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TMI Blog2015 (12) TMI 1752X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The facts as narrated in assessment year 2009-10 are that the assessee company paid premium to Life Insurance Corporation of India under Employment-Employee Scheme or LIC for the following persons: Policy number Name of Life Assured Premium Paid (Rs. ) 765911607 Mr. Joseph Anthory John 20,00,000 765911608 Mr. Milton Ambrose John 15,00,000 Coming to the argument of the Assessing Officer that it is a close ended fund with a lock in period of 3 years, the Assessing Officer's arguments lack merit. It may be seen that even under Section 80C, contribution to ULlP Policies qualifies for deduction in the overall limit. When a particular policy is considered allowable for 80C deduction, it is not clear as to how the same policy may be barred from claiming deduction under section 37(1) of the Income Tax Act, 1961. The Assessing Officer has also failed to note that in case the policy is surrendered before the expiry of three years, then, whatever amount that is received by the assignee, it becomes taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... magination can this investment be treated as an insurance policy covering the life of Directors so as to treat them as keyman insurance. The CIT(Appeals), further observed that the assessee has used a colourable device for an investment instrument of LIC to confuse with life insurance policy to claim the expenditure as Keyman Insutrance. Accordingly, the CIT (Appeals), confirmed the addition made to the extent of ₹ 35,00,000/- in the hands of the assessee. Against this, the assessee is in appeal before us. 5. We have heard both the parties and perused the material on record. The main reason for disallowance by the CIT(Appeals) is that the premium paid in the name of the Directors are not covered under LIC and it cannot be allowed as they are Directors of the company. It is to be noted that Keyman Insurance Policy is an allowable deduction as per the provisions of sec.37(1) of the Act. In this regard, CBDT had also issued a Circular No.762 dated 18.2.1998. Further, it cannot be said that the Directors of the company are not employees of the company and the premium paid in the name of the Directors could be allowed under the said scheme. 6. We also find that while decidin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nization on the life of an employee, in order to protect the business against the financial loss, which may occur from the employee's premature death. The Keyman is an employee or a director, whose services are perceived to have a significant effect on the profitability of the business. The premium is paid by the employer. 7.1 In our opinion, the payment of premium made to the LIC in the name of Directors are covered by the above Circular and it is allowed u/s.37(1) of the Act. Further, we make it clear that the premium paid by the assessee company is to be considered as perquisite in the hands of the recipient. With these observations, the appeals of the assessee are allowed. 8. The ground raised by the Revenue in its appeal is that the CIT (Appeals) erred in deleting the disallowance of speculation loss of ₹ 1,06,61,901/- on account of cancellation of foreign currency forward contract by treating it as trading loss. 9. The facts are that the assessee company engaged in the business of manufacturing garments and generation of wind power filed its return of income for the assessment year 2008-09 on 10.9.2009 declaring an income of ₹ 2,57,51,585/-. The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing payment made on account of cancellation of forward booking of foreign exchange with the banks in respect of export orders. The AO disallowed the deduction on the ground that the assessee had short sold the foreign exchange and that the payments made were not in the nature of damages, but they were made to settle the transaction without delivery and, therefore, the said amount of ₹ 13.50 lakhs was a speculation loss, which can only be allowed to be carried forward and set off against speculation profits. Being aggrieved, the assessee carried the matter in appeal to the CIT(A). The first appellate authority confirmed the assessment order. Being aggrieved, the assessee carried the matter in appeal to the Tribunal, which took the view that the assessee was an exporter of cotton; that the assessee was an export house; that it had entered into transactions for export of cotton; that the assessee was entitled to book foreign exchange against export orders received by it; that the transaction was done with the permission of the Reserve Bank of India; that such contracts were incidental to the assessee's business of export of cotton; and, therefore, they did not represent spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eculate. Sec.8 of the Foreign Exchange Regulations Act, 1973, provides that except with prior general or special permission of the RBI, no person other than an authorized dealer shall purchase, acquire, borrow or sell foreign exchange. 32. In fact, prior to the LERMS, residents in India were not even permitted to cancel forward contracts. The presumption of any speculative transaction is, therefore, directly rebutted in view of the legal impossibility and in view of the fact that foreign currency was neither commodity nor shares. 33. The definition of speculative transaction , will not apply to a situation where the purpose of entering a forward contract was to hedge/safeguard against any loss on account of repayment of principal amount of the loan: cancellation of the contract was identical to that object and consequently any loss/gain arising from such cancellation is directly related to repayment of the loan. 34. Further, attention is also drawn to proviso (c) to s.43(5) of the Act, which excludes a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing, etc.to guard against loss which m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, notwithstanding the fact that the definition of speculative transaction mentioned in sec.43(5) of the Act, the transaction is not of that nature as there has been actual delivery of the scrips of share. As per the definition of sec.43(5), trading of shares which is done by taking delivery does not come under the purview of the said section. Similarly, as per clause (d) of sec.43(5), derivative transaction in shares is also not speculation transaction as defined in the said section. Therefore, both profit/loss from all the share delivery transactions and derivative transactions are having the same meaning, so far as sec.43(5) of the Act is concerned. Again, in view of the fact that both delivery transactions and derivative transactions are non-speculative as far as sec.43(5) is concerned, it follows that both will have the same treatment as far as application of Explanation to sec.73 is concerned. Therefore, aggregation of the share trading profit and loss from derivative transactions should be done before the Explanation to sec.73 is applied. The above view has been taken by Special Bench of this Tribunal, Mumbai Bench, in the case of CIT v. Concord Commercial Pvt. Ltd. (2005) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r words, the assessee has been dealing in actual selling and buying of shares as also dealing in shares only for the purpose of settling the transaction otherwise than by actual delivery. The question arise whether the losses arising out of the dealings and transaction in which the assessee did not ultimately take delivery of the shares or give delivery of the shares could be set off against the income arising out of the dealings and transactions in actual buying and selling of shares. An answer to this question is to be found in the explanation appended to Section 73 which reads as follows: Explanation: where any part of the business of a company other than a company whose gross total income consists mainly of income which is chargeable under the heads interest on securities , or a company the principal business of which is the bu9siness of banking or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase. In order to resolve the issue before us, the section has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the claim made by the assessee, that the assessee was of the opinion that transactions entered into by it were not speculative transactions. ITAT found that the amount involved in the forward contract (FC) was more than 100% of the turnover of the assessee, that FC were not relatable to specific bills, that the assessee had not related any single bill to any of the contract and had not provided any purchase order during the assessment or appellate proceedings. ITAT found that in the case under consideration assessee was not dealing in Foreign Exchange, therefore transactions entered into by it in Foreign Exchange cannot be held to be hedging transactions. As the assessee was dealing in diamonds and FC entered into only for diamonds would have been covered by the proviso (a) to the section 43(5)of the Act. As held by the Hon'ble High Court of Calcutta in the matter of Gourepore Co. Ltd ,onus was on the assessee to prove that the transactions in question were not of a speculative nature. ITAT was of the opinion that it had failed to discharge the onus cast upon him by the statute. It was also not able to contradict the finding of fact that booking and cancellation of FC of fore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proposition that if the assessee failed to take delivery within the period indicated in contract and the assessee had given instructions to bank for cancellation of contract on payment of agreed charges to the bank these transactions cannot be considered as speculative transaction. However, there is no finding in this judgment towards this effect and the reliance placed by the assessee is misplaced. More so, this issue was considered by the Mumbai Tribunal while delivering the decision in the case of Araska Diamond P. Ltd, 152 ITD 203, and after following the judgments of Calcutta High Court in the case of Bengal Assam Co. Ltd vs CIT 227 CTR 399, and Bombay High Court judgment in the case of CIT vs Badridas Gauridu P. Ltd 261 ITR 256, the Tribunal came to the conclusion that the transactions, which were prematurely cancelled, cannot be considered as business transaction and it is to be considered as speculative transaction. In view of the above, we are inclined to remit the issue back to the file of the Assessing Officer for fresh consideration. 12. In the result, the appeals of the assessee in ITA Nos. 583/Mds/2014 1531/Mds/2015 are allowed and the appeal of the R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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