2018 (9) TMI 463 - HC - Companies Law

Levy and Collection of Securities Transaction Tax (STT) - anomaly with regard to STT payable on future transactions - Scope of Clarification issued by the CBDT in the Circular - Held that - CBDT has clarified that where a derivative contract is being settled by physical delivery of shares, the transaction would not be any different from transaction in equity share where the contract is settled by actual delivery or transfer of shares. The rates of STT as applicable to such delivery based equity transactions shall also be applicable to such derivative transaction. The position is clarified by CBDT that it does not differentiate between present transactions which are delivery based and derivative transactions. It has been clarified that the rate of both the transactions would be the same. We find that the clarification from CBDT takes care of the situation. Once CBDT has clarified the position, all stake holders including Respondent No.2 and the members of the Petitioner Association are now aware as to what is the amount of STT payable on the transactions which are subject matter of the present Petition. In that view of the matter, it will not be difficult for the members of the Association to recover the amount of STT from the parties who were engaged in the derivative transactions. The said communication dated 27th August, 2018 sufficiently takes care of the concern of the stakeholders who are aware of the said communication and they are bound by the directions issued by the CBDT. Petition is therefore disposed of with the aforesaid clarification.

Summary

Issues:
1. Challenge to circular levying Securities Transaction Tax (STT) on futures contracts settled by physical delivery.
2. Concern regarding potential prejudice to association members due to future STT rate changes.
3. Request for clarification from CBDT on STT rates for derivative transactions settled by physical delivery.
4. Difficulty in recovering STT on past transactions.

Analysis:
1. The petitioner challenged a circular issued by the National Stock Exchange of India Limited, levying STT at 0.10% on futures contracts settled by physical delivery. The petitioner contended that any future increase in STT rates could prejudice association members unable to recover the additional STT from completed transactions.

2. Due to the perceived anomaly, the court requested the Additional Solicitor General to seek clarification from the Central Board of Direct Taxes (CBDT) to address the potential prejudice faced by association members in case of future STT rate changes.

3. The CBDT clarified that derivative contracts settled by physical delivery should be treated similarly to equity share transactions settled by actual delivery or transfer of shares. The CBDT confirmed that the STT rates applicable to delivery-based equity transactions would also apply to derivative transactions settled by physical delivery, ensuring uniformity in STT rates for both types of transactions.

4. The court found the CBDT's clarification resolved the issue by providing clarity on the applicable STT rates for the transactions in question. While the petitioner raised concerns about recovering STT on past transactions, the court deemed it unnecessary to address this issue as the CBDT's communication effectively addressed the stakeholders' concerns and obligations regarding STT payments.

5. Consequently, the petition was disposed of with the clarification provided by the CBDT, ensuring that all stakeholders, including the National Stock Exchange and the association members, were aware of the STT obligations for the relevant transactions. The court commended the Additional Solicitor General for promptly seeking assistance from the CBDT to resolve the matter efficiently.