The Commodities transaction tax is proposed to be introduced in a limited way by insertion of Chapter VII in the Finance Bill, 2013. The Finance Minister, in his budget speech, had clarified that trading in commodity derivatives will not be considered as a speculative transaction. However, no amendment was proposed to this effect by the Finance Bill, 2013 in section 43(5) defining a speculative transaction. Consequently, in the absence of specific exclusion provision in section 43(5), characterisation of commodity derivative transactions (including those which are subject to CTT) would be governed by the existing provisions and they run the risk of being treated as speculative transactions, unless established by the taxpayer to be for hedging purpose.

In order to give effect to the clarification given by the Finance Minister in his budget speech, section 43(5) is proposed to be amended by inserting sub-clause (e) in its proviso to exclude an eligible transaction in respect of trading in commodity derivatives carried out in a recognized stock exchange from the definition of “speculative transaction”. Explanation 2 is proposed to be inserted to define the term “eligible transaction” in relation to commodity derivatives.

Related Amendment  to Finance Bill 2013  which presented in Lok sabha on 28.02.2013 and as passed by Lok Sabha on 30.04.2013

4. Page 9, after line 35, insert–  

7A. (New) -Amendment of section 43

’7A in section 43, of the Income-tax Act, in clause (5), with effect from the 1st day of April, 2014,-

(I). in the proviso,-

   (A) in clause (d), after the words “a recognised stock exchange;”, the word “or” shall be inserted;

   (B) after clause (d), the following clause shall be inserted, namely:-

     ‘(e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognised association,”;

(II) the Explanation shall be numbered as “Explanation I” thereof and in the Explanation I as so renumbered, for the words “this clause”, the word, brackets and letter “clause (d)” shall be substituted;

(III) after Explanation -I as so renumbered, the following Explanation shall be inserted, namely –

‘Explanation 2 –For the purposes of clause (e), the expressions

(i) “Commodity derivative” shall have the meaning as assigned to it in Chapter VII of the Finance Act, 2013;

(ii) “eligible transaction” means any transaction,

      (A) carried out electronically on screen-based systems through member or an intermediary, registered under the bye-laws, rules and regulations of the recognised association for trading in commodity derivative in accordance with the provisions of the Forward Contracts (Regulation) 1952 (74 of 1952) and the rules, regulations or bye laws made or directions issued under that Act on a recognised association; and

   (B) which is supported by a time stamped contract notes issued by such member or intermediary to every client indicating in the contract note, the unique client identity number allotted under the Act, rules, regulations or bye-laws referred to in sub clause (A), unique trade number and permanent account number allotted under this Act;

(iii) “recognised association” means a recognised association as referred to in clause (j) of section 2 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and which fulfills such conditions as may be prescribed and is notified by the Central Government for this purpose:’.’


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