SHARES & SECURITIES -CURRENT DEVELOPMENTS

Transcription

1 TAXATION OF SHARES & SECURITIES -CURRENT DEVELOPMENTS Wednesday, d 03rd August, 2011 Bombay s Society Walchand Hirachand Hall IMC 1

2 a. DERIVATIVES Security Commodity Forex 2

3 Amendment & Notifications Amendment in s. 43(5), FA, 2005 Clause (d) from Deemed Non speculation Notification dated for BSE & NSE Notification dated for MCX SE Notification dated for USE 3

4 Derivatives Commodity Nirmal Trading Co., 82 ITR 382 (Cal) Bharat R. Ruia (H.U.F), 10 Taxman.com 265(Bom) Delivery - lex non congit ad imposibilia Bharat R. Ruia (H.U.F), 10 Taxman.com 265(Bom) Amendment of 05 prospective w.e.f Bharat R. Ruia (H.U.F), 10 Taxman.com 265(Bom) 4

5 Derivatives II Effective date of Notification A.Y onwards for BSE and NSE Prem Associates Adv., 6947/M/09 dt Wipra Financial Services, 4605/M/09 dt Hitesh S. Doshi 6603/M/2009 dt G.K. Anand Bros Buildwell, 34 SOT 439 (Delhi) Claris Life Science 112 ITD 307 (Ahd) For MCX SE and USE debatable MCX SE Forex Derivatives S.2(h) and S.2(ac) of SCRA S.43(5)(d) r.w. Explanation 5

6 Derivatives III Broker and benefit of clause (d) Need for Eligible transaction Contextual compliance Emerging understanding Security derivative up to A.Y , speculative Other derivatives speculative Shares & Stock are commodities No set-off for non security deri. & Expl. tos.73 losses Derivatives and Explanation to S.73 Scope, Apollo Tyres Ltd. 255 ITR 273 (SC) It Inter se set-off Hedging profit and fiction of Explanation 6

7 Derivatives IV Derivatives and hedging g Applicability of clause (a) and (b) Nifty and Sensex Non security Derivatives Dinesh K. Mehta H.U.F., 976/M/2009 dt Derivative Contract and Capital Asset Set-off of unabsorbed b losses for A.Y Gajendra Kumar Agarwal, 1798/Mum/2010 dt Possibility of set-off against business Income 7

8 Derivatives V Valuation of open contract at the year end Circular 3 of 2010 dt Bank of Bahrain & Kuwait 132 TTJ 505 (Mum)SB) ONGC Ltd. 322 ITR 180 (SC) Treatment of premium and transaction costs Turnover for Audit 8

9 Derivatives VI Forex Forward Contracts and Derivatives Independent Allowability Roadblocks Circular 3 of 2010 dt NACAS & ICAI Intergold(I) ltd., 27 SOT 239 (Mum) Woodward Governor s guidelines S.43(5)(d) and MCX SE Notification 9

10 Business loss In the course of business; Safeguard against fluctuation Backed by actual transactions in trade Trade necessity Not a dealer in derivatives Soorajmull Nagarmull, 129 ITR 169 (Cal) Badridas Gauridu, 261 ITR 256 (Bom) Bank of Bh Baharain & Kuwait (Mum)(SB) D. Kishore Kumar & Co., 2 SOT 769 (Mum) Intergold (I) Ltd., 27 SOT 239 (Mum) 10

11 b. Character of Income Business or Investment Arbitrage Day Trading Portfolio Management 11

12 Business or Capital Gains A billion $ question Guidelines Instruction ti 1827 dt Cir. No. 4/2007 dt

13 Desired Parameters Intention Period of holding Frequency Fund utilised Time devoted Set-up Listing PMS Volume Scale Alt. occupation Bank account Sales/ Purchase Post Utilisation Treatment in books Statutory requirements MOA/AOA Avg. holding period Group companies Promoters No. of script Genuineness 13

14 Significance of Circular of 2007 Up dation-supplementary Stock in trade or Capital asset Treatment in books Possible to trade off Volume Rti Ratio of purchase to sales Motive- profit or dividend MOA/AOA not conclusive Cumulative tests Relevance of decisions 14

15 Cases relied upon by CBDT Asso.Ind. Deve.Co, 82 ITR 586(SC) Stock and Investment * Domain of the assessee * Evidence * ITAT authority Holck Larsen 160 ITR 67(SC) Mixed question of law and facts * Courts to adjudicate Use of borrowed funds & Use of sale proceeds Fidelity Northstar 288 ITR 541(AAR) Statutory regulations * Magnitude not the only factor books of account 15

16 Emerging Principles No single test conclusive Rule of consistency Gopal Purohit, 334 ITR 28 (SC)(st.) Importance of circular Period of holding Treatment in books Use of own funds Alternative occupation 16

17 Guiding posts Irritants & Soothers Volumes Ramesh Babu Rao, 3719/Mum/2009 dt Frequency Nehal V. Shah, 2733/Mum/2009 dt Shantilal M. Jain, 2690/Mum/2010 dt Split Orders Shantilal M. Jain, 2690/Mum/2010 dt Trading SMK Shares & Stock, 799/Mum/2009 dt

18 Guiding posts Irritants & Soothers Speculation & Day Trading Gopal Purohit, 122 TTJ 87 (Mum.) Naishadh V. Vachharajani, 6429/Mum/2009 Shantilal M. Jain, 2690/Mum/2010 dt Borrowed Funds SMK Shares & Stock, 799/Mum/2009 / dt No delivery cases NhlV Nehal V. Shah, h 2733/Mum/2009 /2009 dt Number of scrips Nagindas P. Sheth H.U.F.No. 961/Mum/2010 dt

19 Guiding posts Irritants & Soothers Less than 30 days Jagadish Master H.U.F., 3233/Mum/09 dt Hitesh S. Doshi, 6603/Mum/2009 dt Sales at higher value Vinod K. Naevatia, 49 DTR 16 (Mum) Turnover ratio Nehal V. Shah, 2733/Mum/2009 dt No transaction days Nehal V. Shah, 2733/Mum/2009 dt

20 Guiding posts Irritants & Soothers 143(1) assessement Nagindas P. Sheth H.U.F, 961/Mum/2010 dt Gopal Purohit, 122 TTJ 87 (Mum) Hitesh S. Doshi, 6603/Mum/2009 /2009 dt IPO cases Shantilal M. Jain, 2690/Mum/2010 dt LTCG accepted Vinod K. Naevatia, 49 DTR 16 (Mum) SMK Shares & Stock, 799/Mum/

21 Guiding posts Irritants & Soothers Dissenting views considered SMK Shares & stock, 799/Mum/2009 Hitesh S. Doshi 6603/Mum/2009 dt Intention and books of Account Kunverji N. Kenia, 131 TTJ 87 (Mum) Regular Shuffling Hitesh S. Doshi, 6603/Mum/2009 dt Profit Motive Hitesh S. Doshi, 6603/Mum/2009 dt Gopal Purohit, 122 TTJ 87 (Mum) 21

22 Guiding posts - Irritants & Soothers Sale on same day Hitesh S. Doshi, 6603/Mum/2009 dt Dissenting decisions Deepaben A. Shah, 99 ITD 219(Ahd) Harsha N. Mehta, 43 SOT 332(Mum) Jayshree Pradip Shah, 51 DTR 344 (Mum) Rakesh J. Sanghvi, 4607/Mum/08 dt Sadhana Naberia, 41 DTR 393 (Mum) Sughamchandra Shah, 37 DTR 3 (Ahd) Synthetic Fibers Trading, 3022/Mum/09 dt Smt.Rekha Khandelwal, 785/Mum/09 dt Shailesh L. Shah H.U.F., 3991/Mum/2008 dt

23 Arbitrage & Day Trading Arbitrage Nature of activity - Objectives Char. of Income, Omega Sec. & Tdg. 39-B, BCAJ 538 Speculative transactions - Delivery - Hedging g Losses - S. 43(5) - Explanation to s. 73 Expenses - Credit for STT - Tax Audit Sharing - TDS Deductibility Day trading Nature of operations- Business Expl.2 to s.28 Volume, Frequency Delivery STT - Audit 23

24 PMS - I Arrangements Participating & Non participating Sharing & Non sharing Nature of fees Advisory & Management Brokerage Termination Relationship & Treatment Investment or Business Deductibility of expenses 24

25 PMS - II Connotation Of Investment No presumption of business Smt. Radha Birju Patel, 46 SOT 23 (Mum)(URO) ARA Trading & Investment P.Ltd 499/PN/08 dt Expenses deductibility Fees for unsold shares Return based fees Termination fees Maintenance fees Year of deduction KRA Holding & Trading (P)Ltd., 46 SOT 19(Pune) Devendra Motilal Kothari, 136 TTJ 188(Mum) Alternatively, COA 25

26 c. Best of the Rest Conversion form stock Promoters shares & Controlling interest Stock Lending programme COA and interest Explanation to s. 73 Overseas Investment Units Swaps or Switches Direct Tax Code,

27 Conversion from stock S.45(2) inapplicable Whether transfer Kikabhai Premchand, 24 ITR 506(SC) Sharkey vs.wernher, 29 ITR 962 (HL) Shirinbai Kooka,46 ITR 86(SC) Dhanuka & Sons, 124 ITR 24 (Cal) COA, POH and Indexation for capital asset B.K.A.V. Birla, 36 ITD 136 (Cal) Kalyani Exports, 78 ITD 95 (Pune) Jhanvi Invst. Ltd., 215 CTR 72 (Bom) Brightstar, 120 TTJ 498 (Mum)DTR 246(Chennai) Lohia Metals (P)Ltd. 40 Splendid Construction, 122 TTJ 534 (Delhi) 27

28 Sale of promoters shares Private deal SPA Difficulty for s. 10(38) exemption Stock exchange STT Bulk window & Block deal mechanism SEBI circular, MRD/SE-7 dt Guidelines Facilitates bulk transfer Operations & Mechanism Possible tax implications 28

29 Cost of controlling o interest est Part of cost of shares Maharni Usha Devi, 131 ITR 445 (MP) Venkatesh (Minor), 243 ITR 367 (Mad) Cost of controlling interest Raghveer Narain Singh, 147 ITR 447 (Pat) AhkBhiLl(HUF) Ashok Behri Lal (HUF), 99 TTJ 513 (Del) Power through holding-inseparable 29

30 Stock Lending Objective and utility SLS, 1997 * ALBM, BLESS, Badla dl SEBI s restriction Intermediaries Tax Implications Circular No. 751 dated 10 th February, 1997 Section 47(xv) & 45 (2A) Applicability to borrower SLP offshoots & difficulties Corporate Benefits taxation STT credits Mukesh D. Ambani, 7604/Mum/07 dt Phoolchand & Sons,46 SOT 83(Mum) Reliance Communications infra. 34 SOT 241(Mum.) 30

31 Cost Interest est and s. 14A Interest as part of cost S. Bl Balan, 120 ITD 469(Pune) Hariram Hotels P. Ltd. 34 DTR 162(Karn.) K. S. Gupta, 119 ITR 372 (AP) 18 SOT 130 (Mum), 12 SOT 324(Mum), IPO borrowings Neera Jain, 42-A BCAJ, 347(Mum) Applicability of S. 14A to cost 31

32 Deemed Speculation -I Valuation loss/ No purchase Nirvan, 35 BCAJ 399(Mum), Paharpur Cooling, 85 ITD 745(Kol), Krishmalaxmi Multitraders, 42B BCAJ 493 IPO deals AMP Spg. & Wvg. Mills s case, 101 TTJ 1113 (Ahd)(SB) Set-off of dividend against deemed losses Torrent Fin., 108 TTJ615(Ahd.), - Excellent Comm.,282 ITR 426(Del.) Badla Bill discounting Tanna Electronics, 7 SOT 121(Mum),Omega Sec, 39-B BCAJ 539(Mum) Loans and Advances company Years Funds - Income years - discounting & badla. Gujarat Credit,116 TTJ 619 (Ahd) (SB) Negative GTI/Business income Associated Cap, 1103/M/2001,103 TTJ 180(Mum) IIT Inv. Ltd., 106 TTJ 1037(Mum), 32

33 Deemed Speculation -II Loss & Profit Samba Trading& Investment, 58 TTJ 360(Mum) Application to a Broker Priyasha Mever Finance PLtd P.Ltd., 5 ITR 441 (Mum)(Trib.) ) Relevance of legislative intent AMP Spg. & Wvg. Mills (P) Ltd., 101 TTJ 1113 (Ahd.)(SB) Excl. of speculation loss for deciding applicability Paramount Info. Systems P.Ltd. 42-A BCAJ 169(Mum), Set-off of Explanation loss and amendment of 2006 Virendrakumar Jain, 42-A BCAJ, 169(Mum.) 33

34 Overseas Investments Period of holding Shares. Securities. Units Amalgamation. Demerger Cost of Acquisition Restructuring Taxable dividend Gross or Net Computation of capital gains Taxable gains Tax credit DTAA. S.90, 90A and 91 34

35 Units Swaps Switch from one scheme to another One fund to another fund Transfer or not Period of holding and cost of newly switched unit Indexation Explanation (d) to S.2(42A) 35

36 Direct Tax Code Draft, Revised paper and code Status quo for Capital Gains on Shares & Securities Period of holding for 100% deduction S.51(2) Treatment for LT Capital Losses FIFO specified for beneficial interest S.49(2) Preference Shares S.314(19b) No provision i for determination ti of period of fholding 36

37 Few for the Road Non Resident and benefit of Indexation Adv. Advances, 39DTR297(Mum.) Cost of asset acquired on liquidation R. Srinivasan, 36 SOT 312(Chenanai) Forfeiture of Convertible Debenture Chand Ratan Bagri, 36 DTR 244(Delhi) DOA of shares under ESOP, Dr. Dhrujati Gupta, 33 DTR 287(Hyd.) Right shares and Entitlements 320ITR708(SC), 236 CTR 160(Karn.) Sale of pledged shares Glad Investments (P) Ltd., 8 SOT 612 (Del.) 37

38 Few for the Road Benefit proviso s.112 for NR 12 SOT 451(Mum), 112 TTJ 328 (Mum) AAR 763 Int. on borrowings 18 SOT 130 (Mum), 12 SOT 324(Mum), 92 TTJ 405 (Hyd). Consideration in kind Heinrich de Fries GMBH, 98 ITD 292(Mum) Delivery - s. 43(5) Broker s pool 93 TTJ 714 (Kol) l)broker-,159 Taxman 41 Right of set-off of loss Montgomerry 100 ITD 217 (SB) Cir.23 dt Group co. shares at cost 22 SOT 174 (Mum) 38

39 Few for the Road S.43(5) not applicable to Investor, 20 SOT 171 (Mum) Transfer during LIP Kameshwari Finance, 109 ITD 173 (Del) Sale of penny shares S nath Malini 100 TTJ 917(Chd), KFin,102 TTJ 461(Del.) Investment write-off IFCI Ltd. 101 TTJ 910(Del.) Year of transfer Rajiv A. Shah, 12 SOT 84(Mum) Gift with option to revoke Jayakumar B. Patil, 290 ITR (AT) 163(Pune) 39

40 THANK YOU 40