TMI Blog2019 (3) TMI 2011X X X X Extracts X X X X X X X X Extracts X X X X ..... saction Tax (CTT) paid in respect of trading transaction of the assessee under consideration and therefore, the same does not quantify for being treated as non-speculative - The Second proviso which has been inserted by the Finance Act 2018 is curative and therefore is to be treated as came into force from the date from which clause (5) itself was inserted in the statute i.e. with effect from 01.04.2014. Our above view finds support from the decision of the Hon ble Supreme Court in the case of Allied Motors Pvt. Ltd. [ 1997 (3) TMI 9 - SUPREME COURT ] wherein it was held that a proviso which is designed to eliminate unintended consequence which may cause undue hardship to the assessee and unjust in a specific situation is to be read as retrospective with effect from which the main section was inserted. To the same effect is the decision of Ansal Land Mark Township Pvt. Ltd. [ 2015 (9) TMI 79 - DELHI HIGH COURT ] wherein decision of the Agra Bench of the Tribunal in the case of Rajeev Kumar Agarwal [ 2014 (6) TMI 79 - ITAT AGRA ] was confirmed wherein it was held that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Regulation Act, 1952 since 20-11-2003. 5. That the CIT(A) has failed to appreciate the fact that the retrospective amendment brought in Sec 43(5)(e) by the Finance (No.2) Act 2014 is not applicable to the appellant. It is well established that a provision cannot be read retrospectively to divest assessee of his vested rights. 6. That in view of the facts and circumstances the appellant cannot be held liable for non payment of commodities transaction tax since the same was levied with retrospective effect and much later than the dates of transactions. 7. That in any case the appellant was never liable to pay Commodities Transaction Tax since the appellant was trading in agricultural commodity derivatives and no CTT is payable on the same as 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 2018 is clarificatory and retrospective in nature. 9. That the AO and CIT(A) have failed to appreciate that no CTT was payable in respect of the said trading in agricultural commodities derivatives under the CTT Act and as such the appellant could not have paid CTT. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ease Pvt. Ltd. (2013) 358 ITR 305. vii. The notification of recognition of the exchange does not create any right or liability but it merely recognizes the eligibility. vii. A number of judicial precedents/decisions were also quoted. ACIT Vs Arnav Akshya Mehta (2012) 25 taxman.com 252 Vimal Oil Foods Ltd. Vs ACIT (2011) 55 taxman.com 107 6. The CIT(A) after considering the above arguments of the assessee observed that the moot question involved in this case was that the transactions carried out by the appellant during the period 21.05.2013 to 22.08.2013 (prior to approval of NCDEX on 27.11.2013) which are in the nature of trading in commodity derivatives are speculative transactions within the meaning of Section 43(5) of the Income Tax Act or these are saved by clause (e) of the proviso appended to the aforesaid section. The CIT(A) observed that a close look at the provisions shows that the main body of the section shows that any transaction which is settled otherwise than by actual delivery/transfer of commodity would as a general principle be treated as speculative transaction. However, there are number of exceptions carved out of this general rule proviso a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ried out on the earlier occasion. A considerable reliance has been placed on ACIT Vs Arnav Akshay Mehta (2012) 53 SOT 581 (Mum.) and the decision of CIT Vs NASA Finlease Pvt. Ltd. (2013) 358 ITR 305. In these cases, it was held that the appellant was entitled to treat the transaction as non-speculative even if the respective exchanges have been recognized subsequently. The primary reasoning given in these decisions was that the operations of the beneficial provisions come into play the moment they are enacted; the rules and notifications are merely subservient; any delay caused in issue of notifications cannot be put as an hindrance to the benefits to be given to the appellant. 11. The CIT(A) thereafter observed in his order that it is to be noted that Section 45(5)(d) of the Act is para material to the provision relating to transaction of trading in derivatives carried out on a recognized stock exchange has been held as non-speculative. However, in respect of these transactions and other eligibility test which are required to be passed is that they should be compliant to the provisions of the Securities Contracts Regulation Act 1956. It goes without saying that that these trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e benefit of the provisions. 15. The CIT(A) further observed that the decision in the case of CIT Vs NASA Finlease Pvt. Ltd. (2013) 358 ITR 305 (Del.) was not applicable because that decision was given in the context of Section 45(5)(d) of the Act where it had mentioned in para 5.7 about the systems of stock exchange was fully established, therefore, Hon ble Court took a lenient view in respect of recognition by CBDT and treated this as mere formality. However, in the case of Section 45(5)(e) of the Act were not fully equipped and operationalized,, therefore, any laxity in permitting transactions before the due diligence is likely to cause damage to Revenue. 16. Further, it was mandatory upon the appellant to show that commodity transaction tax had been paid because the amendment made effective retrospectively from the date on which Section 45(5)(e) of the Act came on statute book. Any transaction on which CTT was either not paid or it has not been explained to the AO with the help of documentary evidence would not qualify for the protection under the aforesaid section. Such transaction would be treated as speculative. Hence, in consideration of the discussion made above, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch procedural matters what is important is whether once procedures are prescribed thereafter whether they have been complied with or not, which in the given case of Appellant NCDEX has very well complied with in all respect. 21. We hereby reproduce quote from 7th edition of Shri Nani Palkhiwala, An authority cannot make rules or issue notifications adversely affecting the assessee's rights with retrospective effect, unless the statute, either expressly or by necessary intendment, empowers the authority to do so. This principle has now received statutory recognition in s. 295(4). The same principle is enunciated in the case of ITO v Ponnoose 75 ITR 174 (SC). 22. Section 295(4) restricts the authority to make rules that are applicable from retrospective date. According to Shri Nani Palkhiwala similar principle will also apply to Notifications made for making rules applicable. In this case relevant rule 6DDC was introduced on 4-7-2013 and thereafter only NCDEX could have applied for getting notified and got notified on 27- 11-2013. Obviously when there are no rules or conditions prescribed, compliances cannot be made applicable to transactions carried during the period whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall not be deemed to be a speculative transaction. 24. A few conditions have been laid down in order to qualify for the exclusion. These are similar to the conditions laid down for exclusion of securities derivative transactions from the definition of speculative transaction. The commodities derivatives transaction should be carried out electronically on a screen-based system on a recognized commodity exchange through a member or intermediary registered under the bylaws, rules and regulations of a recognized commodity exchange in accordance with the Forward Contracts (Regulation) Act (FCRA) and in accordance with the rules, regulations or by-laws made or directions issued under FCRA. The transaction should also be supported by a time stamped contract note, issued by such member or intermediary indicating the unique client identity number allotted under FCRA, or rules, regulations or by-laws, unique trade number and Permanent Account Number. 25. A further requirement is that the transactions are carried out in recognized association and it should comply with such conditions as may be prescribed by the central government and should be notified by the central government f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lead a derivative transaction to be categorized as speculative one. II. [2011] 12 taxmann.com 55 (Ahemdabad)/[2011] 46 SOT 276 (Ahmedabad)/[2011] : ACIT, Circle-2, Bhavanagar v. Hiren Jaswantrai Shah there was a circular dt. 25-1-2006 issued for treating income / loss from derivative transaction in shares as regular business income was treated as curative and considered to be applicable retrospectively. III. CIT vs. Nasa Finelease Pvt Ltd - ITA 647 / 2012 / Delhi HC, dt. 6-9-2013. It was the case of the assessee that the transaction was conducted by it from July 2005 to Sept 2005 cannot be rejected for the benefit of provision (d) of Sub-section 5 of Section 43(5) as there was a provision on the statute in the shape of clause (d). The lapse in the issue of notification etc. was only on account of delay by CBDT. Keeping in view relief was given to the assessee. IV. [2011] 16 taxmann.com 159 (Delhi) IN the ITAT DELHI BENCH 'B Smt. Seema Jain v. Assistant Commissioner of Income-tax. Transactions in derivatives (futures and options) carried out in assessment year 2006-07 are eligible for benefit of section 43(5)(d) The Parliament has enacted the law with effect fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness. Therefore, the loss-in-question was to be treated as a business loss and not as loss in speculation business. 28. Case of the Appellant is identical to above situation, even this time condition and procedure for applying were announced vide Notification no. 51 on 4-7-2013 vide Rule 6DDC, Rule 6DDD and form 3BC (ITA 6534 / 2012). Therefore, just because NCDEX was notified on 27-11-2013 will not make all transactions for entire period from 1-4-2013 till 26-11-2013 as made on unrecognized association. It is therefore submitted that for the 1st year of such amendment the date of notification is not important since it is impossible to even apply for getting notified before the guidelines are prescribed. Therefore, exclusion from the definition of speculative transaction would apply for the full year in respect of those recognized associations, irrespective of the date of approval during the year. The trading in commodity futures / derivative on NCDEX carried by assessee Company in this case be treated as non-speculative even for the period prior to its notification as recognized association i.e. transactions from 1-4-2013 till 26-11-2013. 29. However, AO contended that NCD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s databases; (iii) the recognised association shall maintain a complete audit trail of all transactions (in respect of derivative market) for a period of seven years on its system; (iv) the recognised association shall ensure that transactions (in respect of derivative market) once registered in the system are not erased; (v) the recognised association shall ensure that the transactions (in respect of derivative market) once registered in the system are modified only in cases of genuine error and maintain data regarding all transactions (in respect of derivative market) registered in the system which have been modified and submit a monthly statement in Form No. 3BC to the Director General of Income-tax (Intelligence and Criminal Investigation), New Delhi within fifteen days from the last day of each month to which such statement relates. 31. Rule 6DDD provides the procedure for notification as required under Explanation 2 to section 43(5). This procedure is laid down as under:- Notification of a recognised association for the purposes of clause (e) of the proviso to clause (5) of section 43. 6DDD. (1) An application for notification of a recognised associatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or create an obligation or only relates to procedures, then it is deemed to be retrospective otherwise such inference is likely to lead to absurdity. The notification issued under rule 6DDD does not empower any right or create obligation but only recognizes what is already in existence. 33. It is not a case that NCDEX was created after 27-11-2013 and, therefore, transactions could not have been carried out through them and, therefore, transactions carried out prior to this date would also be covered for being treated as nonspeculative. In other words if transactions in derivatives are carried out through recognised associations which are already in existence during assessment year 2014-15 i.e., financial year 1-4-2013 31-3-2014 onwards and which are subsequently recognized under rule 6DDD and there is no allegation that such transactions or the recognized association has violated any condition prescribed under rule 6DDD then such recognition by CBDT would also cover transactions carried from the date sub clause (e) inserted. Therefore, from the above it will be very clear that the notification dated 27.11.2013 would be applicable for entire assessment year 2014-15 and not to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ives carried out in a recognized association. shall not be deemed to be a speculative transaction. As a correct interpretation of above newly inserted section 43(5)(e) would be that this exclusion would apply to all commodity derivatives transactions in agricultural as well as non-agricultural commodities and not just non-agricultural commodity derivatives, which are subject to CTT. 37. Since this amendment was effective from assessment year 2014-15, it would naturally apply to all transactions on or after 1 April 2013. This would also mean that all commodity derivative transactions are no longer to be treated as speculative transactions. Unfortunately, tax law makers do not believe in keeping things simple, they amended same section in August 2014 as below: 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 association [which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013)] . If th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or implied; and any amendment which is in force at the beginning of the relevant assessment year must govern the case though the Income- Tax Act as it stands amended on the 1st April of a financial year must apply to the assessment of that year. Any amendments in the Act, which come into force after the 1st April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force. This principle is also applied in the cases of CIT v Scindia Steam Navigation Co Ltd 42 ITR 589 (SC) Karimtharuvi Tea Estates Ltd v State of Kerala 60 ITR 2S2 (SC). Two important paragraphs from the judgement by the Hon'ble Supreme Court are 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 to 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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act only required that the transactions carried out on recognized association will be deemed as non-speculative and NCDEX fulfilled all conditions during the period when there were no rules prescribed as well as the period after they were prescribed clearly establishes that transactions carried for full year should be treated as nonspeculative. Observation of Ld. AO that Appellant carried this business for the 1st time and it was not regularly engaged in trading in commodities trading is out of context and relevance. Infact, the Appellant Company is engaged into trading for more than 25 years and has full liberty to start any line of business at any point of time. The Act / Section nowhere states that the provision would be applicable only to the person who has carried such transactions in the past and not to the first timer. The case laws submitted by the Appellant were on identical issue of applicability of relevant rules and notifications which arose when section 43(5)(d) was introduced by Finance Act 2005. 44. Observation of Ld. AO that it was the intention of the legislature to keep trading in agricultural commodities derivatives away from the normal business transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be applied in appellant s case in the given circumstances. 48. Since appellant fully acted upon certain provision that existed in the act on the date when transactions were carried in 2013, the principle of promissory estoppel would prevail for which reliance is placed in Motilal Padampat Sugar Mills vs. Estate of U.P. (SC) (118 ITR Page 326 Internal Page 361). 49. The question of making disallowance of loss from commodity derivatives in the returned income at the time of conducting tax audit u/s.44AB does not arise since the loss was genuinely an allowable business loss. 50. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case, the undisputed facts are that the assessee has suffered loss of Rs.4,69,47,808/- in trading in agricultural based commodity derivatives during the period 21.05.2013 to 22.08.2013. The assessee claimed the above loss as non-speculative loss and set off the same against other business income in the return of income filed for the assessment year 2014-15. 51. The AO has not allowed set off of this loss and treated the same as speculative business loss. 52. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (j) of section 2 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and which fulfils such conditions as may be prescribed and is notified by the Central Government for this purpose: 56. The contention of the Revenue is that though the provision was inserted w.e.f. assessment year 2014-15 but as the recognized association was notified by the notification dated 27.11.2013, the eligible transaction entered into prior to that date will not quantify as non-speculative transaction. 57. We find that similar issue arose before the Hon ble Delhi High Court in the case of CIT Vs NASA Finelease Pvt. Ltd. reported in 358 ITR 305 (Del.) wherein in relation to clause (d) of first proviso to Section 43(5) of the Act which was inserted w.e.f. assessment year 2006-07 and the recognized stock exchange was notified vide notification dated 25.01.2006 and therefore, the transaction which were otherwise eligible during the period 01.04.2005 to the date of notification were to be treated as non-speculative or not was decided as under: 7. The factual position is not in dispute. NotificationNo.2/2006 dated 25thJanuary, 2006, issued by the Central Board of Direct Taxes does not spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cultural commodity derivatives. The ld. AR of the assessee drawn our attention to the Second proviso to Section 43(5) of the Act inserted by the Finance Act, 2018 which reads as under: Provided further that for the purposes of clause (e) of the first proviso, in respect of trading in agricultural commodity derivatives, the requirement of chargeability of commodity transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013) shall not apply. 61. The ld. DR pointed out that the above Second proviso was inserted w.e.f. 01.04.2019 and therefore, was not applicable in the assessment year 2014-15. 62. We find that vide inserting clause (e) in the First proviso to Section 43(5) of the Act, the Hon ble Finance Minister stated in the Parliament as under: 149. There is no distinction between derivative trading in the securities market and derivative trading in the commodities market, only the underlying asset is different. It is time to introduce Commodities Transaction Tax (CTT) in a limited way. Hence, I propose to levy CTT on non-agricultural commodities future contracts at the same rate as on equity futures, that is commodities futures contracts at the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court in the case of Allied Motors Pvt. Ltd. Vs CIT 224 ITR 677 (SC) wherein it was held that a proviso which is designed to eliminate unintended consequence which may cause undue hardship to the assessee and unjust in a specific situation is to be read as retrospective with effect from which the main section was inserted. 66. To the same effect is the decision of the Hon ble Delhi High Court in the case of CIT Vs Ansal Land Mark Township Pvt. Ltd. 377 ITR 635 (Del.) wherein decision of the Agra Bench of the Tribunal in the case of Rajeev Kumar Agarwal Vs Addl.CIT (2014) 34 ITR (T) 349 (Agr.) was confirmed wherein it was held that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically by the statue. It was held that Second proviso to Section 40(a)(ia) of the Act must be given retrospective effect of the point of time when the related legal provision was introduced. Thus, in view of the above discussion as in the instant case, it is not in dispute that the assessee s transactions in agricultural commodity derivative were otherwise eligible transaction within the meaning of Section 43(5) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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