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Mohan Padmanabhan

Revenue Department sources told Business Line that the panel was now zeroing in on one or two options (on the definition), and will finalise the report incorporating the necessary changes within the next 10 days.

KOLKATA, May 14

THE special three-member committee set up by the Department of Revenue in March under the chairmanship of Mr S.D. Kapila, Director-General of Income-tax (Vigilance), to examine the definition of `Speculative Transactions'' in the Income-Tax Act with respect to trading in financial derivatives, is expected to submit its report on May 23.

Informed Revenue Department sources told Business Line that the panel was now zeroing in on one or two options (on the definition), and will finalise the report incorporating the necessary changes within the next 10 days.

The terms of reference of the panel are: 1) To examine the adequacy of the existing definition in the light of new systems of trading and settlement and the variety of new financial instruments now available on the stock markets; 2) To suggest the parameters and circumstances in which a transaction which is not settled by actual delivery could be considered to be a hedging transaction, i.e., a transaction entered into to guard against losses through future price fluctuations, and not speculative; 3) To suggest a draft of a revised definition of speculative transaction.

Under Section 43(5) of Income-tax Act, 1961, `speculative transaction'' has been defined to mean a transaction for purchase or sale of any commodity including stocks and shares, which is settled otherwise than by the actual delivery of the commodity or scrips. Certain contracts, which are not settled by actual delivery, but are entered into to guard against loss through future price fluctuation in respect of holdings of stocks or contracts for actual delivery, are excluded from the ambit of speculative transactions.

The Tax Department is of the view that trading mechanisms on the Indian stock exchanges have undergone substantial modification in recent years, in view of dematerialisation of securities, introduction of rolling settlements etc. A fresh look at the definition of speculative transactions from the I-T point of view is therefore being sought, especially since trading in new instruments such as financial derivatives in the form of futures and options have now been introduced on major stock exchanges as risk control mechanisms.

The other two members of the Kapila Committee are Mr K.L. Tilak Chand, Commissioner of Income-Tax- XVII, Mumbai and Mr C.S. Kahlon, Executive Director, SEBI.

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