S. 43(5)(d), Rules 6DDA and 6DDB, Notification dated 22.5.2009 recognizing MCX as a recognized stock exchange – Transactions in commodity derivatives carried out on MCX are not speculative transactions w.e.f. 1.4.2006 though MCX has been notified, vide notification dated 22.5.2009, as a recognised stock exchange prospectively.

Section 43(5)(d), Rules 6DDA and 6DDB, Notification dated 22.5.2009 recognising MCX as a recognised stock exchange – Transactions in commodity derivatives carried out on MCX are not speculative transactions w.e.f. 1.4.2006 though MCX has been notified, vide notification dated 22.5.2009, as a recognised stock exchange prospectively.

While assessing the total income of the assessee for AY 2007-08, the AO noticed that w.e.f. AY 2006- 07, section 43(5)(d) provides that transactions in derivatives will not be regarded as speculative transactions if they have been carried out on a notified stock exchange. He also noted that MCX has been notified as a recognised stock exchange vide notification dated 22.5.2009 prospectively. He, accordingly, held the loss in trading in commodity derivatives to be speculative and denied the set off of the same against short term capital gains and income from other sources as was claimed by the assessee.

Aggrieved, the assessee preferred an appeal to CIT(A) who allowed the assessee’s appeal. Aggrieved, the Revenue preferred an appeal to the Tribunal. C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi Chartered Accountants Tribunal news

The Tribunal noted that the AO has treated the loss under consideration to be speculation loss mainly on the ground that the Notification No. 46 of 2009 issued by CBDT on 22.5.2009, recognising MCX as a recognised stock exchange for the purpose of section 43(5) only from the said date has a prospective effect and therefore, derivative trading in commodity through MCX prior to the said date will amount to speculation business. The Tribunal also noted that The Finance Act, 2005 has w.e.f. 1.4.2006 inserted clause (d) in the proviso to section 43(5) as a result of which w.e.f. 1.4.2006 trading in derivative carried out through the recognised Stock Exchange is treated as non-speculative transaction. For this purpose, Rules 6DDA and 6DDB provide that notification of recognised stock exchange will be done by the Central Government (CBDT).

The Tribunal held that a combined reading of 43(5) (d) and rules 6DDA and 6DDB and Explanation (ii) to section 43(5) indicates that the rules prescribed are only procedural in nature and they prescribe the method as to how to apply for necessary recognition and consequent notification. When a rule or provision does not affect or empower any right or create an obligation but merely relates to procedural mechanism, then it is deemed to be retrospective and will apply to all the proceedings, pending or to be initiated, unless such an inference is likely to lead to an absurdity. It also held that just because the procedural mechanism has taken a long time to notify a stock exchange as recognised stock exchange, it will not lead to an inference that the same would be applicable from the date the stock exchange is notified to be a recognised stock exchange. It observed that the notification does not empower any right or create an obligation, but only recognises what is already provided in the statute. It held that the transactions carried out through MCX Stock Exchange after 1.4.2006 would be eligible for being treated as non-speculative within clause (d) of proviso to section 43(5).