The Bombay High Court, in the writ petition Association of National Exchanges Members of India v. Securities and Exchange Board of India and Ors, followed the CBDT circular and held that derivative contract being settled by delivery to be treated similarly to the transaction in equity share by actual delivery.
The petitioner approached the Court being aggrieved by the communication issued by the National Stock Exchange of India Ltd. (NSE) to Petitioner – Association of National Exchanges Members of India vide Circular dated July 17th, 2018 communicating its decision to levy Securities Transaction tax (STT) at the rate of 0.10% on the settlement price to be paid by the purchaser of the futures contract which are settled by way of physical delivery. The communication further provided that if a circular issued by the CBDT ‘in addition to’ or ‘contrary to’ this position, the respondent NSE would be entitled to recovery of such additional STT from the members effective from the date as may be notified.
The petitioner contended that in the events CBDT comes with a policy that rate of STT on such transaction is higher than what is provided in Circular dated 17th July, 2018, the members of the Association would be put to great prejudice inasmuch as they would not be in a position to recover the said STT from the parties whose transactions were already over.
Mr. Anil Singh, Additional Solicitor General upon being asked by the Hon’ble Court has put on record a copy of the communication dated 27th August, 2018 addressed to Principal Chief Commissioner of Income Tax, Mumbai by CBDT, paragraph 4 of which read as:
“4. In a nutshell, CBDT is of the view that where a derivative contract is being settled by physical delivery of shares, the transaction would not be any different from transaction in equity share where the contract is settled by actual delivery or transfer of shares and the rates of STT as applicable to such delivery based equity transactions shall also be applicable to such derivative transaction.”
Hence, the CBDT has clarified the position by the above communication that where a derivative contract is being settled by physical delivery of shares, the transaction would not be any different from the transaction in equity share where the contract is settled by actual delivery or transfer of shares. It further states that the rates of STT as applicable to such delivery based equity transactions shall also be applicable to such derivative transaction.
The Court is hence convinced that the after the view has been made clear by the CBDT, there would be no difficulty for the members of the petitioner association.
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