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TMI Blog2009 (7) TMI 172X X X X Extracts X X X X X X X X Extracts X X X X ..... he circumstances of the case, learned CIT(A) erred in not holding that the provisions of s. 43(5)(d) are clarificatory in nature and hence arc retrospective in operation." 2. The facts of the case are that the assessee is a company which is engaged in the business of financing and investments in shares and securities. During the year under consideration, the assessee suffered the loss amounting to Rs. 9,25,065 on account of futures and options. The AO treated the same as speculation loss as per s. 43(5) of the IT Act. On appeal, the CIT(A) confirmed the order of the AO on this ground. Hence this appeal by the assessee. 3. At the time of hearing before us. the learned counsel for the assessee argued at length. However, his arguments were basically two-folds, viz.: (i) that the futures and options are a form of derivatives and as per the SEBI Rules applicable at the relevant time, permitting the dealing in derivatives, actual delivery thereof is not possible and, therefore, the same are to be settled in cash. The assessee had no option of either giving or taking delivery of the derivatives. That s. 43(5) is applicable when the transaction is for purchase or sale of any commodit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. B. Suresh (2009) 222 CTR (SC) 513 : (2009) 20 DTR (SC) 93 : (2009) 313 ITR 149 (SC). In the said case, the Hon'ble apex Court has held that the definition of 'goods' is very wide and it includes telecasting right of a film or TV programme. He submitted that the term 'commodity' is even wider and, therefore, the derivatives would fall within the term 'commodity' used in s. 43(5). He further submitted that the legislature inserted cl. (d) in s. 43(5) providing that the transaction in derivatives would not be treated as speculative transaction w.e.f. 1st April, 2006. This establishes that before this amendment, the transactions in derivatives were included in the meaning of s. 43(5), otherwise there was no purpose of inserting cl. (d). If it is held that transaction in derivatives was out of the purnew of s. 43(5), it will render cl. (d) of s. 43(5) to be redundant. The legislature will not make an amendment in the Act to insert a redundant clause in the statute. He also submitted that cl. (d) inserted by Finance Act, 2005 w.e.f. 1st April, 2006 is prospective and not retrospective. He pointed out that the clause is inserted with a specific date 1st April, 2006. When by the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action in which contract for purchase and sale of any commodity is settled otherwise than by actual delivery. It is not in dispute that in the case of transaction in derivatives, the transaction is always settled otherwise than by actual delivery. However, it was contended by the learned counsel that s. 43(5) is applicable only in respect of contract for purchase and sale of commodity. His contention was that the derivative is not a commodity and, therefore, s. 43(5) would not be applicable at all. The learned Departmental Representative has furnished before us the print out taken from the website of SEBI explaining the term 'derivative', which reads as under: "The term 'derivative' indicates that it has no independent value, i.e. its value is entirely 'derived' from the value of the underlying asset. The underlying asset can be securities, commodities, bullion, currency, live-stock or anything else. In other words, derivative means a forward, future, option or any other hybrid contract of predetermined fixed duration, linked for the purpose of contract fulfilment to the value of a specified real or financial asset or to an index of securities." From the above it is clear that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had bought rights of various decoders and had recorded movies on beta-cam-tapes which were transferred as telecasting rights to Star TV for five years (it has a limited life). Hence, such 'rights' would certainly fall in the category of articles of trade and commerce, hence merchandise. On the question as to whether transfer of the said rights by way of lease would attract s. 80HHC, we find merit in the contention that under r. 9A and r. 9B, the word 'lease' is included in the meaning of the word 'sale'. Lastly, we find no infirmity in the judgment of the Bombay High Court in the case of Abdulgafar A. Nadiadwala vs. Asst. CIT & Ors. (2004) 188 CTR (Bom) 232 : (2004) 267 ITR 488 (Bom)." Thus, their Lordships have held that due to technological advancement, one has to change his thinking about various concepts like goods, merchandise and articles. The above observation would be squarely applicable while interpreting the word "commodity". In s. 43(5), the term "commodity" has been given a wide meaning because it is mentioned that any commodity includes stocks and shares. Therefore, even if in common parlance the term "commodity" may not include any stocks and shares, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation thereto reads as under: "(d) an eligible transaction in respec1 of trading in derivatives referred to in cl. (ac) of s. 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange; shall not be deemed to be a speculative transaction. Explanation: For the purposes of this clause the expressions: (i) 'eligible transaction' means any transaction,- (A) carried out electronically on screen-based systems through a stock broker or sub-broker or such other intermediary registered under s. 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 al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ril, 2006 and will, accordingly, apply in relation to asst. yr. 2006-07 and subsequent years." From the above it is evident that the transaction in derivatives is exempted from the purview of speculative transaction under s. 43(5) because of recent systemic and technological changes introduced by stock exchange. The above intention of the legislature is also clear from the fact that all the transactions in derivatives have not been exempted from the ambit of speculative transaction under s. 43(5) but only the eligible transactions of trading in derivatives carried out in a recognised stock exchange are exempt. By way of Explanation, the legislature has also defined the term 'eligible transaction' and 'recognized stock, exchange'. The legislature has also provided the Rules, i.e. r. 6DDA and r. 6DDB prescribing the conditions which a stock exchange is required to fulfil to get notified as a recognized stock exchange for the purpose of cl. (d) of proviso to s. 43(5). This rule is inserted w.e.f. 1st July, 2005. From the above it is abundantly clear that cl. (d) or s. 43(5) cannot be said to be clarificatory in nature. The learned counsel for the assessee has relied upon several dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22. The amendment introduced by the Finance Bill, 1987, was declaratory/clarificatory in nature so far as it related to s. 27(iii), (iiia) and (iiib). Consequently, these provisions are retrospective in operation." From the above decision it is evident that their Lordships were of the opinion that amendment to s. 22 was intended to clear up the obvious omission and doubts as to the meaning of the word 'owner' in that section and hence the amendment was clarificatory in nature. As we have already found that the purpose of introduction of cl. (d) of s. 43(5) was not to clear any obvious omission, but the legislature found that due to recent systemic and technological changes introduced by stock markets there is sufficient transparency in the transactions and, therefore, the legislature decided to exempt the trading in derivatives which otherwise under certain conditions i.e. eligible transactions in trading in derivatives in recognized stock exchange, were exempt from the purview of speculative transaction under s. 43(5). The procedure has also been prescribed by way of r. 6DDA and r. 6DDB how a stock exchange can become a recognized stock exchange. From these facts it is evident t ..... 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