TAX TALK-30.05.2011-THE HITAVADA

TAX TALK-30.05.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“MCX/ NCDEX PROFIT: WHETHER SPECULATIVE PROFIT?”
Query 1]
1) I want to know whether the deduction of interest on HBA for self occupied house is admissible when the house is in the sole name of the wife and the bank has given HBA loan to the husband, EMI is being paid by the husband from his salary bank account and the husband wants to claim the deduction u/s 24 for self occupied house. In other words if the self occupied house is not in the name of the assessee, whether deduction u/s 24 can be claimed for such property as self occupied?
2) With reference to your reply to Query No. 3 in the Hitavada Money Dt.18.04.11, you are requested to reconsider the reply with reference to the case O.P. Sharma Vs ITO [1986] 17 ITD 45 in which it is mentioned that the interest portion on non- refundable withdrawal is allowed on the portion of loan [Dubaldhaniya@gmail.com]
Opinion: -
1. Ownership is a condition precedent for claiming deduction towards Interest on housing loan u/s 24(b) & towards Principal repayment u/s 80C of the Income Tax Act -1961. Without ownership, deduction claim shall not be admissible.
2. The judgment rendered in the case of O.P. Sharma Vs ITO [1986] 17 ITD 45 was indeed an interesting judgment. The same is rendered by the Jaipur Bench & may not be upheld at all the jurisdiction of the Income Tax Department. However, the observation of the Tribunal was well elaborated in the Third Para which reads as under:“After carefully considering all the facts and circumstances of the case, I am of the opinion that so far as the legal position is concerned, the matter should be decided against the assessee. A man certainly loses interest if he withdraws his own provident fund which would be exempt from tax. But that does not mean that he can claim the loss of that interest as a deduction from his income. In fact the decisions of the Punjab and Haryana High Court referred to above are themselves not free from difficulty and the Legislature had to step in to supersede those decisions. The provision that in all doubtful cases the view which favours the assessee should be taken has recently been disapproved by the Supreme Court in Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 2 Taxman 49. Therefore, on the legal question, I am inclined to decide the issue on the ground that the loss of interest suffered by him in respect of interest payable to himself and the same would not be covered by clause (vi) of section 24(1) of the Act.”

Query 2]
1. Is profit /loss from commodity derivatives transactions entered on multi commodity exchange (MCX) speculation profit/ loss or business profit /loss. Can the expenses incurred like transaction charges, brokerage allowed as deduction. How to show daily settlement amount? [amolkale128@gmail.com]
2. We are a broker dealing in shares & commodities. We have query regarding commodities transactions in MCX/NCDEX. Whether the profit form MCX/NCDEX is a speculative profit? We are getting conflicting views from various consultants & are unable to form an opinion. We shall be highly thankful if you can kindly elaborate the issue in details for mass benefit. [CEAI]
Opinion
Section 43(5) of the Act defines the expression “speculative” transaction to means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scripts.
It is provided that for the purposes of this clause the following shall not be deemed as speculative transaction.
(i) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of the contracts for actual delivery of goods manufactured by him or merchandise sold by him; or
(ii) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or
(iii) 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 or arbitrage to guard against loss which may arise in the ordinary course of his business as such member;
(iv) An eligible transaction in respect of trading in derivatives in shares, etc.
Explanation to section 43(5) defines the term eligible transaction as meaning any transaction--(a) carried out electronically on screen-based systems through a stock broker or sub-broker or such other intermediary registered under section 12 of the Securities and Exchange Board of India Act, 1992 in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956 or the Securities and Exchange Board of India Act, 1992 or the Depositories Act, 1996 and the rules, regulations or bye-laws made or directions issued under those Acts or by banks or mutual funds on a recognised stock exchange; and(b) which is supported by a time stamped contract note issued by such stock broker or sub-broker or such other intermediary to every client indicating in the contract note the unique client identity number allotted under any Act referred to in sub-clause (a) and permanent account number allotted under the Act.As per Explanation to section 43(5) recognised stock exchange means a recognised stock exchange as referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 and which fulfils such conditions as may be prescribed and notified by the Central Government for this purpose.
The Central Government has notified NSE, BSE, MCX stock exchanges & United Stock Exchange of India Ltd for this purpose but not the NCDEX.
As a result, the profit/loss in MCX is not considered as a speculative profit/loss. The expenses incurred like brokerage, transactions charges are deductible expenses while working out the profit/ loss from the transactions.

As far as NCDEX is concerned, there are two types of transactions carried out on NCDEX i.e, delivery based & non delivery based.
In the first set of transactions the contract is settled otherwise than by actual delivery of commodity, and the income derived from this set of transactions would be treated as speculative income except in situations mentioned above.
In another set of transaction, the contract is settled by actual delivery of commodities. Income derived from this set of transactions would be treated as business income.