost of production. For this purpose, he has tabulated the Sale Price of certain T.V. Programmes in para 6.4 of his order. At the time of hearing, Ld. Representative for the assessee pointed out that the reference to such values was a misnomer, because they are prices at which TV programmes and films have been sold to non-associated enterprises. In support, he has referred to page 119 of the Paper Book which brings out that the sale rates are for sales made to non-associated enterprises. It is seen that such a point was raised by the assessee even before the CIT(A) but the same has been merely brushed aside; and, even before us there is no repudiation to the same. Thus, it becomes quite clear that the stand of the Transfer Pricing Officer is based on a misconception, and is devoid of any factual support. The second reason advanced by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in selecting the RPM can also be gauged if one takes into consideration the provisions of Rule 10C of the Rules. As noted earlier, the computation of arm's length price under section 92C(1) of the Act is required to be made in terms of the most appropriate method prescribed therein. Sub-section (1) of section 92C of the Act also enumerates the methods prescribed and Rule 10C(1) of the Rules postulates that the most appropriate method shall be the method which is best suited to the facts and circumstances of each particular international transaction , and which provides the most reliable measure of an arm's length price in relation to the international transaction. Sub-rule(2) of Rule 10C provides the factors which shall be taken into consideration while selecting the most appropriate method. Quite clearly, the entire discussion in the order of the Transfer Pricing Officer does not reflect any justifiable factors for selecting the RPM method in preference to the TNM method selected by the assessee as the most appropriate method. Moreover, it is factually evident that assessee has undertaken similar international transactions of sale of television programmes and film rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umentation contemporaneously before the due date of filing of return of income as required as per Rule 10D(2) of the Rules and the prescribed report has also been certified by the Accountant in form No.3CEB. The Ld. Representative for the assessee explained that in the course of proceedings before the Transfer Pricing Officer there was certain delay in furnishing the requisite information, including the documentation and information required to be maintained as per Rule 10D(1) of the Rules, but the delay by itself cannot be interpreted to mean that the requisite information or documentation was not contemporaneously maintained. In this context, the Ld. Representative for the assessee has also referred to the Paper Book filed, wherein the requisite information, material and documentation required under Rule 10D(1) of the Rules has been placed. We find that the said material was very much before the Transfer Pricing Officer and, therefore, in our considered opinion, the stand of the Revenue is quite misplaced. 7.7 Another aspect argued by the Ld. Departmental Representative was to the effect that in case the action of the Transfer Pricing Officer in selecting the RPM is not upheld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany and there is no adverse observations in this regard. The material on record, in our view, clearly belies the averment of the Revenue that the matter be restored back to the file of Transfer Pricing Officer for verifying the application of TNM method. Rather, in our view, the fact-situation clearly points to the contrary inasmuch as the assessee had fully explained its position in the course of proceedings before the Transfer Pricing Officer and no justifiable fault has been pointed out by the Transfer Pricing Officer; and, even before us the same position continues on behalf of the Revenue. Under these circumstances, in our view, the plea of the Ld. Departmental Representative is untenable and is hereby rejected. 7.8 In the final analysis, it is held that the action of the Transfer Pricing Officer in determining the transfer pricing adjustment of ₹ 24,91,59,200/- with regard to the sale of television programmes and film rights to ATLMauritius deserves to be set-aside. We hold so. Thus, in so far as Ground No.1 is concerned, assessee succeeds. 8. The next substantive dispute in this appeal is on account of an addition of ₹ 1,63,16,370/- made by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in providing corporate guarantee to the bank for the loan taken by the associated enterprise. Alternatively, assessee contended that even if an adjustment was to be made, the arm s length rate would not exceed 1%, which was the rate charged by Barclays Bank to the associated enterprise, ATL-Mauritius for providing guarantee by way of letter of credit in assessment year 2005-06. However, the CIT(A) disagreed with the assessee and, he has affirmed the action of the Transfer Pricing Officer and accordingly, assessee is in further appeal before us. 8.2 Notably, as the orders of the lower authorities reveal, the principal plea of the assessee was that furnishing of a corporate guarantee on behalf of the associated enterprise is not to be construed as an international transaction within the meaning of section 92B of the Act. Before us, the Ld. Representative for the assessee has not laid any emphasis on the aforesaid primary plea, but has assailed the rate of 3% adopted by the income tax authorities to determine arm s length rate of the impugned international transaction of providing corporate guarantee to the bank on behalf of the associated enterprise. Therefore, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h rate for the international transaction in question. 8.5 We have carefully considered the rival submissions. As observed by us earlier, the limited issue before us relates to the efficacy of the arm s length rate of 3% determined by income tax authorities on account of fee/commission for corporate guarantee provided on behalf of the associated enterprise. Factually speaking, in the present case, assessee company has issued corporate guarantee on behalf of its associated enterprise for the loan facility availed by it from the bank. The determination of arm s length commission/corporate guarantee fee @ 3% by the Transfer Pricing Officer is based on the fees charged by the banks. Quite clearly, the aforesaid approach of the income-tax authorities is inconsistent with the judgment of the Hon'ble Bombay High Court in the case of Everest Kanto Cylinders Ltd.(supra). As per Hon'ble Bombay High Court, the instance of a commercial bank issuing bank guarantee is incomparable to a situation where a corporate entity issues guarantee to the bank that if the subsidiary/associated enterprise does not repay a loan, the same would be made good by such corporate entity. Therefore, follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 0.5% for the purposes of determining arm s length rate of the corporate guarantee commission/fee. Thus, on this aspect, we set-aside the order of CIT(A) and direct the Assessing Officer to recompute the addition as per our aforesaid direction. Thus, on this aspect assessee partly succeeds. 9. The next ground of appeal is in respect of disallowance of ₹ 69,94,985/- sustained by the CIT(A) under section 14A of the Act. In this context, the relevant facts are that during the course of assessment proceedings, the Assessing Officer noted that assessee had made substantial investments in the shares of subsidiary companies and has also earned dividend income of ₹ 1,09,82,154/-, which was claimed as exempt income under the Act. Under these circumstances, the Assessing Officer show caused the assessee as to why expenses incurred in relation to the earning of the exempt income not be disallowed under section 14A of the Act. Before the Assessing Officer, assessee made detailed submissions which have been reproduced by the Assessing Officer in para 4 of his order. The assessee raised various pleas, namely, that the fresh investments made during the year were not out of interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent order, also clearly establish that the owned interest-free funds of the assessee comprised of Share Capital and Reserves Surplus amounting to ₹ 2128.24 crores, whereas the investments are to the tune of ₹ 60.12 crores. Even in the course of hearing before us, the Ld. Representative for the assessee has referred to the Paper Book to justify the aforesaid figures. There is no repudiation of the said factual matrix either before us or in the assessment proceedings and, therefore, following the ratio of the Hon'ble Bombay High Court in the case of Reliance Utilities Power Ltd.(supra) it has to be presumed that the investments are out of own interest free funds. The said proposition is also applicable in the context of section 14A of the Act as held by the Hon'ble Bombay High Court in the case of HDFC Bank Ltd. vs. DCIT, 366 ITR 505(Bom). Therefore, considering the aforesaid fact-situation, we find no reason to uphold the disallowance made under section 14A of the Act on account of interest expenditure. 9.3 So far as the disallowance out of overhead expenses is concerned, the Ld. Representative for the assessee pointed out that the disallowance has been ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement. During the year under consideration, a dispute arose between the assessee and the BCCI and assessee did not renew the bank guarantee which expired on 12.4.2007. As a consequence, the BCCI terminated the agreement vide communication dated 31.5.2007 and 22.6.2007 and forfeited the advance deposit of US dollars 7,460,000 and replaced the assessee and granted media rights to a new broadcaster. The appellant-company considered the forfeited amount as irrecoverable and wrote-off the amount of advance of ₹ 33,54,01,600/- (i.e. USD 7,460,000) and claimed the same as an allowable revenue expenditure u/s 37(1) of the Act. The claim of assessee was on the ground that the said advance to BCCI was a business (trade) advance made in the ordinary course of business and hence its irrecoverability entitled the assessee to claim it as an allowable deduction u/s 37(1) of the Act. 10.1 On being show caused by the Assessing Officer to justify the claim, assessee pointed out that subsequent to entering of agreement dated 12.4.2006, two significant and materially adverse events took place, primarily on account of statutory regulations, which would have caused substantial loss to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and made an addition of ₹ 33,54,01,600/- to the returned income. The CIT(A) has sustained the addition for the reasons taken by the Assessing Officer. In addition, the CIT(A) observed that the write-off was approved by the Board of Directors of the assessee-company vide resolution dated 16.6.2008, a date which corresponds to the subsequent assessment year and, therefore, on this ground also the aforesaid claim of assessee was not allowable in the instant assessment year. 10.2 Against such a decision of the lower authorities, assessee is in further appeal before us. Before us, the learned representative for the assessee pointed out that in terms of clause 7.1 of agreement with BCCI, assessee had a right to re-negotiate the terms of the agreement in good faith in the light of any external developments and, therefore, in view of the change in governmental regulations, assessee had invoked the said clause. The assessee had an obligation to renew the bank guarantee expiring on 12.4.2007 which was not done and the same was not taken lightly by the BCCI, who invoked clause 8.1(ii) of the agreement and terminated the agreement with the assessee vide communication dated 31.5.2007. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. It transpires that BCCI terminated the arrangement vide communications dated 31/05/2007 and/or dated 22/06/2007 and the advance of ₹ 33,54,01,600/- was forfeited. Assessee company considered such forfeited amount of ₹ 33,54,01,600/- as an irrecoverable trade advance made in the ordinary course of business and, thus, sought its deductibility in terms of section 37(1) of the Act. The Assessing Officer as well as CIT(A) have disallowed the claim on various counts. Firstly, as per the Assessing Officer the write-off was premature as assessee had not fully explored the possibility of its recovery. The Assessing Officer noted that Arbitration proceedings were initiated by the assessee, which were continuing and, therefore, it could not be said that the loss had actually crystallized during the year under consideration. Secondly, as per the Assessing Officer, the payment was for acquiring media rights, which was in the nature of a capital asset and, therefore, nonrecovery of the dues was a capital loss. The CIT(A) further, noted that the decision of the Board of Directors approving the write-off was dated 16/06/2008, which was a date falling in the next assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006, assessee was required to provide bank guarantee of US dollars 60 million to the BCCI, which was renewable on the yearly basis. Pending renegotiation, assessee did not renew the bank guarantee, which expired on 12/04/2007. BCCI viewed such non-renewal of the bank guarantee as a violation of the terms and conditions of the agreement and accordingly, invoked the termination clause and terminated the agreement and granted media rights to new broadcaster. BCCI also forfeited the advance of US dollars 74,60,000 lying with it. Assessee approached the BCCI, filed a legal case for recovery and also initiated arbitration proceedings, so however, assessee did not visualize any sign of recovery and, therefore, it wrote-off the forfeited amount (i.e. ₹ 33,54,01,600/-) and claimed it as a deduction. Factually speaking, the loss of ₹ 33,54,01,600/- suffered by the assessee is not in dispute inasmuch as there is no averment by the Revenue that there has been any recovery on this count on a later date. The Assessing Officer and the CIT(A) have emphasized that assessee did not explore the possibility of recovery in full and, therefore, the write-off is premature. In our considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee s sister concern, M/s. Zee Media Corporation Ltd. in ITA No.1590/Mum/2015 dated 12/08/2015, wherein also similar payments have been considered on revenue account and not capital in nature. In our considered opinion, the aforesaid precedents support the case of the assessee that the impugned loss was not capital in nature. Moreover, it is pertinent to observe that in the assessment year 2007-08 assessee has asserted that part of the amount paid to BCCI has been debited in the Profit and Loss account and there is no dispute on this count. In this background, in our view, the plea of the Assessing Officer to say that the impugned loss was capital in nature is not tenable. At this stage, it may also be relevant to mention that the Assessing Officer has only made a bald assertion and not given reason to justify as to why the acquisition of media rights in terms of the agreement dated 12/04/2006 has to be treated as capital in nature. Therefore, considering the entirety of the facts and circum stances of the case, in our view, the assessee made no mistake in treating the amount forfeited by BCCI as a deduction allowable while computing the income for the year under consideration. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flow in USD to floating interest cash outflow and also intended to benefit from favourable movement in the price of dollar. On the monthly basis, the interest cash flows receivable and payable were netted of between the assessee and the bank and such arrangement was to continue until the discharge of bond liability. Neither party to the arrangement had a right to receive or an obligation to pay the aforestated notional principal, which was only a means to calculate interest outflows on each settlement date. In the previous year relevant to the assessment year under consideration, on account of adverse movements in Libor and/or USD/Euro exchange rates, assessee incurred a loss of ₹ 26,16,92,712/-. In this background, assessee submitted that the said loss arising on account of adverse movement of Libor/USD/Euro exchange rates is not a transaction falling within the meaning of section 43(5) of the Act so as to be treated as speculative in nature. Additionally, assessee also canvassed before the Assessing Officer that the impugned loss was a foreign currency derivative loss and since the expression commodity does not include currency, such transaction could not be treated as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of Over-The- Counter (OTC) derivatives, which are traded directly between the parties. According to him, the trading in OTC derivatives is permitted by the respective Regulatory bodies and in this context, contended that such trading in OTC mode has been permitted by the Reserve Bank of India, which is the relevant Regulatory Authority in this regard. It was, therefore, explained that the ratio of the judgment of the Hon'ble Bombay High Court in the case of Bharat R. Ruia(HUF)(supra) is fully attracted even to such transactions because primarily the transactions are not based on actual delivery and, therefore, the same are speculative in nature. 11.4 We have carefully considered the rival submissions. In so far as factual aspect is concerned, we are dealing with the transaction of interest rate swap, which essentially is an interest rate agreement with the bank, in which the two parties agree to exchange interest rate cash flows based on a specific notional amount, from a fixed rate to a floating rate or vice-versa. Undoubtedly, the present arrangement between assessee and the bank does envisage a forward contract, which has been entered by the assessee in order to mana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-based systems through a stock broker or sub-broker or such other intermediary registered under section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or the Securities and Exchange Board of India Act, 1992 (15 of 1992) or the Depositories Act, 1996 (22 of 1996) and the rules, regulations or bye-laws made or directions issued under those Acts or by banks or mutual funds on a recognised stock exchange; and (B) which is supported by a time stamped contract note issued by such stock broker or sub-broker or such other intermediary to every client indicating in the contract note the unique client identity number allotted under any Act referred to in sub-clause (A) and permanent account number allotted under this Act; (ii) recognised stock exchange means a recognised stock exchange as referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and which fulfils such conditions as may be prescribed and notified7 by the Central Government for this purpose; Explanation 2.-For the purposes of clause (e), the expre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Bombay High Court was whether such a contract constituted a contract for the purchase of commodity within the meaning of section 43(5) of the Act. As per the Hon'ble Bombay High Court the future contract being articles of trade and commerce, which are legally permitted to be traded on the stock exchange would be a transaction in a commodity as contemplated under section 43(5) of the Act. Therefore, the loss incurred in such a transaction was held to be falling for consideration as a speculative transaction within the meaning of section 43(5) of the Act. In coming to such conclusion, the Hon ble High Court noted that the transaction involved trading in underlying security/derivates, which was tradable on the stock exchange. Thus, coming back to the instant case, in order to treat the impugned interest rate swap arrangement to be speculative in terms of section 43(5) of the Act, the Revenue would have to demonstrate that an interest rate swap arrangement was a tradable commodity. This crucial aspect has not been addressed by the lower authorities and infact the assessee has been consistently arguing that instant arrangement do not qualify to be a commodity for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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