A recent post here discussed the decision of the ITAT Special Bench at Kolkata in Shree Capital Services v. ACIT, commenting on its relevance for derivative transactions in India. Another detailed examination of the decision, and of the legal issues surrounding the taxation of derivatives, is now available here.
In sum, the author argues-
“[a] Firstly, prior to the insertion of clause [d] by Finance Act, 2005 w.e.f. 1-4-2006, it is a possible view that transaction in derivatives involve ‘deliveries’ of intangibles and may therefore not be considered as speculative in terms of section 43[5].
[b] Secondly, after the insertion of clause [d], only transactions in derivatives on stock exchanges approved by the Central Government for the purposes of section 43 [5][d] will be treated as ‘non speculative’ and that too from the date of the publication of the notification. Presently, only two stock exchanges have been approved for the purposes of section 43 [5]. Derivative transactions on other non approved stock exchanges will be considered as speculative from Assessment Year 2006-07.”
On the basis of his conclusions, it is contended that the observations made by the Tribunal are inconsistent, and hence the decision requires reconsideration.
On the strength of my individual perception, I am obliged, rather constrained, to observe the following: In dealing with the subject point (s) of issue, certain very important aspect, crucial one at that, seems to have been missed out, ignored, or overlooked. As may be, rather ought to have been, readily noted even on a plain but straight forward reading of the relevant section 43 (5), the phrase – “settled otherwise than by”, is immediately followed by, apart from the words -”the actual delivery” (the implications whereof has already come up for scrutiny and is being debated), also the words- “or transfer of the commodity or scrips”. This reality, so far as I could see, does not seem to have been made a serious note of, much less gone into at all by anyone concerned so far. May be, if so gone into, it might eventually lead to / result in, a better, if not the correct view, being taken in the proceedings wherever the subject issue(s) happens to be pending as of now.
vswaminathan
PS: See my Post on ITATonline