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.
[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 [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 . 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.