Cit V vs Nasa Finelease P Ltd.
2013 Latest Caselaw 3985 Del

*          IN THE HIGH COURT OF DELHI AT NEW DELHI

+                        ITA No. 647/2012

                                      Reserved on: 27th August, 2013
%                             Date of Decision: 6th September, 2013

CIT V                                                ....Appellant
                   Through      Mr. Sanjeev Rajpal, Sr. Standing
                   Counsel.

               Versus

NASA FINELEASE P LTD.                             ...Respondent
             Through            Mr. Nageshwar Rao and Mr.
                                Sandeep S. Karhail, Advocates.


CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE SANJEEV SACHDEVA

SANJIV KHANNA, J.

Revenue, by this appeal under Section 260A of the Income Tax

Act 1961 (Act, for short), has raised a solitary issue relating to

interpretation of clause (d) to Section 43(5) of the Act. For the

purpose of record, we note that the appeal pertains to assessment year

2006-07.

2. The respondent-assessee is engaged in the business of dealing

in securities and investment and was engaged by Kotak Mahindra

Securities to manage their funds and earn income in nature of

profits/gains or dividends from dealing with securities. The assessee

had received management fee as per contract with Kotak Mahindra

Securities.

3. The respondent-assessee had shown a loss of Rs.1,90,29,988/-

in derivative transactions. The Assessing Officer held that the loss

was speculative loss under Section 73 of the Act. Secondly, the

derivative transactions were during the period July, 2005 to

September, 2005 and proviso (d) to sub-section 5 to Section 43 was

violated. The proviso (d) to section 43(5) inserted with effect from 1st

April, 2006 stipulates that eligible transactions should have been

conducted/carried out only in recognized stock exchange, to be

notified. The said insertion was made by Finance Act, 2005. Rule 6

DDA and Rule DDB were subsequently enacted to prescribe

conditions and procedure for notification of a recognized stock

exchange. National Stock Exchange and Bombay Stock Exchange

were notified vide notification dated 25th January, 2006. The

transactions in question it is accepted and an admitted position were

conducted in the National Stock Exchange.

4. Notification dated 25th January, 2006 does not state or specify

the date from which the two stock exchanges were recognized.

However, the memorandum stipulated that transactions in respect of

trading in derivatives in the aforesaid two stock exchanges with effect

from 25th January, 2006 shall not be deemed to be speculative

transactions. The Assessing Officer relying upon the explanatory

memorandum observed that the transactions undertaken between July,

2005 to September, 2005 were before 25th January, 2006 and,

therefore, the derivative loss was not eligible under proviso (d) to

Section 43 (5) of the Act. The loss was disallowed.

5. CIT (Appeals) observed that Section 43(5)(d) was operative in

the assessment year 2006-07, but the Rule 6 DDA and Rule DDB

were notified on 1st July, 2005 and subsequently the two stock

exchanges i.e. National Stock Exchange and Bombay Stock Exchange

were notified with effect from 25th January, 2006. Hence, the

derivative transactions between July, 2005 to September, 2005 were

not eligible. He also observed that explanation to Section 73 was not

applicable as assessee was an investment company and accordingly

the respondent-assessee was not entitled to set off the said loss from

derivative transactions.

6. On further appeal before the Income Tax Appellate Tribunal

(tribunal, for short), the respondent has succeeded on the first issue

and it has been observed that they were entitled to benefit under

Section 43(5) proviso (d), even in respect of transactions carried out

with effect from 1st April, 2006. Tribunal observed that Parliament

had enacted the provision with effect from the said date, and delay, if

any, in the issue of Rules and notification, cannot nullify the

legislative mandate of the enactment. Delay was attributable to the

Central Board of Direct Taxes, who had failed to issue necessary

notification within time.

7. The factual position is not in dispute. Notification No.2/2006

dated 25th January, 2006, issued by the Central Board of Direct Taxes

does not specify any particular date and simply notifies the National

Stock Exchange India Ltd. and Bombay Stock Exchange, Mumbai

under proviso (d) to clause (5) to Section 43 of the Act. The said

proviso had become applicable with effect from 1st April, 2006.

Issue of notification obviously had to take some time as it involved

processing and examination of applications etc. This was a matter

relating to procedure and the delay in issue of notification or even

framing of the Rules was due to administrative constraints. We agree

with the tribunal that the delay occasioned, as procedure and

formalities have to be complied with, should not disentitle and

deprive an assessee, specially, when the transactions were carried

through a notified stock exchange. The aforesaid delay is not

attributable to the assessee. The notification, therefore, merits

acceptance and should be given retrospective effect. Notification was

procedural and necessary adjunct to the Section enforced with effect

from 1st April, 2006. The rule and notification issued in the present

case effectuate the statutory and the legislative mandate. There is no

good ground or reason why the notification in question should not be

given effect from 1st April, 2006. No reason or ground is alleged or

argued to contend that National Stock Exchange India Ltd. could not

and should not have been notified from 1st April, 2006.

8. A similar factual matrix had come up for examination before

the Supreme Court in S.A.L. Narayan Row and Another Vs.

Ishwarlal Bhagwandas and Another, (1965) 57 ITR 149. It was

noticed that the rules were framed subsequently and on this ground it

was submitted that the main provision itself should not be applied.

The said contention was rejected by the majority decision recording

as under:-

"The Attorney-General appearing on behalf of the Commissioner contended that to the fifth proviso to section 18A(6) no retrospective operation could effectively be given, because the rules, which alone could render the discretion operative, were from for the first time in December, 1953. We are unable to agree with that view. The legislature has expressly given operation to the fifth proviso to section 18A(6), from April 1, 1952. It is true that the proviso operates only in respect of cases and under circumstances as may be prescribed, but as soon as the rules were framed, which effectuate the purposes for which the proviso was enacted, the proviso and

the rules became effective retrospectively from April 1, 1952."

9. Reliance placed upon by the Revenue on Shri Udai Punj Vs.

CIT, (2012) 348 ITR 98 (Del.) is not apposite as the factual matrix of

the said case is entirely different. In the said case, transfer of shares

was complete prior to 6th January, 2006 and the trading in the stock

exchange had commenced only from 6th January, 2006. It was held

that the transfer was not entitled to exemption under Section 10(38)

as shares were not listed securities on the date of transfer. The "lapse"

or "failure" was on the part of the company which had to get the

shares listed after complying with the formalities and technical

requirements. Further, there was no legal bar on sale of shares

without listing and the question related to the rate of tax, which was

lower on listed securities. The lapse in the present case was on

account of delay on the part of the appellant in issuing the necessary

notification, no act or cause is attributable to the respondent-assessee.

10. In view of the aforesaid, we do not think that there is any

ground or reason to interfere with the findings of the tribunal.

11. However, during the course of hearing before us, learned

counsel for the parties have accepted that the tribunal has not decided

the other question i.e. applicability of Explanation to Section 73 of

the Act. Counsel for the parties agree that this aspect should have

been examined and decided by the tribunal. Recording their consent,

we frame the following substantial question of law:-

"Whether the Income Tax Appellate Tribunal has erred in not deciding whether or not the loss suffered was speculative loss in view of Explanation to Section 73 of the Income Tax Act, 1961?"

12. The said question is answered with an order of remit observing

that the said issue should be decided and adjudicated by the tribunal.

The parties will appear before the tribunal on 26th September, 2013,

when a date of hearing will be fixed.

(SANJIV KHANNA) JUDGE

(SANJEEV SACHDEVA) JUDGE SEPTEMBER 6th, 2013 NA