- Adoption of the weighted average mean price on the date of conversion is confirmed by the ITAT following The Master Trust Bank of Japan Ltd in ITSA No. 7793/M/2011. Decided in favour of Revenue
- Whether Short Term Capital Loss arising from exchange traded derivatives to be set-off against the income from exchange traded derivatives earned during the year – Held Yes
- Whether Income from index based or non index based derivatives be treated as business income – Held No
- Assessee company is incorporated in Cayman Islan
- Assessee is registered with SEBI as a sub-account of Lloyd George Investment Management (Bermuda) Ltd
- Assessee has been investing in the Indian capital market in accordance with the SEBI Regulations
- During the course of assessment proceedings AO adopted the weighted average mean price on the date of conversion instead of the closing value.
- Matter is directly covered by the decision in the case of The Master Trust Bank of Japan Ltd in ITSA No. 7793/M/2011 and hence decided against the assessee.
- Ground No. 2 for set off brought forward losses arising from exchange traded derivatives is directly covered by the assessee’s own order and following the same order the matter is decided in favour of the assessee.
- For Asstt. Year 2008-09 the AO treated short term capital losses in exchange traded derivatives as business loss.
- Tribunal decided in favour of the assessee holding that the said income is to be taxed under the head Capital Gains and the brought forward losses accordingly allowed to be adjusted
1. For Weighted Average – “The average market price adopted as the “ prevailing price” on the date of conversion of GDRs into equity shares as the ‘cost of acquisition’ is reasonable and justifiable in the absence of any other circular/Rule vis-a-vis Scheme under which GDRs are issued and redeemed into ordinary shares of the company. Hence, on the facts and in the circumstances, we hold that there is no infirmity in the order of Ld. CIT(A). Accordingly.”
Respectfully following the decision of the Co-ordinate Bench, ground No. 1 is dismissed.
2. For Set-off - The Tribunal has upheld the contention of the assessee that it is an investor in securities and any gains/losses arising from the transaction in securities have o be ssessed under the head ‘capital gain’. Respectfully following the decision of the Co-ordinate Bench, we direct the AO to allow the brought forward Short Term Capital loss arising from ETD to be set of against the income from ETD earned during the year under consideration.
3. For Business Income - We, therefore, hold that the Ld. CIT(A) was not justified in holding tha income from index based or non-index based derivatives be treated as ‘business income’, whether speculative or non speculative.The impugned order is, therefore, set aside by holding that income from derivative transaction resulting into loss of Rs. 11.27 crores is to be considered as short-te m capital loss on the sale of securities which is eligible for adjustment against short-term capital gains arising from the sale of shares.