2010 (9) TMI 1144 - AT - Income Tax

loss incurred - futures and options transactions - speculative transaction - Transaction covered u/s 043(5)(d) - HELD THAT - We find that it is undisputed position that the stock exchanges on which the impugned transactions were carried out were duly notified on 25th January 2006 and that in accordance with the views of the co-ordinate bench in the case of Anand Buildwel 2009 (10) TMI 633 - ITAT DELHI as also with the views in the case of Claris Lifesciences 2008 (8) TMI 579 - GUJARAT HIGH COURT once the approval is granted in the relevant previous year and in the absence of anything indicated to the contrary the approval has to be taken as effective from the beginning of the relevant year. The issue is thus covered in favour of the line of reasoning adopted by the assessee Respectfully following these decisions we uphold the grievance of the assessee and hold that the derivate transactions entered into by the assessee at the recognized stock exchanges even prior to the date of notification in the relevant previous year are to be treated as covered by the exclusion clause set out in Section 43(5)(d). The assessee gets the relief accordingly. Disallowance of club entrance fees - HELD THAT - we are inclined to uphold the grievance of the assessee. This issue is covered in favour of the assessee in the case of Gujarat State Export Corporation 1993 (9) TMI 52 - GUJARAT HIGH COURT . As regards the Frematone decision 2006 (7) TMI 180 - KERALA HIGH COURT it deals with a situation in which lumpsum payment is made for institutional membership. We respectfully follow Hon ble Gujarat High Court s decision which is squarely on the issue before us. As regards the question of commercial expediency which has been raised by the learned DR we find that the authorities below have accepted the commercial expediency and it would not therefore be open to the DR to raise that issue at this stage. In view of the these discussions and on the above facts we uphold the grievance of the assessee. The impugned disallowance of 1, 10, 241 is accordingly deleted.

Summary

Issues:
1. Challenge to CIT(A)'s order for the assessment year 2006-07 regarding the treatment of loss in 'futures and options' transactions.
2. Interpretation of Section 43(5)(d) of the Income Tax Act, 1961 in relation to 'recognized stock exchange'.
3. Disallowance of club entrance fees as a revenue deduction.

Analysis:

1. The appeal challenges the CIT(A)'s order for the assessment year 2006-07, specifically focusing on the treatment of the loss incurred in 'futures and options' transactions. The main issue revolves around whether the loss can be excluded from the definition of 'speculative transaction' under Section 43(5)(d) of the Income Tax Act, 1961. The appellant contends that the loss should be considered a normal business loss due to the exception in clause (d) of Section 43(5), inserted from April 1, 2006. The authorities had rejected this claim, stating that the transactions did not meet the requirements of Section 43(5)(d) as the stock exchange was not recognized at the time of the transactions.

2. The interpretation of Section 43(5)(d) regarding a 'recognized stock exchange' is crucial in this case. The contention arises from whether the transactions entered into a stock exchange before its recognition should be considered as transactions in a recognized stock exchange. The appellant argues that once the stock exchanges were notified, all transactions, even prior to the notification date, should be treated as conducted in recognized stock exchanges. This argument finds support in previous decisions, including the Delhi B bench and the Hon'ble Gujarat High Court's judgment in a similar context.

3. Another issue raised in the appeal concerns the disallowance of club entrance fees as a revenue deduction. The Assessing Officer disallowed the fees, considering them as capital expenditure due to the enduring benefit received. However, the appellant argued that the fees should be treated as revenue expenditure, citing the Hon'ble Gujarat High Court's judgment. The Tribunal upheld the appellant's grievance, emphasizing that the fees were revenue expenditure and not capital expenditure, leading to the deletion of the disallowance.

In conclusion, the Tribunal allowed the appeal, addressing the issues related to the treatment of losses in transactions, the interpretation of Section 43(5)(d) regarding recognized stock exchanges, and the disallowance of club entrance fees. The detailed analysis and application of legal principles from previous judgments played a significant role in determining the outcome of the appeal.